Gov supported cyber risk pool would encourage greater adoption: Lockton Re

Oliver Brew, Cyber Practice Leader, International, at Lockton Re, has emphasised the possibility of a cyber catastrophe in the coming years which could “far exceed the private insurance market,” as the reinsurance broker’s new report explores options for public-private partnerships to address extreme cyber events.

The report, “Cyber risk pools and Public Private Partnerships – time to dive in?” by Lockton Re, outlines examples of governments stepping in to support communities in times of extreme need, revealing that in many instances, governments have actually contributed more to the financial recovery than the private insurance market after a shock event.

Lockton Re explains that this is particularly evident where insurance purchasing may be limited, or coverage restricted, with several operational, successful PPP schemes upon which lessons can be drawn.

Examples of PPP schemes highlighted by Lockton Re that were developed in the aftermath of a major event include Flood Re, Pool Re, the Australian Reinsurance Pool Corporation, and the US Terrorism Risk Insurance Program.

“There is an emerging consensus of what the challenge to be addressed is, and the need for partnership between industry and government. Understandably, major questions exist about the nature and mechanics of how it could operate,” said Brew.

“Given the still limited adoption of cyber insurance by small and medium-sized businesses, a government-supported cyber risk pool would encourage increased adoption and build resilience. In the context of cyber insurance, a catastrophe is conceivable in the coming years which could far exceed the private insurance market,” he continued.

Brian Lewis, Cyber Practice Leader, North America, Lockton Re, added, “While the concept of a backstop is contentious in some quarters, and execution of the details complex, the merits of working through the thorny challenges from idea to fulfilment make it worthwhile. Proactive development of a risk pool allows orderly engagement with the process, rather than a chaotic and urgent response after a catastrophe.”

Although still viewed as unlikely, the potential for massive cyber events is on the rise as the world’s reliance on technology grows, so a backstop could serve as one part of a wider partnership between the private cyber insurance and reinsurance market and respective government bodies, argues Lockton Re.

“There are legitimate concerns which have been expressed about the principle of a backstop, as well as the many complexities and practicalities of enacting one. A government-backed cyber risk pool arrangement in isolation is not a panacea. However, in conjunction with other measures including ongoing improvements to security standards, it can form a major support in building societal resilience and closing the cyber protection gap,” said Brew.

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