The way we think about accumulations of cyber risk is a bit like COVID on steroids and the potential size of economic losses from major cyber loss events means private capital is needed to support the risk but that a public-private approach is required, AXIS Capital CEO Albert Benchimol has explained.
Benchimol was speaking during an interview by cyber analytics specialist CyberCube’s CEO Pascal Millaire for a new series of NetDiligence webinars in the last week and discussed the need for capital to respond to the burgeoning cyber threat.
He stressed that public-private partnerships were necessary to enable the insurance and reinsurance industry to respond to cyber threats, as too is access to private capital.
“My personal view is that ultimately, for the largest aggregation events, we’re probably going to need some sort of private-public partnership, whether it’s a Pool Re or a Pandemic Re of some sort, or a Cyber Pandemic Re,” Benchimol explained.
Adding that, “I don’t know that there is enough capital in the industry to be able to fully support the amount of economic damage. COVID-19 was a really good glimpse into how much exposure you have. Imagine if we shut down all of our IT systems for a month. How much economic value would we as a society have lost?
“I would argue that the way we think about cyber accumulation is COVID on steroids. Because COVID is a natural occurrence. A virus doesn’t aim for one country or another.”
Stefan Golling, Chief Underwriter for Munich Re, explained the need for support from alternative capital in the cyber insurance and reinsurance market.
During his interview with Millaire, Golling said, “There are risks involved in cyber that are maybe so systemic that the capacity of the market could come to its limits.
“Maybe we see the first signals that the alternative capital is showing some interest in cyber products, and I’m sure, in a couple of years, there will be more. We certainly also have to talk about private-public partnerships to simply overall increase the capital base provided to the cyber product.”
Sean Ringsted, Chief Risk Officer and Chief Digital Officer for Chubb, also noted that cyber risk is too large for the insurance and reinsurance industry alone.
“The insurance industry can and will do more because our clients demand that. But at some point, I think you are entering a time and space where there need to be discussions around public-private partnerships to be able to address some of the really, really significant tail risk that could potentially arise in some of the scenarios,” Ringsted said.
Talk of the need for alternative capital and insurance-linked security (ILS) solutions to cyber risk are raised frequently in the market, as the need for capital and capacity far outweighs the ability of insurers alone.
To-date, cyber ILS activity remains relatively limited, but as cyber analytics solutions, such as CyberCube’s, improve and are more widely adopted, the chances of greater ILS capital flow into cyber underwriting increases.