A new study published by Lloyd’s of London has revealed a multi-billion dollar cyber insurance gap.
The report, carried out in collaboration with cyber risk modelling firm Cyence, suggests cloud services firms may not be covered for significant uninsured losses.
The research “Counting the cost: Cyber exposure decoded”, models two attacks: a malicious hack on a cloud service provider with estimated losses of $53bn, and a wider attack on businesses’ operating systems resulting in losses of $28.7bn.
Uninsured losses for cloud service providers would range between $4.6bn and $53bn, according to the model, while average insured losses range from $620m for a large loss to $8.1bn for an extreme loss.
Meanwhile, uninsured losses for other businesses would range from $9.7bn for a large event to $28.7bn for an extreme event and average insured losses range from $762m to $2.1bn.
Forecast losses were compared in size to those from Super-storm Sandy, which hit the northeast US in 2012 causing economic losses of between $50-70bn.
Inga Beale, chief executive of Lloyd’s, said: “This report gives a real sense of the scale of damage a cyber-attack could cause the global economy. Just like some of the worst natural catastrophes, cyber events can cause a severe impact on businesses and economies, trigger multiple claims and dramatically increase insurers’ claims costs.
“We have provided these scenarios to help insurers gain a better understanding of their cyber risk exposures so they can improve their portfolio exposure management and risk pricing, set appropriate limits and expand into this fast-growing, innovative insurance class with confidence,” she added.
Arvind Parthasarathi, CEO, Cyence, said: “Cyence is excited to be working with Lloyds on empowering the insurance industry to understand and model cyber risk.
“Leveraging Cyence’s unique cyber risk platform, we’re excited to see insurers providing more capacity, bringing innovative products to market with greater confidence and creating a more robust and sustainable insurance market,” he added.
While scenario tests do not indicate how the re/insurance industry at large will respond to a market-shifting event, they help firms to test their systems and rehearse procedures.
In January the London market carried out a “London Market Looks Ahead” report, led by Hiscox, which imagined market turmoil caused by a shock $200bn loss.