At Large
Insurers Need Innovative Battle Plan to Address Cyberrisk
The insurance industry needs a new approach and novel solutions to support the cyber market.
- Tony Kuczinski
- December 2021
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Recently, a colleague asked me to identify the greatest growth areas for the insurance industry and also the greatest concerns. The answers overlap. Cyber is at the top of the list for both opportunities and challenges.
The world is increasingly digitized, automated and interconnected. The use of machine-learning technology and artificial intelligence is ramping up. Cyberattacks impact large companies, small businesses, infrastructure, governments and individuals.
No entity or person is immune. The range of targets is broad—everything from individuals to pipelines to large multinational corporations. These cyberattacks often lead to significant reputational and financial loss.
The technology that has allowed people all over the world to work and connect remotely during the pandemic also has given cybercriminals new avenues for attacks. In addition, “bad actors” are finding vulnerabilities and becoming more sophisticated, often at a much faster rate than cybersecurity experts can find ways to stop them. But we must find solutions. We must remain diligent.
These developments in cyber are radically changing traditional insurance and creating many new fields of risk. At the same time, awareness of cyberrisk has grown and has become a top governance issue for management and independent boards for most companies, driving up demand for solutions. We are now operating in an environment where the need for cyber insurance and the risk of offering cyber insurance are both very high, and this upward trend will likely continue and accelerate.
Increased losses, especially from ransomware, have deeply impacted the global cyber primary and reinsurance markets, leading to rate hardening and capacity limitations.
Some have questioned the viability of offering cyber insurance at all. Cyber is insurable but this dynamic risk requires a new approach and novel solutions.
Effective cyberrisk solutions must go beyond standard insurance products. Insurers must engage with clients and work in close collaboration with them on specific needs. Cyber solutions should offer more than “traditional cover” and include services to prevent and cope with attacks, often called pre- and post-event solutions.
Cybersecurity standards will become more robust and risks will become more insurable if these ancillary solutions are geared toward loss prevention and mitigation.
By developing novel and customized solutions, our industry helps businesses and other entities become more resilient against cyberattacks and mitigates the damage in cases where there is an incident.
Cyber requires a specialized expertise due to the dynamic nature of this particular risk. The industry needs to partner with others in the cyber field to share knowledge and develop our own deeper understanding of this rapidly evolving space. These partners might include third parties, vendors and startups identified as leaders in the cyber field.
The utilization of artificial learning and automation also allows the industry to improve its cyber-solution offerings. The insurance industry needs to embrace and invest in these new technologies. Data-based algorithms benefit clients and help optimize many processes in the areas of sales, customer interaction, claims settlement and underwriting.
To successfully operate in the cyber insurance market, insurers must closely assess the field. For example, claims from ransomware attacks have surged, and that's a trend that is likely to continue. These risks can be complex and substantial, and the insurance industry cannot necessarily tackle them on its own.
Some large systemic risks, especially those that are terrorist in nature or politically motivated, may require the insurance industry to work with government to effectively monitor and manage.
While cyber presents significant challenges, they are not insurmountable. Dynamic risks can be mitigated by developing novel solutions. If we build collaborative relationships with clients, partner with public and private experts, and invest in technology, the insurance industry can effectively address this rapidly evolving risk.
Best’s Review contributor Tony Kuczinski is chief executive officer of Munich Re US P&C Cos. He can be reached at bestreviewcomment@ambest.com.
