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Insurance Solutions

Formerly Moody’s RMS

Most firms lack clear strategies and appetites for managing cyber risk, with a shortage of cyber domain knowledge noted as a key area of concern. So said the Prudential Regulation Authority, the arm of the Bank of England which oversees the insurance industry, in a letter to CEOs last week.

This letter followed a lengthy consultation with a range of stakeholders, including RMS, and identified several key areas where insurance firms could and should improve their cyber risk management practices. It focussed on the two distinct types of cyber risk: affirmative and silent.

Affirmative cover is explicit cyber coverage, either offered as a stand-alone policy or as an endorsement to more traditional lines of business. Silent risk is where cover is provided “inadvertently” through a policy that was typically never designed for it. But this isn’t the only source of silent risk: it can also leak into policies where existing exclusions are not completely exhaustive. A good example being policies with NMA 2914 applied, which excludes cyber losses except for cases where physical damage is caused in any cyber-attack (eg. by fire or explosion).

The proliferation of this silent risk across the market is highlighted as one of the key areas of concern by the PRA. It believes this risk is not only material, but it is likely to increase over time and has the potential to cause losses across a wide range of classes, a sentiment we at RMS would certainly echo.

The PRA intervention shines a welcome spotlight and adds to the growing pressure on firms to do more to improve their cyber risk management practices. These challenges facing the market have been an issue for some time, but the how do we help the industry address them?

The PRA suggests firms with cyber exposure should have a clearly defined strategy and risk appetite owned by the board and risk management practices that include quantitative and qualitative elements.

At RMS our cyber modeling has focussed on providing precisely this insight, helping many of the largest cyber writers to quantify both their silent and affirmative cyber risk, thus allowing them to focus on growing cyber premiums.

If you would like to know more about the RMS Cyber Accumulation Management System (released February 2016), please contact cyberrisk@rms.com.

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October 10, 2019
Cyber Risk Seminars Introduce New Solutions to Address Evolving Threat Landscape

During September, RMS ran a series of cyber risk seminars in London and New York. These half-day events coincided with the release of RMS Cyber Solutions version 4.0 and featured both RMS and industry experts discussing cyber risk and the opportunities for the cyber insurance industry. At both events, the day kicked off with Dr. Andrew Coburn, senior vice president for RMS, examining recent developments within the cyber risk landscape by outlining the approach RMS takes to tracking and categorizing the wide range of evolving threat actor groups. He also proposed some key future trends, such as the potential impact of a “gloves-off” nation-state cyberattack and its implications for the cyber insurance industry. Former ethical hacker Eireann Leverett dug deep into the topic of contagion mapping and how hacking groups – both good and bad, are utilizing innovative techniques to map out the digital world. He also touched on the growing use of deepfakes in spear phishing attacks, whereby executive identities are faked to trick employees into fraudulently transferring funds out of the business. To provide the industry’s perspective, we were delighted to be joined by two expert panels in London and New York discussing the cyber market and the role of models to support growth. Thanks to Jamie Pocock (Guy Carpenter), Laila Khudairi (Tokio Marine Kiln), Rory Egan (Munich Re), and Kirsten Mitchell-Wallace (Lloyd’s) for participating in London, and to Anthony Shapella (AIG), Jon Laux (Aon), and Kara Owens (Markel) in New York. RMS Cyber Risk Seminars held in London (left) and New York (right)For the second half of the agenda, members of the RMS cyber team focused on the release of RMS Cyber Solutions version 4.0. This release features substantial enhancements to the RMS model and capabilities across several key areas including exposure data enrichment, expanded model data sources, and new stochastic modeling approaches to quantify cyber risk. Dave Gatey, senior director – modeling for RMS, revealed how new modeling methods, such as agent-based modeling and multi-compartment models were being used in RMS Cyber Solutions v4. Chris Vos, lead modeler for RMS, took to the stage in New York, and myself in London, to give context as to how these improvements to the model and software will assist clients in understanding their cyber risk and therefore making better decisions for their business. In New York, the RMS cyber seminar was followed by a half-day terrorism seminar. Introducing RMS Cyber Solutions Version 4.0 For many insurers, obtaining complete and accurate exposure data from cyber submissions remains a challenge. Often, these submissions are missing key information such as business revenue, profit, or business sector – all attributes that are critical to understanding the potential effect of cyber events. To address this, RMS has released a company database consisting of 13 million companies across 30 countries, alongside a data enrichment engine that uses a custom similarity matching algorithm to allow users to enrich their exposure data. This will help ensure the inputs into the model are as accurate as possible, reducing model uncertainty, and minimizing an insurer’s data collection efforts. Although historical data does not show you the whole picture when it comes to cyber risk, it is still critical to inform the lower return period scenarios. To enable this, RMS has invested substantially in automating our historical event data collection techniques by employing bespoke machine learning algorithms that extract event data from hundreds of thousands of unstructured data sources. These new data sets cover multiple event types including breach, malware, ransomware, and cloud outages and allows our v4 model to be run at a significantly increased level of granularity, supporting greater risk differentiation. RMS has continued to research the causal processes that drive cyber risk, working closely with our partners across cybersecurity and academia, to map out and build simulations of these underlying processes. By stochastically modeling these individual components and applying game theory models to explore threat actor behavior, we can extract probabilities associated with both short- and long-tail cyber events. Investing in Cyber-Physical Loss Models Finally, RMS has maintained its substantial investment in cyber-physical loss models. These models take data from the EDM (the RMS property exposure data store) and other casualty classes to quantify the impact of clash-type cyber catastrophe events such as power blackouts. This allows insurers to explore the potential for silent cyber losses across their business, supporting regulatory reporting. Many insurers are exposed to this type of cyber risk, even if they don’t write affirmative cyber insurance policies. These new insights and models continue to be delivered within an open modeling framework, allowing complete transparency into each of the modeling components. This transparency allows users to validate each component and create custom models to support their own view of risk. This new solution from RMS represents a significant step forward for the insurance industry to model its cyber risk. For more information, please contact cyberrisk@rms.com.…

cyber event
July 03, 2019
The Future of Cyber Risk
Tom Harvey
Tom Harvey
Head of Cyber Product Management, RMS

Tom is the Head of Cyber Product Management for RMS, and since early 2015 has worked together with the Cambridge Centre for Risk Studies and RMS’ development partners to bring the RMS Cyber Accumulation Management System and subsequent RMS Cyber Solutions to the market. Tom joined RMS in 2013 as a technical sales expert assisting a number of leading (re)insurers further their catastrophe management practices.

Prior to joining RMS, Tom spent 4 years at Hewlett Packard Software within the European presales team working closely with a number of HPS’ IT security products.

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