Cyber Risk Outlook Cyber Risk Outlook
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Cyber Risk Outlook Cyber Risk Outlook TABLE OF CONTENTS Foreword .................................................................................................................. 1 Section 1: RMS Cyber Solutions: A New Platform for Managing Cyber Risk ......... 3 Section 2: The Evolving Cyber Risk Landscape ...................................................... 7 Trends in Cyber Risk ................................................................................................. 7 FIghting Back ........................................................................................................... 9 Understanding the Enemy ........................................................................................ 9 Cyber Regulations .................................................................................................... 11 Section 3: Trends in Cyber Loss Processes ............................................................. 15 Data Exfiltration ....................................................................................................... 15 Contagious Malware ................................................................................................. 18 Financial Theft .......................................................................................................... 23 Cloud Outage ............................................................................................................ 25 Denial of Service Attacks .......................................................................................... 26 Section 4: A Growing Cyber Insurance Market ...................................................... 31 Rapid Growth ............................................................................................................ 31 Profitability of Cyber Lines ....................................................................................... 32 Cyber Reinsurance ................................................................................................... 32 Managing Cyber Exposure ....................................................................................... 32 Pricing Cyber Risk .................................................................................................... 33 Section 5: What’s New in RMS Cyber Solutions v3 ................................................. 35 Cyber Probabilistic Modeling .................................................................................... 35 Updated Accumulation Scenarios ............................................................................ 36 Annual Loss Baseline .............................................................................................. 36 Updated Scenarios of Cyber Physical Loss .............................................................. 36 Company-Specific Cyber Risk Rating ....................................................................... 38 Support for Cyber Reinsurance Risk Management .................................................. 39 References ................................................................................................................ 40 Acknowledgements & Report Citation ..................................................................... 44 Foreword Cyber risks run throughout our increasingly digital economy. Assets at risk are increasingly systems at risk, and data defines the exposures and vulnerabilities that really matter. The fast- growing cyber insurance market is now four times the size it was when RMS® developed its first generation of capability in 2015. Yet insurance coverage remains but a fraction of its ultimate potential. To unlock the market’s full potential, reliable With RMS Cyber data and robust analytics are needed. Not only to define, underwrite and price coverage, Solutions v3 we offer but to quantify risk accumulations so that portfolios can be managed, scaled, and the first probabilistic diversified across pools of capital. And to do so in a way that keep pace, and anticipate, framework for cyber a highly dynamic landscape of threats, vulnerabilities, exposures and mitigations. risk management. With RMS Cyber Solutions v3, we offer the first probabilistic framework for cyber risk management, systematically building upon our prior work to systematic exposure accumulations, and scenario-driven loss processes. In addition, we now offer one of the most extensive databases of curated cyber loss incidents, loss cost models for key loss processes and product coverages, differentiated by company size and sector and new analytics for underwriting and risk selection, incorporating telematics with account specific rating factors and risk differentiation. In this report, we provide our assessment of the evolving nature of cyber risk, and describe the new solutions we are providing to support the growth of a resilient market for cyber risk insurance. MOHSEN RAHNAMA, PH.D. Chief Risk Modeling Officer and General Manager, Models & Data Risk Management Solutions PAGE 1 Cyber Risk Outlook SECTION 1 RMS Cyber Solutions: A New Platform for Managing Cyber Risk Managing cyber risk is a continuing challenge as the market diversifies and grows. The affirmative cyber insurance market is now four times the size it was when RMS developed its first generation cyber risk model, dedicated to organizing exposure information and managing accumulation risk, in 2015. The patterns of cyber incidences from the past two RMS Cyber Solutions v3 includes: decades, reflected in our risk analysis framework, have • A probabilistic cyber risk model offering largely persisted as the market has grown, confirming many accumulation scenarios for multiple cyber loss of the key modeling principles of cyber loss that our clients processes at key return periods and loss exceedance use to manage their risk. We have been tracking cyber probability distributions for tail loss incidents and now have built one of the most extensive catalogs of cyber loss events and insurance claims to • Loss cost models as annual expected baseline burn underpin the analytics we offer. This resource shows rates for different loss processes and product that the patterns of occurrences have also changed and coverages, differentiated by company size and sector adapted, and each year we have enhanced and updated • Underwriting and risk selection capability, with the models to follow and anticipate these shifting trends. account-specific rating factors and risk differentiation Our remodeling of cyber risk for our third generation • Reinsurance risk management incorporating tools release is the most significant update yet. We have been and financial engines for reinsurer users working with our clients to address their cyber risk management needs, and in this latest version have • Extensive geographical coverage for managing incorporated several dimensions of new functionality to international growth address their key priorities. Most significantly, our clients have told us that they want Managing Profitable Growth in Cyber Insurance a learning environment which can adapt to the changing Demand nature of cyber risk, and help them manage through the Cyber loss levels are increasing. Cyber losses are occurring future shifts in trends. Our new solution offers a platform in many more countries than ever before, and demand for for integrating models, data, and analytics, to provide a cyber insurance is increasing in many new geographical comprehensive and responsive way forward for cyber insurers. markets, often driven by new regulatory standards being introduced, such as the European Union General Data PAGE 3 Cyber Risk Outlook Protection Regulation. Cyber insurers are evaluating their risk appetites and strategies for responding to this growing international demand. We model the local characteristics The affirmative cyber of cyber loss in the twelve major market countries that constitute over 70% of the risk, and map every significant insurance market is market in the world to a cyber risk class, to enable our clients to manage global demand from the full geographical now four times the range of cyber insurance markets and adapt their risk management strategies to the local characteristics of the size it was when RMS cyber threat. developed its first New Detailed Cyber Cost Models generation cyber risk In the main markets that are driving the growth in demand, insurers are experimenting with coverage offerings and model in 2015. product structures for different markets sectors of company size and business activity. More insurers are now offering cyber products and the range of products on the market have more similarity than in previous years, but product coverages still vary widely. Analysis of a much Probabilistic Assessment of Cyber Loss larger loss data compilation has enabled us to release a full costing model by company sector and size of the annual The highest priority request from our clients has been loss costs from all the main causes of cyber loss, which to assess the return periods of cyber loss, and to link insurers can test against their own cost models and enables probabilities with accumulation scenarios, to help them clients to explore potential modifications to product allocate capital to cyber as a line of insurance. structures and design the offerings that best fit their In the release of the first probabilistic model for cyber risk appetites. loss, we estimate the scalability of the various loss processes that make up the drivers of cyber claims. Company Differentiation and Risk Selection