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This is one of the most important communications on cyber insurance and reinsurance one has viewed in the past few years. It’s the Lloyds of London Q1 Market message (7th March 2024), discussing the material challenges ahead for Lloyds, that include cybersecurity. It should be watched if you are in cyber insurance, reinsurance and cybersecurity.
At 9 Minutes 35 seconds Kirsten Mitchell-Wallace discusses the top 5 Lloyds Catastrophic Model (LCM) risks, focusing on Non Peril natural catastrophe (Nat Cat) and Cyber, and the need to build the foundations for cybersecurity risk management ahead of underwriting cyber risk.
‘CyberCat requires that systemic risk is measured, managed and capitalized. This discipline becomes more crucial as demand for cyber insurance increases. The economic losses of cyber events maybe significant, but insurance penetration is still low. Different perils like ransomware and cloud outage are as distinct in their propagation and aggregation as earthquakes are from hurricanes, we need to start recognizing this and changing the way we talk about this risk’.
Lloyds sets out 3 guiding principle for cyber insurance. It has to be profitable; a cyber loss should not be bigger that market share, and cyber should be adequately capitalized. With a comprehensive view covering underwriting exposure management, pricing, outwards reinsurance and capital.
‘Cyber has not had its hurricane Andrew’. The foundations for cyber catastrophic modelling need to be built. Understanding exposure is the foundation for managing cyber risk (all risks). Lloyds will focus on exposure data, scenario’s and probabilistic models to build cyber catastrophic models. Current Cyber RDS’s need to be improved and Lloyds will work with markets to improve probabilistic modelling. To better understand pricing and capital implications. To provide confidence to take on more cyber risk.
There’s recognition that things need to change for cyber insurance modelling, required to price and set capital requirements. Cyber is a difficult risk to model, but as cyber regulation shifts risk left of bang. Covered entities will be required demonstrate compliance, compliance that will support the modelling of cyber risk for insurance and reinsurance.
We wrote about this in January 2022 and presented it to Lloyds (https://lnkd.in/dGFVVjCi), page 6. Stabilization and certainty equals building the foundations.
@Thaddeus Dziekanowski Brian D. McCarthy
Veritas GRC
#cybersecurity #cyberriskmanagement #lloydsoflondon #cyberinsurance
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