AXA warns on cyber pandemic risk

A RANGE of insurance policies to protect against cyber attacks on businesses and individuals will be developed in the next few years, according to AXA.

Philippe Derieux. Picture: Benoit Lin

In an exclusive interview with The Yorkshire Post, Philippe Derieux, deputy chief executive of AXA Global P&C and group reinsurance officer, said that while cyber risk insurance was “in its infancy”, there were significant changes ahead.

He said: “Today you can’t pretend that it [the threat of cyber attacks] has changed anything but it will and we can assume that it will. The most advanced market is the US and that has some small experience. But there’s never been a very big claim. It’s all very new. We see this type of risk progressing. So we are starting to propose cover. I have seen that the competition has products emerging. But one year ago they weren’t even in existence. That will certainly change.”

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As a general rule of thumb, cyber attacks are socially or politically-motivated assaults via the internet. They are carried out through the spread of malicious programmes otherwise known as viruses, unauthorised web access, fake websites and other means of stealing information. They can cause far-reaching damage and be very expensive to fix.

Mr Derieux said: “There are some very small cyber risk [policies] for individuals with limited cover, launched by AXA France. For commercial lines, we’ve just started to do something as an add-on to other types of lines of business. You can cover a large organisation with liability [cover] and you can add on some specific cover for cyber risk. But it still is quite limited because we need to do it step by step. It will grow with the emergence of connected devices. There will be more and more connected devices in the world which increases the risk of a cyber pandemic.”

He adds: “The reinsurance market will have once again to develop its expertise in new areas like cyber risk...It means a lot of investment.”

The cost of cyber crime for the global economy has been estimated at $445bn (£266bn) annually, according to a recent report by internet security company McAfee. The total cost of cyber crime to the UK economy alone was $11.4bn during 2013, the equivalent to 0.16 per cent of the GDP.

Meanwhile, Mr Derieux says that companies including AXA are making increased use of ‘catastrophe bonds’ to diversify their risk.

Catastrophe bonds, also known as cat bonds, were first used in the mid-1990s in the aftermath of Hurricane Andrew in the US. Put simply, they transfer the insurance risk into a financial product. Although they are most popular in America, companies in Europe are also adopting them. The yield is higher than that of a government bond which makes them attractive to investors. AXA placed 350 million euros of catastrophe bonds in October 2013.

Mr Derieux said: “[At AXA] we have been the first one to launch cat bonds some ten years ago. We’ve been repeating this exercise almost every two or three years.

“Some of our peers are also doing this. It’s much less in terms of size than the US or Asia but it is developing. It’s an alternative to traditional reinsurance. It has its drawbacks and its advantages.”

Prior to speaking to The Yorkshire Post, Mr Derieux attended AXA’s annual international media seminar near Bordeaux. At this event, the company’s top executives give a number of presentations and seminars over a two-day period.

Delegates heard that overall growth should be accelerating in 2014.