Insurance-linked securities proposed for cyber threats: Geneva Association

It will attract additional risk-bearing capacity from outside the sector.

The Geneva Association tells the potential of alternative risk transfer (ART) mechanisms in addressing rising cybersecurity risks, whilst global cyber insurance premiums surged to ~$15b in 2023, from $1.5b in 2013.

The association’s recent report titled “Catalysing Cyber Risk Transfer to Capital Markets: Catastrophe bonds and beyond”, said as digitalisation increases, businesses face growing threats such as ransomware, data breaches, and IT outages, making cyber risks a major concern.

Despite this growth, a significant protection gap remains, as re/insurers alone struggle to absorb the potential losses from extreme cyber incidents. 

The report emphasises the role of insurance-linked securities (ILS), such as catastrophe bonds, in attracting additional risk-bearing capacity from outside the re/insurance sector to address these challenges.

“Tools like Cat bonds, which have predominantly been used so far for natural catastrophes, could significantly boost risk-absorbing capacity to cope with catastrophic cyber incidents and help narrow the huge global protection gap,” Jad Ariss, managing director of the Geneva Association, said in a release.

Darren Pain, director Cyber at the Geneva Association and the report's author, noted that whilst interest in cyber ILS is growing, the market remains in its early stages. He identified challenges such as the complexity of cyber risks and varying policy coverage. 

“Progress in modelling capabilities and policy standardisation will be key to fostering confidence amongst investors and unlocking the potential of ART solutions for cyber risks,” said Pain.