There would be significant cyber losses in the next 10 years: Christian Mumenthalerm

MONDAY 2 NOVEMBER 2020 | SIRC

`There are certain tail risks that are too big, in my view, for the insurance industry to carry. We can carry a certain amount of risk, and we are active in the market, but I think the capacity will run out within the next three years.The shadow of cyber risk still looms large, with bad actors or rogue states capable of launching damaging cyber attacks that could even result in human losses, given our dependence on technology. It’s not a random event. It’s perpetuated by people and on the aggregation side it’s a real challenge,’’ he explained…

Amidst Covid-19 Pandemic,Christian Mumenthalerm Group CEO, Swiss Re, has cautioned that there would be significant cyber losses in the next 10 years

 “I’m not predicting it, but I think it’s likely that we’re going to have some significant cyber losses in the next 10 years, at some stage. I can’t say, we can cover all cyber risks in the next 20 years,” said Mumenthaler while speaking at a fireside chat at the SIRC 2020 RE-MIND virtual conference on Monday.

He highlighted that despite the effort and investment the industry has put into understanding cyber better, it remains a terrifying risk that does not fulfil all criteria of insurability.like pandemic risks.

He highlighted certain cyber events that could result in huge damages across the world such as a virus or breakdown of cloud-based services, upon which people have become reliant.

`There are certain tail risks that are too big, in my view, for the insurance industry to carry. We can carry a certain amount of risk, and we are active in the market, but I think the capacity will run out within the next three years.The shadow of cyber risk still looms large, with bad actors or rogue states capable of launching damaging cyber attacks that could even result in human losses, given our dependence on technology. It’s not a random event. It’s perpetuated by people and on the aggregation side it’s a real challenge,’’ he explained…

The purpose of (re)insurance is to make the world more resilient - but when it comes to cyber and pandemics, the industry cannot carry the risk by itself and will have to work with governments and other third-party organisations, he said.

Risk-sharing schemes in collaboration with governments will be needed, he said, and governments will need to think in advance about how they will react to the biggest risks that cannot be borne by the insurance industry to see how their strategy could interact with insurance.

Mumenthaler further elaborated that solutions have been formed as a result of partnerships between industry and governments, including a number of terrorism and catastrophe pools designed to reduce risk and to pay out quickly if an event occurs.

In those cases, risk-sharing is the answer. And it is even better if we can consider these risks in advance,” he said.

People will always focus on an immediate priority, however, and risk mitigation always suffers. But it is our responsibility to create better systems. It just takes time.’’ he said.

These issues are especially pertinent in Asia because of the size of the protection gap—the difference between economic and insured losses—in the region.

As the vice chairman of The Geneva Association, an international think-tank for the insurance industry focused on closing the protection gap, Mumenthaler said it is important the industry should work together and share data more.

 “That remains a big topic in Asia,” he said. “The protection gap is always bigger in poor or developing countries. We can do certain things but there are cases where people do not buy protection even when they understand the risk and can afford protection.

“It is a case of behavioural economics, in some cases. The human brain does not like to think about risk.”

He said the only solution in some cases could be to make purchasing insurance for certain risks compulsory, like Switzerland making catastrophe cover mandatory, and that it was important for the industry to work together more for the common good, sharing resources with peers.He said that the real task for the world was to prepare for events better instead of simply reacting to them. This was a big challenge, however, due to the fundamental nature of human psychology, which does not naturally focus on things that have not happened yet.

But he stressed that there are risks the industry cannot manage alone, including pandemics and cyber risk.The biggest challenge with preventing or mitigating risks is not identifying new risks.

“There are experts out there who know about the risk. The biggest challenge is to translate that into policies or risk mitigations before the risk has ever materialised,” he said.

“The biggest challenge is not to identify risks. Whether it was the financial crisis or a pandemic or cyber risk, we have talked about these risks.The challenge is to translate that into mitigation before the risks materialise. That is a real effort for the human mind. It is very hard to take action before an event, and to put resources to something that has not happened yet.We can do this with risk mapping and we can share concerns but, for me, the ideal outcome over time is that governments would have a chief risk officer who talks about risks and makes them public so we can focus on those rather than simply the last risk that materialised.If we could do that and plan in advance we would save many lives and prevent economic damage. But it is a big ask. I cannot over-emphasise how difficult it is,” he said.

Mumenthaler commented on the way the industry has handled the challenges of the pandemic, including learning to work in different ways. He said the experience of remote working may accelerate trends that were already underway in the industry.

“It could mean more agile working and a move to less hierarchical organisational structures,” he suggested..