New cyber model aims to expand reinsurance & ILS participation

A new cyber exposure model has been launched, called Cyber Foresight, designed to assist with pricing and the assessment of cyber risks, the tool could help reinsurance and insurance-linked securities (ILS) capacity have a more influential impact on the growing threat of cyber attacks.

Cyber Foresight is a Cyber Exposure analysis platform for reinsurers that software developer Nova says could change the cyber market for the reinsurance and ILS industry, enabling underwriters to make much more confident and sound decisions regarding cyber. Nova Limited is the development partner for the project.

The Cyber Foresight team began researching and working on the solution in 2013 with a range of international cyber security firms, with the goal of establishing a hybrid cyber security and reinsurance pricing tool for the industry.

Cyber risk remains a relatively new exposure to the global risk transfer markets and as such, a lack of statistical and historical data on cyber attack scenarios has hindered the development of a cyber re/insurance, and/or ILS market.

Although cyber coverage does exist, absent adequate actuarial data the application of traditional reinsurance pricing methods has been difficult, and as a result buyers of protection risk purchasing inadequate protection, ultimately remaining exposed to the wide reaching impacts of cyber threats.

The unpredictability surrounding the nature of cyber attacks makes modelling such an exposure all the more complex, but Nova’s new tool aims to enable reinsurers to better analyse and ultimately more adequately price cyber risks.

The new solution could change the cyber risk transfer industry, says Nova, and in response to a growing need for the ability to quote a large number of small and medium sized businesses in a short period of time, Cyber Foresight enables users to view all underwriting metrics in a simple, intuitive interface, designed to support “quick and efficient underwriting of high-volume of smaller accounts.”

“In our work at Nova, we are proud of all of the solutions we have delivered to our clients over the past 10 years, and with Cyber Foresight we bring that same level of expertise we have brought to all of our projects.

“We have designed and built many underwriting analytics and portfolio dashboards for top reinsurance companies, so Cyber Foresight really is getting the benefit of all of our experience in that area alongside which we have assembled a true team of experts to assist reinsurers in their pricing of Cyber. We have really enjoyed the process and research behind this project,” said Sandra DeSilva, Chief Software Architect of Cyber Foresight.

As well as benefitting reinsurers the firm explains that the model will be valuable to the ILS market too, and could assist with the development of a cyber ILS industry, and also assist captive managers in structuring new captives.

By working with Cyber Foresight companies can better assess and price their cyber exposure, and then look to tap the capital markets for efficient, diversified capital, ultimately lowering the rate they are paying with the traditional markets, explains Nova.

The better cyber risk is understood along with an improved ability to analyse and price cyber exposures in a more comprehensive, accurate manner, the more comfortable reinsurance and ILS markets will be entering the market.

ILS and reinsurance capacity appears willing to assume the potential wealth of cyber exposure across the globe, and models such as this along with other current, and future cyber risk analysis/modelling tools could help mature the cyber risk industry into a profitable market that hopefully filters all the way down to the end consumer.

“Up until the introduction of Cyber Foresight cedants options to get a second opinion on their Cyber policy exposure or coverage was limited. Now Cyber Foresight enables them to look at the possibility of reducing their annual premium spend by transferring some of that exposure to the capital markets,” said Nova.

With the potential risk so vast and capacity required so great, the insurance, reinsurance, and ILS markets will likely all be needed to adequately and innovatively solve the growing world of cyber attacks.

Executive Director and Chief Operating Officer of Cyber Foresight, Spencer Conway, said, “We realize the importance to Natural Catastrophe managers to fully understand the overall impact of new Cyber policies on their existing exposure and to have the ability to identify any overlapping exposure.”

The new solution also offers users the ability to import an existing portfolio and complete analysis on it, explains the firm, and can be used for new cedents. Using its own in-house data models, Cyber Foresight will be able to generate a definite risk score as well as calculate financial loss probabilities for individual accounts and overall portfolios.

“Given the large aggregation of Cyber Risk in the industry Cyber Foresight is also developing a feature to allow re/insurers to assess their aggregate overlapping exposures to Cyber. Cyber Foresight offers hope for larger institutions looking for reliable and expert pricing guidance on their reinsurance programs, or even captive managers looking to price Cyber programs,” said the firm.

“Cyber Foresight’s modeling rationale and methodology relies on a combination of a Cyber Risk Evaluation, Industry Loss Curve, Third Party Data Subscriptions, Threat Intelligence, and Underwriter Judgement Overlays to accurately assess Cyber Risk,” continued the firm.

The team behind Cyber Foresight consists of experts from a range of relevant fields, including software development, reinsurance, risk management, cyber security, and threat intelligence.

The main team is made up of Philip Wheatley, Chief Technology Officer, Sandra DeSilva as Chief Software Architect at Cyber Foresight, Spencer Conway as Chief Operating Officer of Cyber Foresight, and Wade Baker as the Chief Scientist. Furthermore, Benjamin Dean, a Fellow for Cyber-Security and Internet Governance at the Colombia University School of International and Public Affairs, is helping with the research and modelling capacity of the project.

The solution also has an impressive Board of Advisors that includes Tim Shea, a member of RSA’s Global Public Sector Team with a focus on U.S. Federal, State and Local Governments, International Governments, the NIST Cybersecurity Framework and cyber-insurance, says Nova.

Cyber Foresight is the latest solution aimed at improving and advancing the cyber insurance, reinsurance, and ILS industry. Cyber is seen as both a huge challenge and opportunity for the re/insurance and ILS markets to innovate and create efficient solutions that protect against a growing and potential devastating exposure, while creating an additional revenue stream.