Russia-Ukraine cyberwarfare may propel claims in global insurance markets

While acts of war are typically excluded from coverage, assigning culpability for a cyberattack remains a Herculean task.

Further, litigation costs for insurance companies could also grow as policyholders might attempt to resolve denied cyber claims through litigation at an accelerated clip. (Credit: Oleksii/stock.adobe.com)

Since the start of the Russian invasion of Ukraine, a surging wave of cyberattacks materialized, and DBRS Morningstar anticipates insurance companies in Europe and North America will see an uptick in claims and litigation costs as a result.

Although acts of war are typically excluded from cyber policies, according to DBRS Morningstar, the current situation will make attributing the attacks to specific actors difficult as insurers will need to show that the attack and claim are not related to a state-sponsored attack or performed by a group serving as a proxy for a government. Morningstar noted cyberwarfare is typically not acknowledged by state actors.

Additionally, even in cases where state actors are strongly suspected, courts could still rule in favor of a policyholder if existing policy language is subject to interpretation, according to the credit rating agency.

Further, litigation costs for insurance companies could also grow as policyholders might attempt to resolve denied claims through litigation at an accelerated clip.

However, “given the increasing sophistication of cyber insurance underwriting, reduced limits and capacity and the relatively low participation of cyber insurance products in overall portfolios, losses resulting from cyber claims should remain manageable for our rated insurers and reinsurers,” according to the rating agency.

“Nevertheless, we expect that insurers and reinsurers will continue to clarify their cyberwar exclusions to face the new realities of state-sponsored cyberattacks,” Marcos Alvarez, senior vice president and head of insurance at DBRS Morningstar.

Russia & Ukraine hit bottom on AM Best country risk index

AM Best has moved Russia to a level five Country Risk Tier (CRT-5), indicating the country has very high levels of economic, political and financial system risk.

In a press release, AM Best concluded: “Sanctions against Russia have targeted the financial system, resulting in a deeply challenging and unpredictable operating environment for insurers. Volatility in capital and currency markets has increased liquidity risks. Additionally, capital controls and the impact from sanctions will negatively affect cross-border payments.”

Similarly, Ukraine now has a CRT-5 designation, according to AM Best, which projected a deep recession in the Eastern European country as a result of drops in consumer spending and confidence as well as a deterioration of business conditions. Massive infrastructure damage will also slow economic recovery, while currency depreciation will charge inflationary pressures.

Countries with a CRT-5 designation present insurance companies with the biggest risks to financial stability, strength and performance.

Related: