Cambridge Centre for Risk Studies Risk Management Solutions: Cyber Accumulation Risk Management Report

09/03/2016 07:37
Our society is undergoing a profound digital transformation. As critical exposures become data, commerce electronic, and assets interconnected systems, the key personal, business and economic risks are increasingly cyber in nature. Cyber-related insurance, while currently modest, has the potential to be a fundamental driver of growth for the global re/insurance industry. And while an opportunity, the digital transformation also poses challenges; as businesses and stakeholders throughout society increasingly make mitigating cyber threats a top priority, the industry needs to adapt to remain relevant. An engaged and vital cyber insurance market will not only be good for the industry but will also ensure a more resilient economy. 
At RMS, we understand there are many challenges to overcome to realize this vision. One key challenge is accumulation. To allocate the capital needed to provide the necessary coverages, and do so in scale, the industry needs to understand the correlation space for this new class of exposure. We know we can write earthquake exposures in both Japan and California with the confidence that the same event will not impact all these exposures at once. We know to be wary of writing two industrial risks along the same river basin, and the role flood defenses play in mitigating loss. With cyber risks, the contours of systemic accumulation are not as clear. 
To develop a framework for multi-line cyber accumulation, we have partnered with several re/ insurers and with Cambridge Centre for Risk Studies to explore a number of new modelling strategies to help measure and constrain cyber risk. In this report, we describe our work to analyze cyber loss processes, develop scenarios and modeling parameters, and define exposures. This initiative is an important first step, and we are committed to the long-term pursuit of the research and development program to provide the industry with the models and tools to better quantify, grow and manage this important risk.
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