What is insurable risk? That’s the key question being explored by international insurance industry think tank, Geneva Association, is a new report on the cyber insurance market.
There are many challenges to insuring cyber risk, the report states, “especially due to a lack of data and modelling approaches, the risk of change, and incalculable accumulation risks.” Additional challenges to insuring cyber risk include information asymmetry, resulting in adverse selection and moral hazards, and coverage limits in the market.
According to a recent CyberScoop article, a lack of actuarial data could have profound consequences after Fitch’s recent warning that it will downgrade credit ratings of “insurance companies that write standalone cyber policies too aggressively, because of the high uncertainty this line of business contains.”
Fortunately, the future is looking bright for the cyber market in the insurance industry and governments have many opportunities to promote it. As the market grows, risk pools become larger and more data will become available. Additionally, increased capacity and more competition will inevitably push prices down and result in more uniform terminology, standardization and pre-coverage risk assessment. The report also recommended that industry and governments collaborate on public-private partnerships when collecting data for cyber incident repositories. Lastly, many experts believe that pre-coverage screening and reporting requirements could alleviate adverse selection effects.
Deputy Secretary General of the Geneva Association and editor of the report, Dr. Fabian Sommerrock commented, “We are very pleased to publish this report which provides an insight into the current level of understanding about cyber risk and cyber risk insurance …This report has been provided to increase understanding of the risk and support the insurance industry’s role in mitigating and managing it for the benefit of individuals, institutions and governments alike.”