Insured losses may have hit a record high in 2017 ($144 bn according to Swiss Re) but this loss may pale into insignificance if Greg Case’s (CEO of Aon Benfield) predictions are correct. Warren Buffet believes there is a 2 percent chance of a $400 billion super catastrophe, but Mr Case has predicted that on Cyber alone, losses could jump from $450 billion (2017) to closer to $1 trillion.
There is no question that the magnitude, complexity and speed of new and emerging risks such as Cyber are increasing. On top of losses incurred through business interruption and reputational damage, the European Union is introducing the General Data Protection Regulation (GDPR) which will impose penalties for data breaches of up to 4 percent of annual global turnover.
The (re)insurance industry plays a vital role in helping the global economy mitigate risk but is it evolving as fast as the risks that it aims to mitigate? Does the process of transferring new and emerging risks such as Cyber need to be reassessed?
Cyber is a dynamic and evolving risk that transcends all lines of business. By its very nature, it can’t be modelled using traditional actuarial models and, as a relatively new line of business, it lacks many important data points, so how can the industry effectively price and transfer Cyber risk?
Important steps are being taken to provide some of these key data points. The PCS Global Cyber index, launched in 2017, was the first loss aggregation service to provide industry loss estimates for global Cyber events. This has enabled the industry to create new products (e.g. the first Cyber Industry-Loss Warranty) using the index as a trigger.
New and dynamic products for the transfer of Cyber risk are vital in helping to grow the Cyber (re)insurance market as well as meeting the differing desires of investors for new sources of risk.
With the emergence of real-time Cyber risk monitoring and a more dynamic array of risk transfer products, the (re)insurance industry will be better equipped to discover a market price. What is still lacking is an effective secondary market for industry players to manage their exposure to these risks dynamically as they evolve, while remaining within their risk appetite.
Working with the (re)insurance industry and the capital markets, AkinovA is building a third-party electronic marketplace for the transfer and trading of (re)insurance risks. This will help grow the overall size of the industry, enable greater innovation of products (e.g. Cyber) and reduce the frictional costs of transferring risks. By taking an inclusive approach, AkinovA is bringing together all parts of the (re)insurance value chain to enable this transformation.
If you would like to find out more about AkinovA or how you can get involved, please contact Alexander.Pike@AkinovA.com.