Resiliency Efforts

Risks Without Boundaries

Public and private sector experts are planning resiliency efforts to combat potential disaster losses and the problem of underinsurance.
By: | October 27, 2016 • 3 min read

Representatives from the private and public sector met with policymakers and members of the insurance industry in October to discuss ways to build greater resilience in cities.

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“We have an opportunity to start planning now,” said former N.J. Gov. Christine Todd Whitman during “Cities in the Crosshairs: The Case for Investing in Resilience,” presented by Lloyd’s of London in partnership with the American Security Project, a nonpartisan national security think-tank.

“We must build more resilient systems because we know these impacts are coming,” said Whitman, who is board chairman of the American Security Project and a past administrator of the Environmental Protection Agency.

“We desperately need the private sector; this needs to be a collaborative approach.”

The participants at the New York conference discussed best practices in risk assessment, mitigation, adaptation and risk transfer.

The panel discussion included, from left, Kathleen Hamm, counselor to the deputy secretary at the U.S. Department of Treasury; Lloyd’s CEO Inga Beale; and former N.J. Gov. Christine Todd Whitman

The panel discussion included, from left, Kathleen Hamm, counselor to the deputy secretary at the U.S. Department of Treasury; Lloyd’s CEO Inga Beale; and former N.J. Gov. Christine Todd Whitman

The event comes on the heels of the release of Lloyd’s “City Risk Index,” it’s first-ever analysis of the potential impact of 18 catastrophic threats on the gross domestic product of 301 major international cities. The index uses a metric Lloyd’s calls [email protected] to quantify potential losses from threats to a location’s projected 10-year economic output.

“Our risk list shows how much the risk landscape is changing,” said Lloyd’s CEO Inga Beale, who said the report is a “wake-up call to us all.”

“Now the world is so much more about intangible risks,” she said.

“We need to innovate our products to this ever changing world.”

Just 10 threats account for 91 percent of the Total [email protected], according to Lloyd’s research, which was done in collaboration with University of Cambridge.

Nearly half are man-made, including market crash, cyber attack, power outage and nuclear accident.

“A lot of risks used to be geographically bounded,” Beale said.

“Now, with cyber and climate change, it is without boundaries.”

Market crash leads the list by a wide margin, with pandemic, windstorm, earthquake and flood rounding out the Top 5. Oil price shock, terrorism, drought, heat waves, tsunami and volcanos ares some of the other more costly disasters.

New York, and Los Angeles ranked No. 5 and 6, respectively, on the list of cities with high-asset values that are most financially exposed to disaster. Also high on the list were Taipei, Tokyo, Seoul, Manila, Istanbul, Osaka, Hong Kong and Shanghai.

Dense population coupled with climate warming and new technology contributes to higher damages associated with natural disasters.

“There are more people living in the cities than at any time in history,” said panel leader Dante Disparte, founder and CEO of risk and capital management firm Risk Cooperative.

Population density coupled with climate change and new technology contributes to higher damages associated with natural disasters. Meanwhile, the gap between what the insurance industry pays to cover a catastrophe compared with the actual clean-up cost is widening.

That insurance gap continues to be an elusive goal for the insurance industry at the moment, said Fielding L. Norton, deputy chief enterprise risk officer of XL Catlin.

The insurance gap “is a missed opportunity for my industry to be relevant and to help businesses and communities to get back on their feet in the aftermath of a disaster,” Norton said.

He said his company is working to anticipate catastrophes and devise innovative products to address them.

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XL Catlin recently devised several programs to reach underinsured areas, and is one of eight participants in Lloyd’s newly created disaster risk facility. The facility involves syndicates cooperatively developing solutions to help developing economies tackle underinsurance and improve their resilience.

“One of the most important things we do for our company and for our clients is to not fail to imagine the things that are possible,” Norton said.

“Failure of imagination is a phrase we use all the time in our enterprise risk management group.”

“Lloyd’s has always been at the forefront of taking new risks,” Beale said.

“We’ve been very much underwriting alongside human progress for centuries and we must continue to do this.”

Juliann Walsh is a staff writer at Risk & Insurance. She can be reached at [email protected]

2017 RIMS

Resilience in Face of Cyber

New cyber model platforms will help insurers better manage aggregation risk within their books of business.
By: | April 26, 2017 • 3 min read

As insurers become increasingly concerned about the aggregation of cyber risk exposures in their portfolios, new tools are being developed to help them better assess and manage those exposures.

One of those tools, a comprehensive cyber risk modeling application for the insurance and reinsurance markets, was announced on April 24 by AIR Worldwide.

