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A great article discussing the cyber insurance backstop. I have to agree with Daniel Woods, one believes that any cyber insurance backstop is premature. We wrote in January 2022 that cyber was an uninsurable risk, but that it could be insurable if a more equitable model were created to balance risk transfer between the insurer and insured. A balance that cyber regulation will create ‘naturally’. The cyberinsurance industry is struggling to manage the risk, as it addresses liquidity, raises premiums, drops coverage and introduces exclusion clauses.
A backstop today raises several questions. How would it be funded? U.S market regulators are looking to regulate cybersecurity, that will impact bond ratings and yields. Any significant amount of liquidity would have to be printed, funded on equity markets or underwritten through gilts. Cyber is a volatile risk and markets are unsure how to price in cyber today.
The impact of cyber attacks is difficult to model. Any scope would be difficult to manage as the catastrophic CNI events insurers are looking to insurer are simply that catastrophic. Switching off power is one thing, destroying data is another, the former you can fix quickly the later not so. A backstop simply transfers risk to a different insurer, it doesn’t fix the underlying problem. At a time when regulators are looking to transfer it back to corporate balance sheets.
Finally a narrative could be that the insurance industry has no other tools in the tool kit to manage the risk, other than transfer it to a backstop?
Cyber needs an insurance model that balances up all risk transfer mechanisms including insurance, regulation, and the implementation of appropriate cybersecurity to stabilize the risk.
Ted Dziekanowski
#cybersecurity #cyberriskmanagement #cyberinsurance #cyberregulation #theaugustagroup
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