Cyber risk underestimated by engineering market: IMIA

A specialist working group established by IMIA to identify challenges presented by cyber risks and how they apply to engineering insurance lines reported to the association's members at its annual conference in Doha, Qatar this week. The group told delegates that cyber developments, such as the Internet of Things (IoT) and cloud computing, have direct influence on the risks faced by engineering firms. These risks are being underestimated by underwriters, the working group warned. It reviewed standard questionnaires and clauses for engineering covers and found that the IT component was hardly mentioned.hide"This is an underestimation of the increasing importance of IT in industrial processes and infrastructure. Potential loss scenarios based on the increasing interconnectivity of and remote access to industrial control systems are also under-evaluated," said the group. Alexander Schmidl, chair of the IMIA working group, said: "The perception that cyber events do not cause physical damage is being challenged; such damage from cyber risks is a reality and is an issue for all lines of engineering insurance. Engineering underwriters must address the issue of cyber on all covers they write. Keeping pace with cyber trends is key if they are to remain current in assessing and carrying related risk. Continuous learning will qualify insurers to be long-term risk partners for the industry and its increasingly complex risks." The IMIA said that cyber risk has the potential to impact across all phases of an engineering project. The use of computer-based systems to control industrial processes and operations, known as Industrial Control Systems (ICS), is one area of increasing vulnerability and loss exposure for engineering classes that underwriters need to consider, it added. The Working Group also highlighted the challenges inherent in pricing cyber related engineering risk. Mr Schmidl said: "Traditional engineering lines pricing is usually retrospectively derived from loss and exposure data covering areas such as loss frequency, exposure data and the severity and distribution of losses. To create an effective cyber pricing model for engineering lines will require increased focus on collating cyber loss data in all these areas." "Industry-specific cyber loss scenarios have to be identified and defined. Transparency in respect of cyber losses and the sharing of data after any loss payouts and forensic investigations should be a goal, particular for those involved in claims. However, this has its challenges with the incomplete nature of contemporary loss data for cyber events, with many cyber events remaining unpublished to protect corporate confidentiality and reputations," he added. Mr Schmidl called for increased dialogue between underwriters, brokers and risk managers to promote a greater understanding and awareness of cyber risks in the engineering insurance sector. "To achieve a balance between insurance needs and risk mitigation there needs to be greater awareness and a common understanding of cyber amongst all parties. The insurance industry is making important strides with insurers and brokers offering targeted cyber risk consulting and tailored solutions. But there needs to be greater risk dialogue and analysis of the threat as part of the risk management process. Keeping risk management at a strategic level is key as a cyber insurance solution should not replace solid IT security standards," he said. Mr Schmidl concluded: "Ignoring cyber risk will create a significant issue for technical insurers. Engineering insurance carriers have to decide how to manage the growing risk from the various threat sources. Failing to do this will not allow for the creation of an adequate long-term cyber risk business model with an appropriate risk return. It will become a greater challenge to price, and legal uncertainties may make this strategy more complicated in the future.”

Cyber risk underestimated by engineering market: IMIA

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