Role for insurance-linked securities in cyber risks: Tom Ridge

by Artemis on February 28, 2017

The insurance-linked securities (ILS) market has a role to play in cyber risks, according to the former Secretary of the U.S. Department of Homeland Security and now Chairman of Ridge Global, Tom Ridge.

In a keynote speech given at the SIFMA Insurance and Risk-linked Securities (IRLS) 2017 conference held in Miami yesterday, Tom Ridge explained the cyber risk landscape and how, with his wealth of security related experience, he thinks about cyber risk threats today.

Ridge said that he feels that on risks this big, and uncertain, the need for a public-private partnership on risk bearing was clear.

Insurance and reinsurance alone cannot manage the private capital side though, and Ridge said that there will be an opportunity for the capital markets to play its role, with the assembled ILS community’s support required as policymakers and industry develop approaches to transferring risk.

The path to resiliency in a risk based world is not a smooth one. It’s a journey frankly that will never end, as the threats continue to evolve and actors continue to change. Cyber risk is here to stay,” he explained.

“What we do about it and how we organise for resilience is not only an imperative, it’s also a great opportunity for all of you in this room to show the ingenuity that you have in the global insurance and asset management industry,” he told the assembled ILS crows.

“In time I believe the public sector and private sector can reach scale together to insure these massive risks,” he continued. “I think we need an unprecedented public-private sector approach to stack multiple layers of coverage, multiple layers of liquidity, to combat the ever-present and ever-growing cyber threat.”

Insurance, reinsurance and ILS markets stand well positioned to collaborate both with industries and governments to help to increase insurance penetration to assist with risk transfer of cyber risk.

“My colleagues and I at Ridge Global believe an unbroken chain of cyber resilience must be created in the market. The chain would lay private sector capital, in the form of broad insurance coverage for the enterprise, to internal financial reserves that serve as an internal buffer to catastrophic stop-loss, and ultimately to government backed risk sharing pools,” Ridge said.

He said that insurance markets can help to build confidence in the market and more resilience in the economy in this way, through collaboration and participation to build this chain of cyber resilience, with ILS participation involved.

He said that cyber could be a more unmanageable risk than terrorism threats are today, which shows the size of the opportunity to build resilience around a multi-layered risk transfer approach to the cyber risk threat.

The risk associated with cyber is very substantial Ridge said, and that’s where the ILS industry can assist. Ridge said there’s a lot of conversation about insurance-linked securities and that he hopes the ILS sector can bring these instruments to bear on cyber risk.

Ridge urged, “I think there’s a role for it,” for ILS to participate and get involved in the cyber risk discussion.

With cyber seen as perhaps the largest new opportunity for sources of reinsurance capital in recent years, the opportunity is clear. If the sector can work with public and private sources of data, cyber risk understanding and develop discrete products, as well as participating in risk sharing pools through ILS issuance, the market could have a significant effect on economic security.

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