Cyber Insurance

A Solution to Cyber Risk Assessment

A new schema will create a standard way for insurers to gather data on cyber exposure.
By: | January 25, 2016 • 5 min read

The insurance industry is about to have a clearer idea of just how much exposure it has to cyber attacks on its customers.

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Ahead of the February launch of its new suite of cyber risk management tools, RMS has released its recently developed Cyber Exposure Data Schema. The ‘open standard’ data schema will provide the insurance industry with a systematic and uniform way to capture cyber exposure data and manage cyber accumulation risk.

Many insurance companies have created cyber insurance products that are providing useful coverage, but their true exposure in the relatively new product line is still unclear, London-based RMS senior vice president Andrew Coburn said.

“Carriers appear to be getting decent profitability on writing cyber insurance, but the problem is that they don’t know how much they could lose in a bad year – what their ‘cyber catastrophe’ exposure is,” Coburn said.

“Clearly there is a lot of demand but not enough capacity in the market because carriers are nervous about accumulation – what happens if thousands get hit by a cyber attack at one time?”

In conjunction with the new schema, Verisk Analytics in Jersey City, N.J., announced the industry’s first global cyber exposure data standard “to help create a uniform method for data transfer across the insurance value chain.”

Verisk’s catastrophe modeling business AIR Worldwide has also developed a preparer’s guide to assist companies in collecting and storing the necessary cyber exposure data in an open format suitable for modeling.

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Scott Stransky, manager and principal scientist, AIR Worldwid

“It’s important to lay the foundation – you can’t build a model until there is a standardized way to put it in a framework for capturing cyber risk,” said Scott Stransky, manager and principal scientist at AIR Worldwide in Boston.

Currently, some insurers just collect information on the potential insured’s industry and revenues, Stransky said.

Other insurers spend a lot of time talking to the company’s information technology staff about their recovery plans, whether they have network intrusion testing, and which devices they actually use for intrusion testing.

RMS created an accumulation management system to help carriers organize and structure their data enabling them to determine how much exposure they have, he said. RMS has also developed detailed scenarios to illustrate the five key cyber events that could occur and cause carriers to lose a lot of money.

“The schema is data architecture – how to organize exposure information in the insurance company to make sure they’ve got their data in the right structure,” Coburn said. “This enables them to report to senior management the exact picture of exposure, and how it’s segmented across the market in different architectures.”

The new data schema for cyber insurance provides firms with a standardized approach to identifying, quantifying and reporting cyber insurance exposure.

The Cyber Exposure Data Schema, developed in collaboration with the Centre for Risk Studies at Cambridge University and with support from eight leading insurance and reinsurance companies, provides firms with a standardized approach to identifying, quantifying and reporting cyber insurance exposure. The schema is both model agnostic and compatible with any exposure management system and will enable firms to:

    • Share and transfer information about exposures in a consistent and standardized format for risk transfer transactions, benchmarking exercises, and regulatory reporting;
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  • Report exposure aggregates by different types of coverage and potential loss characteristics to a level of granularity that can inform risk appetite decisions;
  • Assess and monitor an insurer’s risk appetite, by estimating losses from accumulation scenarios or other types of risk models to the exposure recorded;
  • Clarify silent or affirmative covers by identifying insurance policies that may have ambiguity in whether they would pay out in the event of a cyber incident.

The Cyber Exposure Data Schema was developed by the Centre of Risk Studies at Cambridge University and supported by RMS, Amlin Plc, Aon Benfield, AXIS Capital, Barbican Insurance Group, Canopius Managing Agents Ltd., RenaissanceRe Holdings, Talbot Underwriting, and XL Catlin.

To develop the Cyber Exposure Data Schema, the Cambridge Centre of Risk Studies consulted with a broad range of organizations seeking to harmonize cyber exposure reporting, including cyber risk experts, cyber insurance writers, and industry organizations such as the Lloyd’s Market Association, U.S. rating agencies, the Reinsurance Association of America, and the Chief Risk Officers Forum.

In the London market, Lloyd’s has mandated that all companies within its syndicates or under its management need to report their cyber exposure by the end of the first quarter in March.

In addition to making its Cyber Exposure Data Schema available to all industry participants, RMS has also collaborated with Lloyd’s of London and AIR Worldwide to help the growing cyber insurance market quickly establish the core data requirements for managing cyber risk common to both modeling firms.

By using similar terminology and precise definitions, in addition to highlighting the common elements across their data schemas, the initiative will make it easier for companies to code existing account data to identify their potential cyber accumulations.

“Cyber insurance is an important new area of coverage, and it is essential that we have good-quality standardized data to track exposures,” Tom Bolt, director, performance management, Lloyd’s of London, said in announcing the new schema.

“I am delighted that RMS has collaborated with us to help standardize some common data requirements and that their new data schema incorporates this.”

Bolt noted that Lloyd’s also collaborated with AIR to “help standardize some common data requirements and … their new data schema incorporates this.”

In the London market, Lloyd’s has mandated that all companies within its syndicates or under its management need to report their cyber exposure by the end of the first quarter in March.

“That was one of the drivers for getting the RMS schema published now,” Coburn said. In early February, RMS will release its cyber accumulation management system which includes the five scenarios.

“While the problems are the same in every region, the U.S. is further ahead of other markets in writing cyber risk; the large majority of cyber insurance premiums are written in the U.S.,” he said.

“There are still many more companies in the U.S. market that are very keen to expand their capacity, so it’s a universal problem.

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“Our purpose is not to stop insurers from collecting this information or force insurers to collect more – the guide is really a framework for how companies can think about which fields are more relevant than others,” he said.

In addition, AIR Worldwide has developed an SQL implementation to allow organizations to begin to use the standard in their enterprises. In the coming months, the firm aims to provide SQL scripts that can be used for deterministic scenario analysis and accumulation analysis.

One example would be finding out what types of encryption that insureds are using, Stransky said. The firm could use a query to find flaws that could impact the carrier’s book of business.

“We want to make this practical so carriers can use this right away, but also flexible to allow growth within the framework – something that adds value,” he said.

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

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