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Nearly half the economic risks faced by 301 cities around the world were linked to manmade threats, including market crashes,  cyber attacks, power outages and nuclear accidents.
Nearly half the economic risks faced by 301 cities around the world were linked to manmade threats, including market crashes,  cyber attacks, power outages and nuclear accidents.

Cyber Hack Could Cost $120b

The threat posed by global cyber attacks has spiraled and poses a huge risk to business and governments over the next decade

Cyber Hack Could Cost $120b

Lloyd’s of London has warned that a serious cyber attack could cost the global economy more than $120 billion–as much as catastrophic natural disasters such as Hurricanes Katrina and Sandy in the US. Damages caused by Katrina alone amounted to $108 billion.
Published two months after a ransomware cyber attack that hobbled NHS hospitals and hit nearly 100 countries, a 56-page report from the world’s oldest insurance market says the threat posed by such global attacks has spiraled and poses a huge risk to business and governments over the next decade, news outlets reported.
The most likely scenario is a malicious hack that takes down a cloud service provider with estimated losses of $53 billion, according to Lloyd’s. This is the average estimate, but because of the uncertainty around calculating cyber losses it estimates the figure could be as high as $121 billion or as low as $15 billion.
At the upper end, the cost would outstrip the damage wreaked by Hurricane Katrina in 2005, estimated at $108 billion (including $80 billion of insured losses). Hurricane Sandy in 2012 is estimated to have caused economic losses of $50-70 billion.
Inga Beale, chief executive of Lloyd’s, said: “This report gives a real sense of the scale of damage a cyber attack could cause the global economy. Just like some of the worst natural catastrophes, cyber events can cause a severe impact on businesses and economies, trigger multiple claims and dramatically increase insurers’ claims costs. Underwriters need to consider cyber cover in this way and ensure that premium calculations keep pace with the cyber threat reality.”

Manmade Risks
Inga Beale’s comments came as the 328-year-old institution posted a 30% fall in 2015 profits, hit by a sharp decline in investment returns in the wake of ultra-low interest rates, as well as price declines amid rising competition.
Beale said: “In the traditional days of insurance we used to be very concerned about earthquakes and hurricanes ... These days manmade risks are becoming the predominant risks.” These include growing demand for terrorism insurance from local city governments and businesses.
She pointed to the Lloyd’s city risk index, which found that nearly half the economic risks faced by 301 cities around the world were linked to manmade threats, including market crashes, cyber attacks, power outages and nuclear accidents. “We’ve seen an increase in manmade risks all over the world,” she added.
The second-most likely threat stems from attacks on computer operating systems run by a large number of businesses around the world, which could cause losses of up to $28.7 billion (the “mass software vulnerability scenario”).
The majority of these losses are not insured, leaving governments and businesses vulnerable if cyber attacks happen. The uninsured gap could be as high as $45 billion for the cloud services scenario, and $26 billion for the mass vulnerability scenario, Reuters quoted the report as saying.
Trevor Maynard, Lloyd’s head of innovation and co-author of the report with the cyber-security firm Cyence, said the global cyber attack in May “showed us that these sorts of attacks are absolutely possible”. Financial services is most at risk, followed by software and technology, hospitality, retail and healthcare.
Cyber cover is a relatively new type of insurance that has emerged in the last few years–Lloyds’s accounts for about a quarter of global premiums–and harder to model and understand than natural catastrophe cover.

Climate Change Challenge
Where people are involved, risk changes quite rapidly, Maynard said, from cyber attacks to terrorism and political risk. However, climate change remains the biggest challenge in the long run.
“From year to year, risk varies relatively little but climate change in the end will be far larger as a risk,” he said. “It affects the global economic structure, food, water. It’s like trying to turn a supertanker around–we can’t start in 30 years when things are going bad, we have to start now.”
Beale added, climate change is another major threat, which affects some areas of the world that “don’t really know about insurance”, such as the Philippines which suffered severe floods last autumn. Eight Lloyd’s syndicates including Amlin, Beazley and Hiscox launched a $400 million initiative in November to work with governments to tackle under-insurance in developing economies.

 

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