by How Do Insurers Define Systemic Cyber Risk? Cyber-related risk in the system is address as a rising risk for insurers as technology improves and the interconnectivity grows. But how do we define this risk? This could be one of the grey areas.
“As you go through different owners of risk in the ecosystem, the word systemic means many different things,”. Explained Matt Prevost, chief underwriting officer for cyber at Chubb. “So, in the ecosystem of cyber insurance, whether it be reinsurers. ILS (insurance-linked securities), all the way down to the primary market talking about this. There’s a tendency to be almost philosophical at this stage.” How Do Insurers Define Systemic Cyber Risk?
Prevost was a speaker on a panel discussing systemic risk during the property. Liability underwriting society’s Cyber Symposium 2024 that was held at New York City.
Challenges
One of the challenges is that systemic risk is usually incidental. Like to Mark Camillo, CEO at Cyber Acu View which is an industry group of cyber insurance providers. How Do Insurers Define Systemic Cyber Risk?
“I think the part that I find challenging when we define systemic risk is we talk about vulnerabilities. And those vulnerabilities might be in lots of people’s environments,” he added. “Really it’s dependent on the context. I am of the opinion that weaknesses, based on how they use the different layers of defense. As well as various organizational environments can create a systemic risk. However, it’s not always a risks to the system. I think that’s a big part of the problem cyber-writers face.”
Dani Tobler, head of Cyber at Swiss Re Dani Tobler. Head of Cyber at Swiss Re team is currently discussing systemic risk from a perspective. Which refers to losses that affect many clients across different geographies, in one type of business or outside categories of business.
Categories of Business
“If we get into the space across classes of business, we’re approaching the part which is uninsurable. So war would be a typical example,” he added.
Because of its occurrence, Camillo said one solution to the confusion is to shift away from the term systemic risk at all.
“It just really is a single event that impacts more than one company,” the executive said. “It’s different things to different people.”
Lack of clarity moment isn’t necessarily a bad situation, but. Camillo has said that conversations about how risk is defined means that large established companies that have a global presence in the field are now getting an understanding of the risks. Which could benefit them to understand how to deal with it. How Do Insurers Define Systemic Cyber Risk?
“Instead of having these philosophical ‘What is systemic risk?’ conversations. Insurers are actually getting into the weeds and either agreeing or disagreeing on what their view of the risk is. Whether it be reinsurance, whether it be an ILS market, whether a private insurer. But also the policyholders are actually starting to understand what we’re focused on,” the CEO explained. “Those discussions benefit us. Therefore, I believe that discussing this can help us manage the most threatening risks more effectively …
The conversation is a constant reminder for that the underwriting.”
As underwriters attain higher levels of understanding and assessment risks of loss. They’re pondering the excellent way to price and entice their appetite for risk in relation to the systemic risk. Too they said Erica Davis, global co-head of Cyber at Guy Carpenter and moderator of the panel.
“So, all of these different parts are sort of working together, and I can definitely say from a Guy Carpenter perspective, we did see the trends that Dani (Tobler) spoke to about starting to really shape and design reinsurance around the more systemic future,” she added.
As insurers look into this risk, new definitions are emerging, those that are based on risk and others that provide broad language, as well as frameworks that separate out attrition from systematic losses, Tobler said.
“But again, these are all good developments,” he added. “The market, I think, is developing an understanding of what those nuances are.”
As the market develops, Tobler said insurers will have to look at new ways to tackle the challenges of the widespread cyber risk. This could mean that they are in the gray zone for a while until the market will attain a degree of certainty.
“I do think that the fact that we’re talking about this, the fact that there are certain platforms to work on some of these issues, is definitely a positive development so we can tackle some of these longer-term challenges,” said the official.
“I believe these approaches to systemic need new concepts and strategies, but there is need to be discussed. This is really crucial. In my opinion, to reach that point it is necessary to undergo this process of numerous ideas, many suggestions but some of them will win at the final.”
Summary
The concept of systemic risk in cyber insurance is a complex and evolving topic, often leading to philosophical discussions among industry experts. Challenges arise from the ambiguity surrounding the definition of systemic risk and its implications for insurers. However, ongoing conversations and debates are leading to a deeper understanding of cyber risk and its management strategies. Insurers are developing new definitions and frameworks to address systemic risk, with a focus on risk assessment, pricing, and attracting risk appetite. Despite the uncertainty, these discussions are seen as positive steps toward effectively managing cyber risks in the future.
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FAQs
What is systemic risk in the context of cyber insurance?
Systemic risk refers to losses that impact many clients across different geographies or industries, posing challenges for insurers in risk assessment and management.
How do experts perceive the term systemic risk?
There is ambiguity and differing interpretations surrounding the term systemic risk, leading to philosophical discussions among industry experts.
What challenges do insurers face in addressing systemic risk?
Insurers encounter challenges in defining systemic risk and developing strategies to manage it effectively due to its complexity and evolving nature.
What positive developments have emerged in the discussion of systemic risk?
Ongoing conversations and debates among insurers and industry stakeholders are leading to a deeper understanding of cyber risk and its management strategies.
How are insurers approaching the issue of systemic risk?
Insurers are developing new definitions, frameworks, and strategies to address systemic risk, with a focus on risk assessment, pricing, and attracting risk appetite. These efforts aim to effectively manage cyber risks in the future.
