Can data analytics lead to better cyber risk insurance?

07 September 2016

If insurance rates increase or companies can’t find cover, will today’s underwriters have the skill sets to manage?

Data and modelling tools will be critical in developing insurance solutions for cyber risks.

Cyber is a particularly complex and rapidly changing risk for the insurance industry, and one where there is little historical data or claims experience.

This means that insurers have to take a more innovative approach to underwriting cyber risk, says Jamie Pocock, Actuarial Analyst, JLT Re. “Traditional actuarial methods provide a good backbone, but they will only take you so far.”

What’s the exposure?

As an emerging risk, cyber lacks reliable data on exposure and claims. And many aspects of cyber risk have yet to play out – for example, if a driverless car is hacked and this causes an accident, liability is far from clear.

Insurers’ claims experience has been improving, but the market lacks experience and understanding of large catastrophic or systemic cyber losses – such as a hack against the power or communications grid, or the outage of a major internet service or cloud computing provider, says Pocock.

Data sources

With developments in technology and data protection regulation, more data should become available to insurers over time.

But insurers will also need to find other sources of data through collaboration with other sectors. For example, many insurers are partnering with technology companies to help them understand and access cyber risk.

In the meantime, the industry is developing modelling tools to better understand cyber exposures. For example, Lloyd’s recently collaborated with catastrophe modelling firms to agree common core data requirements for cyber models.

JLT Re and JLT Speciality are working with clients to use scenario-based modelling to improve understanding of cyber exposures. The broker is in the process of rolling out a new cyber risk model that will enable clients to quantify their cyber exposures and model the effectiveness of various (re)insurance structures.

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For more information, please contact Jamie Pocock, Actuarial Analyst on +44 (0)20 7466 1328 or email jamie.pocock@jltre.com