Tue, Jul 18, 2017 - Page 10 News List

Lloyd’s warns of the high cost of global cyberattacks

ECONOMIC LOSSES:The world’s oldest insurance market said the cost to global economy of a cyber event could be as much as a massive natural disaster

The Guardian

A customer waits while a cashier writes out a purchase receipt for store records, as many businesses have turned off their digital cash registers after cases of cyberattacks, at a store in Kiev on June 28.

Photo: Reuters

Lloyd’s of London has warned that a serious cyberattack could cost the global economy more than US$120 billion — as much as catastrophic natural disasters, such as Hurricanes Katrina and Sandy.

Published two months after a ransomware cyberattack that hobbled National Health Service hospitals and hit nearly 100 countries, a 56-page report from the world’s oldest insurance market says the threat posed by such global attacks has spiraled and poses a huge risk to business and governments over the next decade.

The most likely scenario is a malicious hack that takes down a cloud service provider with estimated losses of US$53 billion, according to Lloyd’s.

This is the average estimate, but because of the uncertainty around calculating cyberlosses it estimates the figure could be as high as US$121 billion or as low as US$15 billion.

At the upper end, the cost would outstrip the damage wreaked by Hurricane Katrina in 2005, estimated at US$108 billion (including US$80 billion of insured losses). Hurricane Sandy in 2012 is estimated to have caused economic losses of US$50 billion to US$70 billion.

“This report gives a real sense of the scale of damage a cyberattack could cause the global economy. Just like some of the worst natural catastrophes, cyberevents can cause a severe impact on businesses and economies, trigger multiple claims and dramatically increase insurers’ claims costs,” Lloyd’s chief executive Inga Beale said.

“Underwriters need to consider cyber cover in this way and ensure that premium calculations keep pace with the cyberthreat reality,” she said.

The second-most likely threat stems from attacks on computer operating systems run by a large number of businesses around the world, which could cause losses of up to US$28.7 billion (the “mass software vulnerability scenario”).

The majority of these losses are not insured, leaving governments and businesses vulnerable if cyberattacks happen. The uninsured gap could be as high as US$45 billion for the cloud services scenario, and US$26 billion for the mass vulnerability scenario.

Trevor Maynard, Lloyd’s head of innovation and co-author of the report with the cybersecurity firm Cyence, said the global cyberattack in May “showed us that these sorts of attacks are absolutely possible.”

Financial services are most at risk, followed by software and technology, hospitality, retail and healthcare. Cyber cover is a relatively new type of insurance that has emerged in the last few years — Lloyds’s accounts for about a quarter of global premiums — and harder to model and understand than natural catastrophe cover.

Where people are involved, risk changes quite rapidly, Maynard said, from cyberattacks to terrorism and political risk. However, climate change remains the biggest challenge in the long run.

“From year to year, risk varies relatively little but climate change in the end will be far larger as a risk,” he said. “It affects the global economic structure, food, water. [It’s like] trying to turn a supertanker around — we can’t start in 30 years when things are going bad, we have to start now.”

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