Aon’s Schultz: Cyber ILS poised for growth in wake of CrowdStrike outage

Early indications suggest the recent CrowdStrike outage will not trigger any cyber cat bond payouts.

But the event will provide an invaluable data point to help stress-test the market and better calibrate its models, according to Paul Schultz, Aon Securities CEO.

Speaking to The Insurer TV as part of the regular News in Focus series, Schultz said the event will help demonstrate that the process works.

“It’s useful to see how this calibrates against how this type of event was modelled. Calibration is a good thing,” he said.

Schultz echoed market sentiment that it seemed unlikely the CrowdStrike outage would trigger any cat bond payouts.

“Some of the early views are that it's not at a point where it's going to get into these types of transactions,” he said.

“If [a cyber cat bond payout] turns out to be something that's been expected from a modelling basis and losses have to be paid, I think that's fine.

“If it gets to be something where it just really wasn't contemplated or calibrated, then I think that's where you start to get folks saying, 'Do we need to recalibrate the model?'” he added.

In the wake of the CrowdStrike outage, Schultz voiced confidence that the cyber ILS market would further expand.

“We're pretty bullish about cyber going forward. Clearly, cyber risk is not decreasing. If anything, you just read about more and more things happening,” he said.

“Once you get to a risk level that exceeds what the rated balance sheet and conventional market wants to offer, and then you start to look at excess markets to provide that capacity. It really fits a lot of the fundamentals that we like about ILS,” Schultz explained.

Schultz added a note of caution that the market would continue to grow only if the modelling was deemed adequate when tested by large cyber events.

“The one thing that we're going to have to watch closely is: just how do models perform in estimating cyber events?

“Can we get to a place with the frequency and man-made components of cyber risk that we are comfortable saying we can assign a risk to? I think the answer is yes. But that's going to be recalibrated as we start to have events that potentially put losses to the market,” said Schultz.

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