Lockton Re, the global reinsurance business of the world’s largest privately held independent insurance broker, has today launched a new report – A Kaleidoscope of Possibilities: Preparing for Ivan Wiper, a hypothetical cyber event which shines a spotlight on the consequences of a potential cyber catastrophe by focusing on each part of the value chain across the insurance industry.
Oliver Brew, co-author of the report, and London Cyber Practice Leader, Lockton Re, commented: “We wanted to explore the potential aftermath of a major cyber catastrophe, as this is an area which has been overlooked in discussions on systemic risk. We selected a hypothetical self-propagating destructive malware (named Ivan Wiper) and assumed a midpoint view of its impact globally. We spoke to experts across our industry to consider both understanding and impact. The views of different experts in the value chain were key to this paper.”
The report highlights some key takeaways:
There have been, and will be bigger natural and man-made disasters, in all but the most extreme scenarios.
There are benefits from the market working collaboratively on these sorts of incidents.
There will be potential major bottlenecks in claims handling and processing.
Some (re)insurers will withdraw from the cyber insurance market, though there is strong appetite by those experienced (re)insurers to recapitalise and take advantage of dramatically improved rating conditions.
A catalyst for innovation and product development.
Matthew Silley, co-author of the report, and Cyber Broker, Lockton Re, said, “The very purpose of our industry is to understand and quantify risk. The management and mitigation of risk has built our industry over centuries, building societal resilience with it. Cyber catastrophe risk is a complex but fundamental pillar of the broader market. The insurance industry has built its reputation supporting recovery after major events, learning, and adapting. Notwithstanding that a major cyber catastrophe has yet to materialise, the cyber insurance industry has been proactive in addressing the potential for significant systemic risks.”
In the past large incidents like Hurricane Andrew, the Tohoku Earthquake, and the Terrorist attacks on the World Tarde Center created horrendous loss of life and property, and from an insurance perspective they often reshape the industry creating movement in risk appetite and acceleration in specialist capacity and expertise.
Oliver Brew said, “For the (re)insurance industry itself, our view is that the most likely effect of Ivan Wiper will be the acceleration of a cyber catastrophe market with new product innovation, and a growing consensus around common cyber war and critical infrastructure exclusions.”
Matthew Silley concludes ”It’s important to remember that these events are more challenging for those companies who either cannot afford, or choose not to buy insurance, so the impact could be significant. They will struggle to access specialist incident response services unless they have inhouse or retained access. The goal of the paper is to raise questions and challenges, rather than fear or anxiety. By considering specific issues for each stakeholder, the conversation can progress.”
To read the full report click here (opens a new window).