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A further example of the challenges that the cyber insurance face, thank you for posting Stephen Pitt-Walker, JD, FGIA. We have reported many times of the challenges that cyber insurers face with economically underwriting cyber insurance. Now the federation of risk manages across Europe is warning that cyber insurance could become an ‘unviable product’.
In ones view Cyber insurance is not a unviable product today. It is however a via risk transfer tool, yet product that has been condemned by its own success. Written without a clear understanding of the risks that the insured face, risks that the insured do not understand. The insurance industry has not grasped the fact that for many firms, cyber insurance is seen as the only cyber risk transfer tool and came at a time when many boards were (still are) in denial that cyber is a problem and how to fix it. Not necessarily the fault of companies, boards had COVID, economic shocks, geopolitical crisis and now the cost of living to deal with. Cyber was, and still is a ‘it won’t happen to me’ problem.
Today cyber professionals are not risk professionals and vs. versa. Cyber insurance was a very valid tool to manage cyber ‘right of bang’. But for the risk professionals, its turned into an expensive ‘elephant’, one only has to look at the impact of cyber on global firms, and the costs to insurers (Merck $1.4bn). Also insurers only have ‘right of bang’ data to price products and that data is useless for pricing cyber. Historic loss data has no meaning for cyber. Any data scientist will tell you that you need to correlate ‘Cause, Event and Impact’ to reach a conclusion to price risk effectively e.g. age, alcohol consumption, smoking, lack of exercise equals high change of heart attack. The complexity of threats and lack of data makes cyber impossible to economically price (I’ve reviewed allot of cyber incidents first hand). You can price against inherent risk, but that becomes costly (Merck – $1.4bn). It’s also a reason why under Basel III the AMA approach was recognised as more effective, yet a costly alternative to BIA.
So what are cyber insurers going to do, are exclusion clauses the best answer to the problem the risk industry does not think so. When industry relied on cyber insurance as the main risk transfer tool. When ‘right of bang’ cover isn’t working and cyber regulation transfers cyber risk management ‘left of bang’.
Ted Dziekanowski
#cybersecurity #cyberriskmanagement #cyberregulation #cyberinsurance #leftofbang
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