Cyber risk is a hot topic in the insurance industry today. Technological innovation and connectivity have fundamentally revolutionized the world we live in and promise new transformations in the years ahead.

Executive Summary

Taking inputs like industry sector, revenue, policy limits and attachments for each insured in a cyber insurer's portfolio, Willis Re developed the first tool to measure the aggregated risk across the entire portfolio, PRISM-Re. This article explains the mechanics that include regression analysis of a continually updated breach database (producing average breach frequencies by insured); simulated breaches of PCI, PHI and PII incorporating contagion scenarios (producing loss distributions); and a financial component to overlay the terms of insurance policies on loss estimates.

Increasing digitization and data availability offer tremendous opportunities to drive productivity and innovation and to reduce costs in many areas. Digital cities can be greener, healthier, safer. Manufacturing can be more efficient, with products customized to the buyer. Shopping can be easier and quicker—and technology offers greater variety and transparency than ever before. Services can be more convenient, timelier and more seamless.

Take an ordinary scenario: meeting a friend at a new restaurant. Your reservation was likely made online, after looking at the menu on the restaurant’s website. Your smartphone helps you navigate to the unfamiliar location, while the fitness tracker on your wrist counts your steps and relays them to your social media sites. Once you’re seated, you use an app to select a bottle of wine—and your friend snaps a picture of the label for future reference. During dinner, you and your companion wonder about the release date of a movie. Using your smartphone, you quickly find the information online and even play a short clip of the trailer for your friend. At the end of the evening, you return home. Your automated thermostat has already adjusted the temperature, and you activate your sleep sensor to collect data about the quality of the night’s rest.

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