The threat of cyber attack reaches every part of modern society, and insurance could have an important role to play in helping organisations to manage their cyber risk exposure.
However, there is a significant level of uncertainty attached to the impact of severe events. Lloyd’s of London has published a research report that aims to contribute to the knowledge base required to develop the next generation of insurance solutions for the digital age.
The research estimates the economic and insurance impacts of a severe, yet plausible, cyber attack against the US power grid. While the analysis focuses on the USA, we believe that it provides a framework for thinking about severe cyber attacks anywhere in the world. The key findings of the report are:
- The attackers are able to inflict physical damage on 50 generators which supply power to the electrical grid in the Northeastern USA, including New York City and Washington DC.
- While the attack is relatively limited in scope (nearly 700 generators supply electricity across the region) it triggers a wider blackout which leaves 93 million people without power.
- The total impact to the US economy is estimated at $243bn, rising to more than $1trn in the most extreme version of the scenario.
- Insurance claims arise in over 30 lines of insurance. The total insured losses are estimated at $21.4bn, rising to $71.1bn in the most extreme version of the scenario.
- A key requirement for an insurance response to cyber risks will be to enhance the quality of data available and to continue the development of probabilistic modelling.
- The sharing of cyber attack data is a complex issue, but it could be an important element for enabling the insurance solutions required for this key emerging risk.
The report can be found here.