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Cyber Knowledge Series 2024
Unlocking the Potential of Cyber Insurance:
A Call for Enhanced Exposure Data
A Call for Enhanced Exposure Data
© [M] Munich Re [P1] monkeybusinessimages / Getty Images [P2] Tetra Images / Getty Images
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    In the varied landscape of insurance, cyber insurance occupies a unique space straddling 1st and 3rd party exposures. This nuanced positioning presents an interesting challenge for practioners. While property underwriters navigate with ease through concepts like Probable Maximum Loss (PML) and catastrophe loads, in the same way Casualty underwriter deftly allow of loss trends and the uncertainty of Incurred But Not Reported (IBNR) losses. Cyber underwriters grapple with both sets of topics against the backdrop of the ever-evolving landscape of cyber risks. Managing a cyber insurance portfolio demands a comprehensive understanding of these facets.

    As with a Property Insurance Portfolio, detailed exposure data plays a critical role in cyber insurance for (re)insurers, to ensure the accurate modeling of accumulation exposures.

    Insurers rely heavily on accumulation models to ensure that the risk they take on aligns with their overall risk appetite. These models, whether proprietary or from 3rd party vendors, primarily hinge on two major factors: policyholder industry and size, typically measured by revenue. At Munich Re, we’ve observed that the size of the insured entity significantly influences the expected accumulation loss. Therefore, it becomes imperative, especially for Small and Medium Enterprises (SMEs), to furnish detailed revenue information. Without such granularity, default conservative assumptions may lead to an overestimation of the risk within the portfolio, leading to an unwarranted constraining of our risk appetite .

    While detailed exposure data is relatively standard in reinsurance submissions for our clients, there's always room for improvement, particularly for smaller businesses.

    Looking ahead, there are additional exposure-related elements that, if captured effectively, could propel the development of cyber (re)insurance underwriting and modeling:

    1. Cloud Provider Information: With the burgeoning importance of cloud services, insurers must map the usage of various vendors accurately to enhance modeling specificity. Relying solely on market share approaches may obscure post-loss impacts, asking for providers which form part of critical processes should improve modeling granularity.
    2. Website Addresses: External scanning technologies can augment data collection significantly. Unique identifiers such as URL addresses streamline this process, enhancing the accuracy of exposure assessments.
    3. Linking Policy and Claims Information: Linking this data allows trends to be discerned more quickly and effectively. Allowing timely action and communication around evolving loss patterns.
    4. Cause of Loss: From ransomware to wrongful collection, identifying emerging loss trends early on is paramount. This necessitates robust data capturing mechanisms to adapt swiftly to evolving threats.

    Enhanced data quality in accumulation modeling is crucial for advancing Cyber Catastrophe (CAT) modeling. Failure to do so risks limiting the attraction of new capital to the industry, stagnating our ability to grow and ultimately hindering the establishment of a sustainable market capable of adequately supporting the digitalization of the world economy.

    In conclusion, precise exposure definition and loss trend identifiers are pivotal for understanding the intricacies of cyber insurance. These insights empower the industry to navigate evolving risks adeptly, ensuring robust risk management practices in an ever-changing digital landscape.

    Timothy Marshall
    Timothy Marshall
    Cyber Underwriter, Global Clients
    Stephan Brunner
    Stephan Brunner
    Senior Cyber Actuary