Cyber insurance saw over $9 billion in gross written premiums in 2022 and is forecast to grow to $13 billion to $25 billion by 2025, Lloyd’s said
Lloyd’s of London, famous insurance and reinsurance market has issued a warning that a significant cyber attack on a global payment system could have a staggering economic impact of $3.5 trillion on the world economy. This concern is shared by both insurers and companies who are increasingly worried about the systemic risks posed by hackers and whether such risks can even be insured against.
Lloyd’s, known for its role in providing cyber insurance alongside traditional sectors like shipping, has outlined a scenario involving a “hypothetical but plausible cyber attack.” In this scenario, malicious code infiltrates transaction software, rapidly spreading through numerous partner networks, allowing hackers to breach defences and siphon off funds, effectively grinding customer payments and bank clearing processes to a halt.
The economic fallout over a five-year period would be most strongly felt in the United States, with a loss of $1.1 trillion, followed by China with $470 billion and Japan with $200 billion, according to this scenario, which was developed by Lloyd’s in collaboration with the Cambridge Centre for Risk Studies.
Bruce Carnegie-Brown, Chairman of Lloyd’s, emphasised that the interconnected nature of global cyber risks makes it too substantial for any single sector to confront alone. He stressed the need for knowledge-sharing, expertise, and innovative ideas among governments, industries, and the insurance market to enhance society’s resilience against such a formidable risk.
The escalating concern among insurers and policymakers regarding cyber attacks’ potential impact on the economy and critical infrastructure has led to calls for greater collaboration. Notably, Zurich’s CEO had previously warned that cyber attacks were approaching a point where they might be deemed “uninsurable.”
Lloyd’s itself had caused controversy by excluding coverage for large state-backed cyber attacks in standard cyber insurance policies. This exclusion raised concerns among banks and essential service providers, as it left them potentially uncovered in the event of such an attack, with the difficulty of attributing hackers and determining state sponsorship.
Some industry leaders have advocated for a government-backed support mechanism in case of a widespread or infrastructure-affecting cyber attack. Insurers have engaged in discussions with the UK government regarding the possibility of extending Pool Re, the UK’s terrorism reinsurance scheme, to cover major state-backed cyber attacks.
The $3.5 trillion figure represents a weighted average of three different severity scenarios, with the most extreme projecting losses of up to $16 trillion over the defined period, according to Lloyd’s.
The market for cyber insurance is one of the fastest-growing segments, driven by the rising number of ransomware attacks. Cyber insurance premiums amounted to just over $9 billion last year, as reported by Lloyd’s, and are anticipated to surge to as much as $25 billion by 2025. Nonetheless, Lloyd’s highlights that even this substantial growth still represents only a small portion of the potential economic losses that businesses and society could face.
