Following today’s Microsoft Cloud outage, analysts currently expect business interruption claims to drive the bulk of insurance industry losses, and question whether this could be the litmus test for cyber underwriters, notably UK headquartered, specialist insurer Beazley.

One of the largest-ever IT outages hit companies across the world today, causing significant disruption to airlines, hospitals, financial services groups, and media sites.

It’s been confirmed that the outage was caused by a security update from CrowdStrike, a provider of security technology, which led to widespread issues with Microsoft’s Windows.

Of course, it will take some time before the overall impact is understood and before there’s any realistic loss estimates for the insurance industry, but with cyber security experts already describing the event as unprecedented in terms of range and scale of systems impacted, it’s a stark reminder of the potential for cyber accumulation risks and significant business interruption losses.

Commenting on the IT outage, analysts at Goldman Sachs have said that it’s their belief that “a key focus area would be potential business interruption claims, with key considerations including the cause and duration of the IT outage.”

An outage caused by a cyber attack has the potential to trigger other loss claims as well as BI, but as analysts note, CrowdStrike has ruled this out and attributed the incident to a software update.

Analysts at RBC Capital Markets also expect “the bulk of insured losses today to come from business interruption”, adding that the fact a software update was responsible, “should mean that the overall disruption, and hence losses, would be less severe than it were if this was a security incident (i.e. cyber attack).”

Based on what analysts at RBC are currently seeing, the company thinks that the outage is severe enough to qualify as a cyber catastrophe, but does stress that the event is ongoing and that they’re no cyber experts.

While the cyber re/insurance market has expanded in recent times, the reality is that there’s not yet been a significant stress-test of cyber writers and the market overall, which has raised questions around the carriers’ ability to properly underwrite the risk given the lack of historical data and lack of advanced modelling.

But could this be the litmus test for the cyber insurance market? That’s exactly what RBC questions in its coverage of the event, with a focus on large cyber writer Beazley (BEZ).

“Assuming that today is the Litmus Test, then we would think that it should reassure on BEZ’s (and the industry’s) cyber underwriting efficacy as we get more clarity on this outage’s impact over the coming weeks and months. Clearly the implicit assumption here is that BEZ does not fold from this and would stand to benefit from the ensuing cyber market turn from harder pricing and higher demand,” say analysts.

At this stage, continue analysts, there’s nothing to suggest that today’s IT outage would pose any capital risk to Beazley.

Analysts at Goldman Sachs also discuss the potential impact of today’s outage on Beazley, emphasising that as part of its work to mitigate tail risk, its eligibility of claims includes a breakdown provision of more than 8 hours in a
majority of the contracts.

“Therefore, while still early, assuming the IT outage was not caused by a cyber attack, as indicated in media reports, and lasted less than 8 hours, we believe this should help limit potential BI losses,” say Goldman Sachs analysts.

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