Russell Group was interested to read a recent report by ratings agency Fitch, which outlined how: “high claim activity (or aggregation risk) for property/casualty insurers is a rising risk as insurers increase coverage to protect against cyber threats.”
This has been a theme that Russell has been exploring in our own research over the last 18 months throughout a series of white papers on the topic.
Fitch concedes that the potential for any future credit impact to major providers is kept in check by the still relatively small size of the cyber-related insurance market. But as Fitch goes on to say: “As insurers continue to improve and refine their understanding of cyber risks, Fitch expects the industry to broaden coverage and accept larger and potentially more threatening exposures.”
Mooted legislation and regulatory initiatives such as proposed EU directives could add fuel to the cyber fire and mean that a failure to report a breach in time could lead to fines of up to 5% of total turnover, or EUR100 million, whichever is greater.
The ratings agency believes that such directives could increase demand for cyber insurance, which is certainly a view that Russell Group takes and has been discussing with increasing frequency with its partners in the underwriting community.
Scascighini concludes: “We believe that every insurance company must actively manage their casualty accumulation risk as the potential impact of unintended accumulation could lead to disastrous results.”
When one considers the potential accumulation risks of the scenarios and themes noted above it is hard not to agree with a recent XL Catlin blog, which noted: “Today’s loss prevention experts need to be advanced engineers, able to operate in a complex, rapidly evolving, global economy.”
Russell Group could not agree more. In today’s hyper connected world, it is inevitable that reinsurers will come to rely increasingly on aggregate analysis that quantifies their gross portfolio loss (the loss from all policies and contracts underwritten in the portfolio) for each line at user defined market loss levels.
At the same time, technology, modern actuarial techniques and data-led analytics are all set to revolutionise the way (re)insurance realistic disaster scenarios are modelled and rolled out across the speciality (re)insurance classes.