AM Best warns over cyber challenge for insurers
Cyber risk assessment and mitigation should be a top priority for insurers in their enterprise risk management (ERM) efforts, according to AM Best.
The rating agency explained that cyber poses a dual challenge for insurers. For one, it brings operational risk to the fore. Insurers are vulnerable to cyber-attacks as much as the nearest department store and face the problems of their intellectual property or personal information being compromised. Cyber-attacks can also disrupt businesses, websites, etc.
In addition, for insurers that underwrite cyber insurance, focusing on coverage limits and aggregation risks from industries is critical. Insurers must deal with cyber policies by carefully establishing risk appetites, controls, and reinsurance.
The rating agency has formalized the process of aggregating risks and looking at correlations, as well as the influence of ERM on an organization, in the updated Best’s Credit Rating Methodology, released on October 13, 2017.
Among the challenges associated with cyber risks are the difficulty of identifying these risks and appropriately implementing the right mechanisms to quantify and mitigate exposures, AM Best explained. Preventive measures such as phishing exercises and penetration testing are good ways to diminish the likelihood of an attack. At a minimum, companies should have well-defined action plans in place in the event of a cyber breach, the analysts noted. Insurtech and fintech innovations and the growing use of third-party vendors for data analytics add layers of cyber and infrastructure risk, requiring that companies continually expand and enhance their ERM.
Keeping up with the pace of technological change, technological advancements themselves, the globalization of capital markets, and other macro-environmental changes also mean that companies have to continually refine and enhance their ERM programs, AM Best noted.
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