Published: Wed, July 19, 2017
Tech | By Dwayne Harmon

Global cyber-attack could trigger $53bn loss; report

Global cyber-attack could trigger $53bn loss; report

"And the average insured losses range from US$762 million to US$2.1 billion", notes the statement.

These hypothetical figures easily dwarf the amount of damage caused by Hurricane Katrina in 2005, which was estimated at $108 billion.

The report highlighted the vast gap between the losses that could be caused by a cyber attack and the amount that is now insured.

Major natural disasters such as Superstorm Sandy have caused economic losses of between $50bn and $70bn.

In another scenario involving a hacking of operating systems, estimated average losses ranged from $9.7 billion to $28.7 billion.

The threat of cyber attacks continues to rise, and in response so to is demand for cyber coverage and the desire among insurers and reinsurers to develop adequate, affordable and effective cyber risk solutions.

Analysis by Lloyd's of London compared the effects of a hypothetical global cyber-attack to the super storm known as Hurricane Sandy that hit the U.S. coast in 2012, in terms of the financial impact.

By understanding cyber-risk exposure, insurers can improve their portfolio exposure management, set appropriate limits and gain the confidence to expand into this fast-growing insurance class.

The insurance gap could be as high as $26bn for the mass vulnerability scenario - meaning that just 7% of economic losses are covered.

This is precisely the kind of issues that pushed the traditional re/insurance market to look to the capital markets in the first place, when the very first catastrophe bonds were issued.

"The cyber threat is increasing and is expected to continue to do so as the world economy continues to digitize operations, supply chains and businesses transactions, as well as employee and customer services", the report states.

Cyber cover is a new type of insurance and is remarkably hard to model and understand but whatever the challenges, recent events have underlined that in an increasingly connected world industry and governments need to better understand those risks and start to prepare for the consequences of any cyber-attacks now.

Where people are involved, risk changes quite rapidly, Maynard said, from cyber attacks to terrorism and political risk. "These days manmade risks are becoming the predominant risks".

Could cyber be the risk that enables the re/insurance market to put its excess capital to work profitably, while also working more closely and in synergy with the capital markets on solutions that allow both traditional and alternative capacity to profit?

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