BestWire Services
Cyber Risk Could Result in Potential Catastrophic Loss
| Copyright: | A.M. Best Company, Inc. |
| Source: | BestWire Services |
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The list of typical catastrophic exposures includes floods, wind and earthquakes. But the day is coming that cyber risk will be added to that roster, according to Robert Schneider, ISO managing principal and risk management practice leader.
It may not take a Hurricane Katrina-size loss to add it, but "the realization of the potential magnitude may place it on that list," he told BestWire at the 2010 Risk and Insurance Management Society conference in Boston.
"You've got people out there working 24/7 creating some kind of cyber exposure," Schneider said. "The faceless adversary out there is the 24/7 hacker." Now multiply that by thousands, he said.
Insurance policies covering cyber risk are being written and sold, but Schneider noted those forms are created over a fairly long period of time. In comparison, new cyber threats are emerging every single day. The challenge is that technology changes "very, very quickly."
"It's an exposure that will take a tremendous amount of vigilance to monitor and keep abreast of," Schneider said. Insurers need the "ability to monitor and adjust at a very rapid rate."
And the risks go beyond simple theft. They even include acts of war, he said.
The hacker could be a high schooler in India pulling a high-tech prank, or a quasi-military operation. A cyber attack could bring down the entire banking system of a country, with "a minimum of expense, a minimum of manpower and a minimum of exposure, meaning you don't have massed troops, you have a number of people sitting in a basement," Schneider said.
It is a "potential paradigm-breaker" because it challenges some of the traditional insurance foundations, he said. For instance, geographic territory. An insurer may only write business in the Northeast region of the United States, and the cyber loss will take place in the United States, but "the source of the damage may come from anywhere" in the world ... assuming you find the source, Schneider said.
"Companies are taking it very seriously," he said. The insurance industry has "some very smart people who are looking at this very carefully."
Akin to the property/casualty sector, where insurers combine engineering with underwriting, the cyber sector requires the combined efforts of underwriters and brokers, good levels of protection and "a very well-thought-out policy form," he said.
(By Rick Cornejo, managing editor, BestWeek: rick.cornejo@ambest.com)
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Access Content Source: http://insurancenewsnet.com/article.aspx?id=185210&type=propertycasualty
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http://dreamlearndobecome.blogspot.com This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
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