Garry Booth comment: slo-mo cats, systemic cyber risk stalk market

Garry Booth comment: slo-mo cats, systemic cyber risk stalk market

Here is an interesting transatlantic tie-up. Allianz Global Corporate & Specialty (AGCS) has announced that it is to partner with the US insurtech firm Praedicat in an effort to exploit big data to identify next generation liability risks.

It’s a good idea because insurers are under huge pressure to innovate and stay “relevant” by coming up with covers that clients (and brokers) want. But while innovation is important, they also want to stay solvent.

Praedicat was formed in 2012 by Rand Corporation and Risk Management Solutions at a time when the quest to better understand emerging risks started to seem more realistic thanks to big advances in modelling technology.

The partnership has two laudable aims: to find new ways of predicting future liability catastrophe risks like asbestos, for example, and also to gain insights on emerging risks for new insurance business opportunities.

Asbestos, which had caused insured losses of $71bn globally until 2011 (Swiss Re’s figures), is the most obvious example of a man-made liability disaster.

More recently attention has focussed on potentially harmful products made by nanotechnology and carbon fibres as well endocrine disruptors like bisphenol A, a chemical used in some plastics, pesticides and preservatives, among other commercial products.

Praedicat’s modelling engine uses advanced machine learning technology to process large volumes of data from peer-reviewed science publications and profile the likelihood that products or substances will generate litigation risks over their lifecycle. When risk agents, or “named perils” are identified, they are tracked over time as new data emerges and increasingly shapes scientific acceptance of the risk.

By combining Praedicat’s forward-looking predictive modelling approach with AGCS’ underwriting processes and liability risk portfolio analysis, the companies think they can identify the next generation of catastrophe liability risks for businesses far earlier than under current methods.

AGCS reckons that so armed, its liability underwriters globally will be able to assess future liability risks for industries or single companies.

Forward-looking models will transform insurance underwriting, according to Hartmut Mai, chief underwriting officer and board member at AGCS. “Through this collaboration we hope to change the core role of underwriters, freeing them up from the daily paper grind and empowering them to be data scientists,” he said. “Embedding these new tools into our underwriting process not only enhances the quality and efficiency of our  decision making, it also allows us to be true partners for our corporate clients through improved risk identification, potentially far in advance of current screening approaches.”

Systemic cyber liability – it’s here

American International Group (AIG) couldn’t have picked better timing for its recent cyber security survey. The survey, which warned that nine in 10 global cyber security and risk experts believe that cyber risk is systemic and that simultaneous attacks on multiple companies are likely in 2017, came out just before the headline grabbing WannaCry global ransomware attack.

More than half of survey respondents said a simultaneous attack on five to 10 companies is highly likely in the coming year. More than one-third estimated the likelihood of a simultaneous attack on as many as 50 companies at greater than 50%. Twenty percent saw an even greater threat, said AIG, predicting a better than even chance that as many as 100 companies will be attacked.

The experts polled gave the odds on different sectors being hit by a systemic attack (financial services, 19%; energy, 15%; telecoms, 14%; etc). In the event, the WannaCry attack wasn’t choosy and hit businesses and other organisations indiscriminately, adding hugely to the potentially systemic effect.

It’s clearly a growing worry, with cyber cover uptake increasing all the time and insurance carriers falling over themselves to provide it – either actively or “silently”.

Note that a recent survey by the Council of Insurance Agents & Brokers’ in the US found that 32% of respondents’ clients purchased some form of cyber liability and/or data breach coverage in the past six months, compared to 29% in October 2016, “a slow but steady trend”.

K&R cover in scope of WannaCry attack losses

Reuters news agency uncovered a good example of insurers being exposed to cyber claims in other lines. In a report discussing the WannaCry attack it said that companies without cyber insurance are dusting off policies covering kidnap, ransom and extortion in the world’s political hotspots to recoup losses caused by ransomware viruses.

K&R cover is typically used by multinational companies looking to protect their staff in areas where violence related to oil and mining operations is common, such as parts of Africa and Latin America.

But according to Reuters sources, companies could also tap them to cover losses following the WannaCry attack, which used malicious software, known as ransomware, to lock up more than 200,000 computers in more than 150 countries, and demand payments to free them up.

Pay outs on K&R for ransomware attacks may be lower and the policies less suitable than those offered by traditional cyber, insurers suggest.

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