New report warns that cyber attacks could be catastrophic and requires a new approach by insurers

Reinsurance giant Swiss Re said the possibility of a state-backed cyber attack having a “catastrophic” impact on society requires a new approach to cyber insurance.

The digitization of critical infrastructure has created a situation where a large-scale cyber attack could have a “devastating” impact on society in terms of being able to interrupt the provision of clean water, energy or internet services for an extended period, the report warns.

Swiss Re noted that a large-scale cyberattack by state-backed actors or private actors would lead to systemic losses in the insurance sector due to its impact on “the wider economy and society as whole”.

It warns that these losses could “overwhelm” insurance companies and suggests that the insurance industry needs to adopt a new approach to cyber risk to prevent systemic loss.

The report calls on the industry to unite data on cyberattacks. This will enable better analysis and allow for more accurate pricing and modeling.

It calls for standardization in the language used in e-insurance policies with the goal of increasing consistency across exclusions, terms and conditions.

Swiss Re’s report is the result of a August Lloyd’s of London inquiry in which they asked insurance companies to cease covering state-backed cyberattacks under their standard policies.

In 2015, Lloyd’s estimated that a large-scale cyber attack on the US power grid could result in $1 billion (£873 billion) in damages leading to $71 billion in insured losses.

Swiss Re reports that ransom for hire services have reduced barriers to entry for cybercriminals. The report also warns that sophisticated methods are being used in order to launch attacks.

He noted that the recent increase in ransomware attack since 2020 has already resulted in an increase of cyber insurance premiums while also causing a decrease on the profitability and viability of the cyber-insurance sector.