Guy Carpenter: Cyber is most urgent risk for reinsurers

Cyber, terrorism, compensation structures for long-term bodily injury, and casualty catastrophes are the most urgent risks facing the reinsurance sector today, according to a Guy Carpenter & Co. report.

Because of increasing global interconnectedness and widespread use of social media and mobile devices, the risk of cyber attacks and data breaches have increased exponentially. “Cyber attacks are now seen as one of the most serious economic and national security challenges now facing governments around the world,” the report states.
Moreover, a recent report from the Center for Strategic and International Security states cybercrime cost the global economy $400 billion in 2013-$100 billion in the United States. It is no surprise then that 85% of corporate executives surveyed by AIG in 2013 identified cyber risks as their biggest concern to profitability.

Cyber risks present a set of aggregations that spread beyond the corporations to its affiliates and supply chains. Some of the cyber risks that entities face include: legal liability, computer security breaches, privacy breaches, cyber theft, cyber espionage and cyber spying, cyber extortion, cyber terrorism, loss of revenue, recovery of costs, reputational damage, business continuity/supply chain disruptions and cyber threat to infrastructure.

High-profile data breaches, such the incident at Target Corp., are growing more commonplace with increasing costs. Since the data breach, Target has incurred $88 million in cumulative expenses, with expected insurance recoveries of $52 million, according to its 10-Q filing for the quarter ending May 3, 2014. The retailer says that it maintains $100 million of network-security insurance coverage with a $10 million deductible.

“Cyber” is a misleading term to describe the type of coverage offered for this market, the report states. Comprehensive policies include data privacy; regulation breaches, fines and penalties; network business interruption, first party loss: data damage and cyber extortion; and crisis management and identity theft response.

Companies are uncertain of how much coverage to acquire and whether their current policies provide them with protection, the report states. “One of the roots of the uncertainty stems from the difficulty in quantifying potential losses because of the dearth of historical data for actuaries and underwriters to model cyber-related losses.”

The reinsurer market is vast, Guy Carpenter predicts, as cyber crime costs the global economy about $445 billion every year.

Source: propertycasualty360 & webbaohiem