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In order to offer more capacity to cyber insurance buyers, underwriters are beginning to look at the capital markets for increased coverage levels and higher limits. According to a recent Risk & Insurance article, pension funds and institutional investors are showing great interest in insurance-linked securities (ILS), specifically in cyber. “Many investors are looking for ways to take more risks,” said Bill Dubinsky, head of insurance-linked securities at Willis Capital Markets & Advisory. “Cyber risk is something that could work for them because a lot of it is catastrophic and it is generating real growth in insurance and reinsurance needs.”

Although losses are significant when an event does take place, investors have been turning to CAT bonds and other ILS products as alternatives to low-risk fixed income securities. However, cyber-events are different than normal catastrophic risks, which have been the conventional focus of ILS securities, since the risk is constantly evolving and becoming increasingly difficult to predict. “There is no standard way to quantify cyber exposures at the moment,” said Thomas Harvey, product manager of emerging risks at RMS. “The human factor and the various motivations behind attacks add a huge element of complexity to the modeling of cyber risks. Also, the balance between attack and defense is shifting all the time.” To make investors more comfortable in taking these risks, experts must develop a method using “big data” to model, measure and aggregate cyber risk.

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