Lloyd’s is actively taking steps to make sure that it avoids a “dangerous aggregation” of cyber insurance due to the uncertainty of the affects of a potential catastrophic cyber event.
Lloyd’s CEO Inga Beale has talked about making Lloyd’s the world leader for cyber coverage. According to Toby Clowes, a broker at Safeonline L.L.P. in London, “current cyber risk capacity in London is about £280 million ($440.3 million),” of the estimated $1.5 billion to $2 billion cyber insurance market. According to Clowes, “aggregation is a key issue for Lloyd’s and the underwriters within the marketplace.” Lloyd’s performance management directorate, which monitors the syndicates, is watching aggregation risk closely to make sure syndicates won’t get hit by the same or similar losses at the same time.
Recently, Lloyd’s has introduced a risk code for cyber security property damage, while also updating its risk code for cyber security data and privacy breach coverage. Both of these updated codes will help allow the market to monitor “business that syndicates are underwriting.” However, even with these new codes, “Lloyd’s is concerned that without proper controls, there exists a material risk of a dangerous aggregation of exposure in the market.”
According to Dan Trueman, head of the cyber division at Novae Group P.L.C. in London, which manages Lloyd’s syndicate 2007, “Systemic exposure is the problem…Aggregation is one of the big challenges facing underwriters seeking to cover cyber, war and terrorism underwriter in the political risk and crisis management division of Canopius Group Ltd. in London. So Canopius, is examining the potential interconnectivity of cyber risks.” This means that if a number of companies in the same sector are using the same IT system, and something happens to that system that affects all of the companies in that industry, then, there is the potential for huge claims.
Clowes considers this a “cyber hurricane”. He believes cyber insurers must act like property insurers, in the sense that they manage their books geographically, and the London market is spreading its exposure to avoid this “cyber hurricane.”