Featured Product

    IAIS Report Reviews Supervisory Initiatives on Cyber Risk Underwriting

    December 21, 2020

    IAIS published a report that identifies the challenges affecting cyber-risk underwriting, along with the supervisory considerations for sustainable market development. The report highlights that current cyber-underwriting practices, while serviceable, are not yet optimal, particularly due to issues surrounding the measurement of risk exposures. Additionally, the supervisory intensity (such as frequency of assessment) and specific toolbox development (such as use of stress tests) are proportionate to the relative importance of the cyber-underwriting market, which is generally limited at this time. With a few exceptions, supervisors have not yet issued guidance on cyber-risk underwriting by insurers. Similarly, supervisory reporting on cyber underwriting is not yet widespread and comprehensive, even in jurisdictions with established regulatory reporting.

    Considering the potential scale and pace of the growth of the cyber insurance market and the ubiquitous and significant nature of cyber risk, IAIS has included cyber risk underwriting among the issues presenting opportunities, challenges, and risks related to its mission, with a view to assessing and responding to them in the context of its 2020-2024 Strategic Plan (under High Level Goal 1). As a preparatory step toward developing a strategic approach to how supervisory practices can foster sustainable cyber risk underwriting, in the second half of 2019, IAIS appointed a Cyber Underwriting Small Group (CUSG) of experts from its member supervisors and the Organization for Economic Co-operation and Development (OECDto conduct a stock-take exercise on the development of cyber-underwriting market, the supervisory framework and guidance on cyber-risk underwriting, and the supervisory capacity for monitoring cyber-risk underwriting in different jurisdictions. Cyber Underwriting Small Group was also appointed to prepare this report, to present findings and recommendations for a strategic approach and to identify possible follow-up work for consideration by the IAIS Executive Committee.

    The report highlights that modeling cyber risk as an input for underwriting decisions remains under-developed, but the insurance industry continues to make progress in this area. Furthermore, consistent with the lack of specific supervisory guidelines on cyber-risk underwriting, all the respondents indicated that their existing statutory accounting and capital standards do not provide specific treatment for cyber-underwriting risk. The Cyber Underwriting Small Group recognized that measuring cyber risk is inherently challenging, due to which a proactive supervisory attention is required for cyber-insurance underwriting. To this end, the Group recommended to the IAIS Executive Committee that IAIS pursue a strategic approach focused on facilitating the monitoring, understanding, and assessment of cyber-risk underwriting exposure and impact and on assisting supervisors in building relevant capacity to review cyber-risk underwriting practices and exposure. The approach is aimed to address the following:

    • Non-affirmative cyber exposure—IAIS should play an active role in encouraging supervisors to require improved clarity of policy coverage as regards cyber risk. IAIS should monitor progress in addressing non-affirmative cover by insurers and supervisors and possibly set out further guidance.
    • Heterogeneity in data capture (and facilitating data-sharing initiatives)—IAIS should monitor and analyze initiatives for developing a data taxonomy and will consider the potential for IAIS to facilitate this work. Moreover, IAIS should review current data-sharing initiatives, with a view to identifying effective practices.
    • Supervisory reporting on cyber exposure—IAIS should further review supervisory reporting practices and explore the utility of expanded supervisory reporting on cyber-underwriting exposure. Moreover, consideration should be given to gathering cyber-underwriting data to better understand total exposure as part of the Holistic Framework for Systemic Risk in the Insurance Sector.
    • Risk measurement, including development of stress scenarios—IAIS should review industry and supervisory approaches related to risk measurement, along with initiatives for developing stress scenarios to estimate cyber-underwriting exposure, and consider the potential for an IAIS role in furthering such work.
    • Issues related to policy wording—IAIS should analyze issues related to clarity of policy terms, conditions, and exclusions with a view to encouraging convergence in understanding, although the CUSG concurs with stakeholders that compelled standardization of policy wording should not presently be pursued.
    • Development of cyber awareness and expertise among supervisors—IAIS should undertake initiatives to develop and share good practices on supervision of cyber underwriting.

    Keywords: International, Insurance, Cyber Risk, Cyber Underwriting, Cyber Insurance, Proportionality, Stress Testing, Capital Requirements, Cyber Risk Modeling, IAIS

    Featured Experts
    Related Articles

    BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks

    The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.

    March 13, 2023 WebPage Regulatory News

    OSFI Finalizes on Climate Risk Guideline, Issues Other Updates

    The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.

    March 12, 2023 WebPage Regulatory News

    BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending

    BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.

    March 03, 2023 WebPage Regulatory News

    HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks

    The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.

    March 02, 2023 WebPage Regulatory News

    BCBS Report Examines Impact of Basel III Framework for Banks

    The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.

    February 28, 2023 WebPage Regulatory News

    PRA Consults on Prudential Rules for "Simpler-Regime" Firms

    Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.

    February 28, 2023 WebPage Regulatory News

    DNB Publishes Multiple Reporting Updates for Banks

    DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.

    February 28, 2023 WebPage Regulatory News

    NBB Sets Out Climate Risk Expectations, Issues Reporting Updates

    The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting

    February 24, 2023 WebPage Regulatory News

    EBA Updates Address Securitization Standards and DGS Guidelines

    The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.

    February 21, 2023 WebPage Regulatory News

    FSB Publishes Letter to G20, Sets Out Work Priorities for 2023

    The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023

    February 20, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8793