A reinsurance broking report shines a spotlight on the consequences of a potential cyber catastrophe across the re/insurance value chain.

Reinsurance broker Lockton Re has published a cyber catastrophe reinsurance report, titled: “A Kaleidoscope of Possibilities: Preparing for Ivan Wiper”.

cyber warning, cyber vulnerability

The name refers to a hypothetical cyber event, shining a spotlight on the consequences of a potential cyber cat, by focusing on each part of the value chain across the re/insurance industry.

Lockton Re is the reinsurance broking arm of Lockton, the largest privately-owned insurance broker.

Key takeaways:

  • Some re/insurers will withdraw from the cyber insurance market, though there is strong appetite by those experienced re/insurers to recapitalise and take advantage of dramatically improved rating conditions.
  • There have been, and will be bigger natural and man-made disasters, in all but the most extreme scenarios.
  • Benefits from the market working collaboratively on these sorts of incidents.
  • Potential major bottlenecks in claims handling and processing.
  • A catalyst for innovation and product development.

“We wanted to explore the potential aftermath of a major cyber catastrophe, as this is an area which has been overlooked in discussions on systemic risk,” said Oliver Brew, co-author of the report, and London cyber practice leader, Lockton Re.

“We selected a hypothetical self-propagating destructive malware (named Ivan Wiper) and assumed a midpoint view of its impact globally. We spoke to experts across our industry to consider both understanding and impact. The views of different experts in the value chain were key to this paper,” Brew added.

“The very purpose of our industry is to understand and quantify risk,” said Matthew Silley, co-author of the report, and cyber broker, Lockton Re.

“The management and mitigation of risk has built our industry over centuries, building societal resilience with it. Cyber catastrophe risk is a complex but fundamental pillar of the broader market,” Silley said.

“The insurance industry has built its reputation supporting recovery after major events, learning, and adapting. Notwithstanding that a major cyber catastrophe has yet to materialise, the cyber insurance industry has been proactive in addressing the potential for significant systemic risks,” he added.

Large historical cat risk events, on the nat cat side, such as Hurricane Andrew, Japan’s Tohoku Earthquake, as well as terrorist attacks, such as the 9/11 attacks on the World Trade Center and other targets, have created horrendous loss of life and property, the report noted.

From a re/insurance perspective, they also often reshape the industry, creating movement in risk appetite and acceleration in specialist capacity and expertise, Lockton Re emphasised.

Brew said: “For the re/insurance industry itself, our view is that the most likely effect of Ivan Wiper will be the acceleration of a cyber catastrophe market with new product innovation, and a growing consensus around common cyber war and critical infrastructure exclusions.”

Silley added: ”It’s important to remember that these events are more challenging for those companies who either cannot afford, or choose not to buy insurance, so the impact could be significant.

“They will struggle to access specialist incident response services unless they have inhouse or retained access. The goal of the paper is to raise questions and challenges, rather than fear or anxiety. By considering specific issues for each stakeholder, the conversation can progress.”

To read the full report, click here.