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Cyber Hurricane

November 11, 2003. Cyber Hurricane. The Potential for Aggregated Internet Losses & the Insurance Industry. The Current State Of Play Harrison Oellrich Managing Director Guy Carpenter & Co., Inc. Quick Emergence of Cyber Exposures. Sophisticated exposures

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Cyber Hurricane

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  1. November 11, 2003 Cyber Hurricane The Potential for Aggregated Internet Losses & the Insurance Industry The Current State Of Play Harrison Oellrich Managing Director Guy Carpenter & Co., Inc.

  2. Quick Emergence of Cyber Exposures • Sophisticated exposures • Create insurer/reinsurer concerns • Never contemplated • Cannot be underwritten within context of traditional policies • Not sufficiently able to • Quantify • Underwrite • Price

  3. Result • Dramatically curtailed coverage, if any under traditional policies • Development of specific stand alone policies

  4. Stand Alone Policies • Allow underwriters to: • Assess • Underwrite • Price each insureds unique internet exposure • Current Total Limits: • $250M market wide • However rarely if ever more than $100M available per insured

  5. Challenge • Need data to model • Mine • Massage • Methodology • Sophisticated models now used for physical perils • Cyber perils seemingly subvert ability to model

  6. Cyber Hurricane (Aggregation) • Need method to slice and dice a la traditional property cat perils • Otherwise must aggregate every dollar written against every other dollar of exposure • Initial attempts to do so successful • Thinking validated by WW property cat leaders/marketplace

  7. Need for Data/Modeling Capability • Loss data plentiful for “bricks and mortar” cat perils • Virtually non-existent for emerging cyber perils • past attacks unreported • Reputational risk • Credible data +modeling techniques = a substantive/sustainable marketplace

  8. Government Involvement/ Why us? • Multiple collaborative initiatives • Internet deemed a critical component of nation’s infrastructure • It must therefore be protected at all costs • Disciplines insurers/reinsurers can provide are same as government wishes to impose if it were able • If successful; network environment hardened • National security enhanced!!

  9. Irrational Exuberance? • Forrester Research predicts Business to Business E-Commerce: • $1.3Trillion by 2005 • Insurance Information Institute: • this will result in $2.5B of premium by 2006 • Conning & Co.: • $5B of premium likely during same period • Even if overstated all must agree that opportunities are real/significant

  10. A Future Vision • Every business will have a presence on the internet • Potential for Cyber Risk Insurance to be the next major growth area of our industry • Buildings of the 21st Century • Opportunities will arise/evolve swiftly • Creating exposures never contemplated • Industry must be creative to fully capitalize on this opportunity

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