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Travelers Representatives Talk Cyber Insurance Pricing and Risks


On Tuesday, February 16th, The UW-Madison Actuarial Club was honored to host Travelers Insurance with presenters Trevor Franda, Derek Tanaka, Ryan Diedrich, Vincent Anderson, and Erin Yetter. Our members had the opportunity to learn about pricing cyber insurance from these actuarial professionals with hands-on learning and examples.


A respectively new and growing problem globally, cyber risk provides a market for a new insurance product: cyber insurance. With new insurance products, actuaries are at the forefront of attempting to accurately price coverage of this new risk with limited historical and third-party data, new cyber crimes arising daily, and a growing number of competitors. This is evident in the changes in cyber insurance prices over the past four years as well: while most insurance products see an average increase in price of 4% per year, cyber risk has made dramatic adjustments to accurately cover its growing losses with an average increase in price of 23% per year. Positively correlated with this event, insurance companies are also observing loss ratios rising over time (i.e. more claims are being filed).


The representatives went on to thoroughly explain some of the cyber risk events covered in their policies, including ransomware, phishing schemes, data leaks, and cryptojacking; however, this simplified list is continuously evolving as more hackers and criminals find the "next best" ways to commit cyber crimes. Some of the challenges insurance companies are facing in the cyber risk industry are the changing nature of the risk, the new nature of the line of business, low loss frequency yet high severity, and customers' business organization and structure. Matched with the goals to ensure each policy is charged a rate matching expected costs and provide an actuarial best estimate of the losses, these seem hindering yet not impossible.


Our members also got a hands-on learning experience with insurance pricing and ratemaking. The presenters walked us through a premium calculation and its factors and how actuaries might create a factor rate through loss prediction using both actuarial and industry/expert intuition and historical data. In order to create stronger assumptions, insurance companies may also seek to use third party data to best estimate losses and price the insurance product. While this data may be objective, measure unbiased due to the data source's independence from the insurer, and be efficient, actuaries also must balance its reliability, regulatory concerns, and run a cost/benefit analysis on the price of such data.


It has been inspiring to learn about such a new risk and insurance product, insurance product pricing, and the changing challenges actuaries in this field are facing.


We would like to extend our gratitude towards Travelers Insurance, Trevor, Derek, Ryan, Vincent, and Erin for their time spent with our future actuarial professionals. We enjoyed learning about their work in Cyber Risk Insurance and Pricing, and we hope to hear from the again in the near future!


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