Lloyd’s says cyber challenges innovators

Lloyd’s of London this week announced its 2014 results, showing stable profits amid a difficult marketplace, including the “highly challenging” area of cyber risk.

“We kept an eye on opportunities for thoughtful innovation and investigated opportunities in emerging risk as well as in emerging territories. An example of this has been the increasing involvement of Lloyd’s in cyber insurance,” stated Sean McGovern, chief risk officer and general counsel. “With all great opportunities come great threats.”

Throughout 2014, Lloyd’s reported, its underwriters and brokers focused on finding the best way to cover the cyber risks that came its way, including collaborating with the UK government.

The threats are intangible and Lloyd’s is working at the limits of a constantly evolving technological frontier. Challenges such as cyber cover will continue to test Lloyd’s commitment to innovation,” stated the insurance leader.

High-profile losses have led to great demand for cyber insurance, and governments and regulators have indicated a need for the industry to take lead on impelling change in cybersecurity preparations, the firm noted. This is especially true for cyber events with a physical damage element, a reality that threatens to expand and one that the insurance industry is in the early stages of tackling.

McGovern also called attention to the need to keep books of cyber business balanced appropriately, suggesting insurers could end up in hot water if they do not plan and reserve correctly.

“The importance of maintaining our understanding of aggregate exposures in this risk class cannot be overstated,” he said. “It makes me think of frogs sitting comfortably in what they suppose is a warm bath, but is actually a pot on top of a hot stove, slowly coming to the boil. By the time we realize there is a problem it could be too late. By then the best we can expect is consolidation and the worst, an irreversible decline of market share.”