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Last year at RIMS, AIR announced the release of the industry’s first open source deterministic cyber risk scenario, subsequently releasing a series of scenarios throughout the year, and offering the service to insurers on a consulting basis.

Its latest release, ARC– Analytics of Risk from Cyber — continues that work by offering the modeling platform for license to insurance clients for internal use rather than on a consulting basis. ARC is separate from AIR’s Touchstone platform, allowing for more flexibility in the rapidly changing cyber environment.

ARC allows insurers to get a better picture of their exposures across an entire book of business, with the help of a comprehensive industry exposure database that combines data from multiple public and commercial sources.

Scott Stransky, assistant vice president and principal scientist, AIR Worldwide

The recent attacks on Dyn and Amazon Web Services (AWS) provide perfect examples of how the ARC platform can be used to enhance the industry’s resilience, said Scott Stransky, assistant vice president and principal scientist for AIR Worldwide.

Stransky noted that insurers don’t necessarily have visibility into which of their insureds use Dyn, Amazon Web Services, Rackspace, or other common internet services providers.

In the Dyn and AWS events, there was little insured loss because the downtime fell largely just under policy waiting periods.

But,” said Stransky, “it got our clients thinking, well it happened for a few hours – could it happen for longer? And what does that do to us if it does? … This is really where our model can be very helpful.”

The purpose of having this model is to make the world more resilient … that’s really the goal.” Scott Stransky, assistant vice president and principal scientist, AIR Worldwide

AIR has run the Dyn incident through its model, with the parameters of a single day of downtime impacting the Fortune 1000. Then it did the same with the AWS event.

When we run Fortune 1000 for Dyn for one day, we get a half a billion dollars of loss,” said Stransky. “Taking it one step further – we’ve run the same exercise for AWS for one day, through the Fortune 1000 only, and the losses are about $3 billion.”

So once you expand it out to millions of businesses, the losses would be much higher,” he added.

The ARC platform allows insurers to assess cyber exposures including “silent cyber,” across the spectrum of business, be it D&O, E&O, general liability or property. There are 18 scenarios that can be modeled, with the capability to adjust variables broadly for a better handle on events of varying severity and scope.

Looking ahead, AIR is taking a closer look at what Stransky calls “silent silent cyber,” the complex indirect and difficult to assess or insure potential impacts of any given cyber event.

Stransky cites the 2014 hack of the National Weather Service website as an example. For several days after the hack, no satellite weather imagery was available to be fed into weather models.

Imagine there was a hurricane happening during the time there was no weather service imagery,” he said. “[So] the models wouldn’t have been as accurate; people wouldn’t have had as much advance warning; they wouldn’t have evacuated as quickly or boarded up their homes.”

It’s possible that the losses would be significantly higher in such a scenario, but there would be no way to quantify how much of it could be attributed to the cyber attack and how much was strictly the result of the hurricane itself.

It’s very, very indirect,” said Stransky, citing the recent hack of the Dallas tornado sirens as another example. Not only did the situation jam up the 911 system, potentially exacerbating any number of crisis events, but such a false alarm could lead to increased losses in the future.

The next time if there’s a real tornado, people make think, ‘Oh, its just some hack,’ ” he said. “So if there’s a real tornado, who knows what’s going to happen.”

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Modeling for “silent silent cyber” remains elusive. But platforms like ARC are a step in the right direction for ensuring the continued health and strength of the insurance industry in the face of the ever-changing specter of cyber exposure.

Because we have this model, insurers are now able to manage the risks better, to be more resilient against cyber attacks, to really understand their portfolios,” said Stransky. “So when it does happen, they’ll be able to respond, they’ll be able to pay out the claims properly, they’ll be prepared.

The purpose of having this model is to make the world more resilient … that’s really the goal.”

Additional stories from RIMS 2017:

Blockchain Pros and Cons

If barriers to implementation are brought down, blockchain offers potential for financial institutions.

Embrace the Internet of Things

Risk managers can use IoT for data analytics and other risk mitigation needs, but connected devices also offer a multitude of exposures.

Feeling Unprepared to Deal With Risks

Damage to brand and reputation ranked as the top risk concern of risk managers throughout the world.

Reviewing Medical Marijuana Claims

Liberty Mutual appears to be the first carrier to create a workflow process for evaluating medical marijuana expense reimbursement requests.

Cyber Threat Will Get More Difficult

Companies should focus on response, resiliency and recovery when it comes to cyber risks.

RIMS Conference Held in Birthplace of Insurance in US

Carriers continue their vital role of helping insureds mitigate risks and promote safety.

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]