The head of the UK’s intelligence monitoring service GCHQ, Jeremy Fleming, recently told The Telegraph newspaper that hostile states, terrorists and criminals are using the internet to undermine national security and attack UK interests. It followed the UK’s first successful prosecution of a cyber terrorist in May this year.
Against this backdrop, UK terrorism reinsurer Pool Re recently confirmed that it is to extend its property insurance cover to include cyber terrorism. Pool Re, which reinsures terrorism property damage and related business interruption risk in the UK under a government guarantee, had previously indicated that it would extend property terrorism cover to include acts of terrorism, but government approval was delayed by the general election in June.
However in its latest threat report, the reinsurer said that it had now received the necessary approval from the Treasury. It plans to begin offering cover to include physical damage caused by terrorists using a cyber trigger to cause a fire and defined perils from April 2018.
Destructive acts of cyber terrorism currently remain unlikely, according to the most recent threat analysis from Pool Re. However, methods of attack continue to evolve, and terrorists are likely to turn to the cyber domain to cause harm and damage to property, it predicts.
Islamic terrorist groups, for example, are using internet platforms for propaganda and recruitment purposes. However, the successful UK prosecution and jailing of cyber terrorist Samata Ullah in May is evidence of the growing threat from groups like the Cyber Caliphate Army. In addition, an Iranian-backed cyber unit, the Hezbollah Cyber Group, is suspected of being responsible for cyber attacks against oil and gas companies in the Persian Gulf.
While the cyber capabilities of groups like the Islamic State are in their infancy, Pool Re warns of the potential convergence between cyber criminals and cyber terrorists in the future. It is plausible that cyber criminals could sell stolen credentials and malware to terrorists, or enable them to cripple public or private services, as seen in the recent WannaCry attack, Pool Re said.
Cyber terrorism is a difficult risk to predict, measure and model, explains JLT Re’s Global Head of Analytics David Flandro. As such, standard terrorism property damage policies typically exclude physical losses or damage caused by ‘attacks by electronic means’.
Modelling cyber terrorism requires expertise and experience, which are in short supply. While it is possible to model physical acts of terrorism, such as a bomb attack in a major city like New York or London, there are hundreds of thousands if not millions of potentially measurable cyber terrorism scenarios.
Adding to the challenge is attribution. For physical terrorist attacks, insurers typically rely on government certification to trigger a terrorism policy. But attribution and certification is more complicated for cyber terrorism.
Given these challenges, state pools may offer the best alternative in providing cover for terrorist or state-sponsored attacks. In its April 2017 Viewpoint report, JLT Re predicts that government-backed pools are likely to play a role in the provision of cyber cover by offering backstops for catastrophic risks such as cyber terrorism or cyber warfare.
According to David Flandro, by providing a backstop, governments can help create a market for cyber terrorism, enabling private insurers to develop innovative solutions and broader cover.
In the longer term, the sector’s ability to quantify and thereby help prevent terror risk will play a greater role. JLT, for example, is actively seeking to accelerate this process for its clients with terror risk modelling teams, tools, and services.
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