Part Three – The Digital Revolution (Part Eleven)
Economic Unit
Profit and Returns for the Government:
In return for government-backed loan facilities, Pool Re pays a profit, which is funded from premium income and investment revenue. Since 2018, the scheme has provided around £1.2 billion in revenue to the government. The private financing structure of Pool Re, worth over £12 billion, protects the Treasury and taxpayers from all financial consequences except the most severe terrorist events; the probability of needing to use the guarantee in any given year is estimated at once every 1,500 years.
Pool Re is an independent organization affiliated with the UK Treasury and is managed by a team of specialists, including insurance and reinsurance professionals, actuaries, and counter-terrorism experts, capable of achieving the economic and national security objectives of the government.
Part of Pool Re’s capital is invested in national resilience schemes, meaning that preventive actions by the insurance industry are encouraged and better coverage is provided, while the scheme also invests directly in national risk reduction through the Home Office. Other options are possible, and other reinsurance fund models have been successful.
Examples:
Flood Re:
Provides flood risk reinsurance so that homeowners in high flood-risk areas can obtain flood insurance. This model is funded by a levy on all household insurance companies in the UK, allowing the scheme to function effectively even if fully self-funded.
Short-term Schemes During the COVID-19 Pandemic:
Trade Credit Reinsurance (TCR) Scheme: Introduced when it was expected that up to 55% of trade credit insurance would be canceled due to global supply chain disruptions. Government assessment showed that reinsurance was an effective intervention to protect policyholders, resulting in a net surplus for the Treasury.
Live Events Reinsurance Scheme: Provided assurance to event organizers to continue their activities in the final stages of the COVID-19 pandemic, as access to event cancellation insurance not offered by the market was provided. The scheme supported over 14,000 jobs in the events industry.
Additionally, businesses with strong cybersecurity measures are more resilient to threats and may not perceive risks, potentially leading under-resourced businesses to reduce cybersecurity measures under financial pressure, leaving them exposed to attacks. The message “Continuous cybersecurity protection as an investment for the future” should be emphasized across all communication channels with businesses.
Local Chambers of Commerce currently serve as trusted support resources for businesses, and the chamber network can act as a conduit to increase the adoption of cybersecurity measures. For example, the chamber network provides the National Cyber Security Centre’s accreditation scheme at discounted rates to over 50,000 member businesses. The scope and potential impact of this B2B network on improving cybersecurity resilience is a valuable resource, as according to the 2023 Cyber Security Breaches Survey, around two-thirds (66%) of businesses with Cyber Essentials have a formal cyber incident response plan, compared to only 18% for businesses without this accreditation.
Improving demand for cybersecurity products can create a positive cycle of supply and demand in the cyber insurance market; businesses more aware of cyber threats are more likely to purchase insurance, and insurance encourages protective behaviors such as installing security software.
Business Responsibility:
When businesses fall victim to cybercrime, their customers and partners may also be harmed. Businesses want to cooperate with the government to ensure transparency and certainty regarding their responsibilities toward customers before, during, and after a cyberattack. The UK Department for Digital, Culture, Media & Sport’s 2022 review of cybersecurity incentives and regulations concluded: “The government is exploring ways to require large companies to appropriately assess and manage their cyber risks.”
