20 July 2017

Commercial Risk Europe: Insurers urged to radically change approach to cyber and shift focus to risk not line of business

Insurers must rethink their approach to cyber risk insurance, according to a new research report by KPMG, which warns that the industry is currently lacking innovative solutions and is “playing catch-up” with the pace of cyber threats.

The report also stresses that the scale and scope of cyber risk will have a huge effect on the insurance industry, driving fundamental changes in the way it is structured and responds to clients’ risks.

KPMG notes that cyber threats have the potential to shake up traditional thinking within the insurance industry along product lines and drive fundamental changes, including breaking down traditional company structures based on underwriting class.

The firm stresses that new insurance solutions must address more intangible risks posed by technology and cyber threats, including the loss of intellectual property, reputational damage and business interruption.

Following discussions with insurance buyers and other industry experts, KPMG believes insurers must switch their focus from product-based cyber coverage in order to fully protect cyber risks. The risk transfer industry must also recognise that cyber threats will impact traditional lines of business such as motor, property and aviation as smart technology advances.

“These aspects may seem uninsurable but more innovative approaches, such as parametric cover or sophisticated risk modelling, can help insurers provide this sort of protection,” states the report, titled: Seizing the Cyber Insurance Opportunity.

Those insurers that find a way of covering these intangible elements will be met with huge demand. The scale and impact of attacks in recent years has made cybersecurity a top priority for boards.

One challenger bank CEO recently told KPMG: “The only things that keep me up at night are the unforeseen risks – cyber threats.”

At present, cyber claims mainly cover breaches and the costs incurred from informing customers about a cyber attack or breach, but buyers are looking for more innovative cover for the growing threats. The report states: “Traditional insurance players are increasingly realising that cyber risk is much more than a data breach.”

Paul Merrey, insurance partner at KPMG, added that insurers have much further to go. “Technology brings a wave of new risks and insurers are only dipping their toe in the ocean. To really get a foothold in the cyber market requires two things: finding solutions to the intangible costs and recognising that smart technology means cyber risks will emerge everywhere, including within traditional lines like property, motor and aviation. To respond to this demand, insurers need a wholesale shift in product offerings and a drastic boost to in-house cyber expertise,” he said.

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