Pool Re in discussions to extend remit to cyber risk: report

Pool Re has held talks with its government to extend the UK terrorism backstop’s remit to cover state-sponsored and war-related cyberattacks, according to a report in the Financial Times.

But sources told the newspaper that Treasury Officials involved in the discussions have not yet taken a final position on the matter.

The move comes as insurers restrict cyber protection in traditional polices by removing silent, or unintended, cyber cover. They have also added restrictions to standalone cyber policies, with a big focus on war clauses.

Lloyd’s of London told its underwriters last year that they would have to exclude cover for state-backed cyberattacks. It warned that such losses “have the potential to greatly exceed what the insurance market is able to absorb”.

It has been clear for some time that the insurance market alone could not protect business from a systemic or large scale cyberattack.

Pool Re said back in 2019 that the UK’s state-backed terrorism reinsurance scheme could extend protection to systemic cyber risk.

Last summer, current CEO Tom Clementi told Commercial Risk Europe that Pool Re is going to explore potential public-private solutions for systemic business interruption (BI) risks that could see the state-backed entity extend its remit beyond terrorism to a wider range of threats. This included looking at cyber.

Under Pool Re’s five-year plan of works agreed with HM Treasury last year, it aims to tackle the protection gap for systemic BI risks.

“We are very interested in engaging with government and industry to explore if we can expand Pool Re’s remit, or at least find solutions to the systemic risk challenge that the UK faces. Pool Re offers a compelling blueprint for a public-private partnership for the peril of terrorism. But there is a huge systemic protection gap out there in relation to other risks – namely cyber and pandemic,” Clementi said.

“How do you fill that gap for hard-to-insure systemic risks? The insurance industry tends to like risks that it can put in a box – that it can compartmentalise, understand where the borders are and thereby more easily quantify and price it. But sideways risk like cyber accumulates very quickly across sectors, geographies and boundaries. The insurance industry does not like that, so there is probably some role for the public sector,” he added.

And according to the Financial Times, talks have now taken place to discuss Pool Re taking on cyber risk in some form.

Pool Re’s former CEO Julian Enoizi previously explored the concept of Resilience Re, a multi-peril risk pool that would be agnostic on individual risk but responsive to the systemic nature of risk. Such a concept might be worth exploring further, Clementi told Commercial Risk Europe last summer.

“Within the multi-peril systemic risk pool, you could have pandemic, terrorism and cyber. If you were to do that you could build a pool and grow it more quickly. That could be one option. We are certainly looking to try to develop practical recommendations and solutions that we can take to government with the backing of industry,” he said.

The UK government has a vested interest in encouraging the private sector to deploy more capital for BI risks, but in order to get the private sector to come in, the latter may need some form of limited public sector backstop, similar to the way Pool Re works, Clementi said.

“I don’t think we will get another unlimited guarantee from the government for a systemic risk peril, but there could be some form of limited backstop that would encourage a public-private partnership to emerge and thrive,” he added.

UK terrorism reinsurer Pool Re is going to explore potential public-private solutions for systemic business interruption (BI) risks that could see the state-backed entity extend its remit beyond terrorism to a wider range of threats, chief executive Tom Clementi told Commercial Risk Europe.

The pandemic highlighted the huge potential costs of BI from a systemic event. The OECD estimates that one month of strict Covid-19 measures led to approximately $1.7trn in revenue losses for 28 countries.

With pandemic typically excluded from most insurance policies, the vast majority of these losses have gone uninsured and instead fell on business and government. Faced with a large protection gap, many called for the creation of public-private partnership (PPP) insurance solutions to provide BI cover for future pandemics.

In the UK, insurers collectively worked on a potential BI solution based on the Pool Re model, known as Pandemic Re. Separately, Lloyd’s proposed a state-backed solution known as Recover Re to provide BI cover for future pandemics, as well as Black Swan Re for broader systemic non-damage BI losses. However, these efforts failed to gain traction.

But while many of these initiatives have since faded away, the debate on systemic risk and the role of PPPs is still very much alive, and Pool Re will be looking into whether it can help find a solution, said CEO Clementi.