Dramatically curtailed coverage, if any under traditiona

1
Cyber Hurricane

• November 11, 2003

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 nations
  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