Creative Leadership Within the Cyber asset Market: An Interview With Dame Inga Beale

Introduction

As organizations modernize by digitally transforming themselves (Westerman, Bonnet, & McAfee, 2014), they tend to become nimbler by moving physical into cloud-based cyber assets (Mitra, O’Regan, & Sarpong, 2018). In the event of cyber attacks, the need for security of these cloud assets, as well as the need for insurance to ensure survival of the organization, is increasingly becoming a critical challenge. After all, consumer confidence and trust in an organization’s business potential is a composite of various indicators (Corbitt, Thanasankit, & Yi, 2003; Pappas, 2016) like the type of underwriting of risk that the enterprise might have acquired. Although cloud-based capacity brings about ready access for customers, meanwhile, organizations are struggling to cope with vulnerabilities to cyber attacks as well as escalating risks of maintaining intangible assets.

Dame Inga Beale who is the CEO of Lloyd’s, the world’s specialist (re)insurance market, has been at the forefront of the insurance sector’s role in underwriting assets of individuals, organizations, and states around the world. The uniqueness in focus of Inga’s approach is the primary articulation of the social purpose of insurance—changing lives, making people feel secure by protecting their assets, helping to build resilience in communities by mitigating risks of loss of their assets. As organizational wealth is assessed by the data that it holds of its customers and stakeholders—the nature of such asset management becomes both complex and fluid. Right after Inga was appointed the CEO of Lloyd’s in January 2014, she had advocated the need for insurers to take on consequences of climate change (Kollewe, 2014). Unlike typical leaders, Inga’s approach is unique as it addresses a composite of social challenges, recent trends in cyber crime, and risk and complex threats in an international context. The latter is particularly important to bear in mind as the online world is one that is uninhibited by geographical limits.

At a time when value of an organization is determined by the quality and quantity of data that it possesses, there has been a sea change in the way we estimate organizational asset value (Mitra et al., 2018). Over the last three decades, we have experienced the abiding transformation of organizations by their need of converting physical into digital assets. So, organizations of today in a digitally connected context have a key challenge in ensuring security of such assets as well as have adequate insurance cover in place to make sure that they can survive when they lose digital assets or when their digital assets are compromised in any way. The insurance sector has had to reorient itself in keeping with the advent of the digital organization, as it needs to provide cover for digital assets.

It is also a worrying reality that the spate and sophistication of attacks on digital assets have been on the rise (von Solms & van Niekerk, 2013) over the last decade like never before. Consequently, every business needs to protect its resources such that it can trade as well as garner competitive advantages in a market that is reliant on digital trust as the most important driver for its survival (Knapp & Boulton, 2006). This type of trust building would mean that the organization’s value proposition would need to be defined differently from that of the past. As organizations hold data mainly of its customers and stakeholders, the valuation of such data assets is usually higher than physical assets. Furthermore, the valuation of such assets can fluctuate as customers express their opinions on their experiences in consuming products and services of organizations (Grover & Kohli, 2012). Therefore, losses of digital assets can do lasting damage to organizations in comparison with losses of physical assets. The insurance sector, therefore, has a key role in underwriting digital assets in such a way that organizations are able to survive loss of business due to data loss. Change and advances that benefit asset management is a development that can benefit everyone, but security of data is a dimension that has become much more important than in the past.

In this interview, Inga outlines her views between leadership and the opportunities it promises for the transformation of the insurance sector. She draws on a multitude of experiences and macro developments such as climate change, globalization, cybervulnerabilities, uniqueness of Lloyd’s as an international business. For instance, Inga’s experiences have spanned over several decades of anchoring varying responsibilities starting in 1982 working for Prudential Assurance Company, then heading divisions in Paris and Munich of General Electric, followed by a significant turning around of Swiss company, Converium. Before joining Lloyd’s, Inga was a member of the Group Management Board of Zurich Insurance Group. How cybervulnerabilities have gradually outweighed losses due to natural disasters is another perceptive dimension that comes out through Inga’s interview.

The interview begins with her observations on the historical dimensions of Lloyd’s business and how it has changed over the previous three centuries. She also comments on the nature of complexity of the insurance market brought about by globalization, and the wider need to help people who are disadvantaged by climate change and other natural calamities. The article concludes with a brief commentary, identifying key themes and their relationship to present-day issues within extant literature.

Dame Inga Beale, DBE: Background of Lloyd’s

Lloyd’s was formed in Edward Lloyd’s coffee house in 1688 and is still operating not far away from that original beginning in London’s financial district. While operating globally, Lloyd’s is no ordinary insurance company. In fact, it is not a company at all, but a unique market. Its uniqueness is reinforced by the failure of others to replicate the model. Lloyd’s insures insurance companies from around the world with a truly global reach. They do business in over 200 countries and territories across the world, and they have been doing this for 330 years. They use the mantra that it is enabling human progress along the centuries. Lloyd’s insured the first of anything starting with ships and supporting merchants, as they were shipping cargos all around the world. But then when the vessel went on land for the first time, that is, the car was born, they insured the first car. Lloyd’s insured the first airplane when it took off, and the first satellite as it was launched. And nowadays Lloyd’s are still taking on new risks such as insuring cyber assets and new artifacts of the sharing economy. An interesting thing about the Lloyd’s market is some of the world’s largest insurance companies set up with Lloyd’s. They have syndicates, share risks with other syndicates in the market and use Lloyd’s as one of their platforms because it has access to all the specialists risks.

Lloyd’s have almost 60 insurance businesses operating in the market and about 80 syndicates. Syndicates are supported by individual investors and at one time Lloyd’s had in excess of 400 syndicates. In recent times, the market has changed due to increased regulation, controls, and of course unlimited liability is no longer allowed. The syndicates between them have revenues of about £30 billion with general insurance being the core activity. Lloyd’s market is unique in that sometimes the syndicates are competing head to head, and sometimes they collaborate. It is that collaboration that’s enabled Lloyd’s over the years to take on new risks. Every day over 4,000 brokers visit Lloyd’s to negotiate million-dollar deals with underwriters. In addition to London, Lloyd’s have offices in Dubai, Singapore, China, Brazil, and Mexico City.

There are 74 Lloyd’s syndicates writing cyberinsurance, thus enabling Lloyd’s to take on this new risk because it gets shared among them all. And there is different capital supporting each one of those syndicates from around the world. So that it diversifies and shares the risk right across the world. And that’s the uniqueness of Lloyd’s, which means it can keep moving forward and take on those new and complex risks. Lloyd’s operates a central fund of about £3 billion as a backstop for any of those individual syndicates. If they can’t fulfill their liabilities toward any of their policy holders and the capital is not there to pay the claim, Lloyd’s manage a central fund—this gives everyone a lot of security that Lloyd’s is going to be there. And Lloyd’s has paid every single valid claim for 330 years so far—a fact that is unlikely to change.

Insurance has an incredibly important social purpose. We change the lives of millions for the better by protecting them, strengthening, and helping communities to build resilience. And particularly when we think about the rising complex world of risk, we are there helping to mitigate those risks in the first place, working with businesses to help them be more resilient and help build resilience into cities and indeed economies. And we have been around through all those disasters, through world wars and some of the biggest natural disasters in the world. And we are renowned for our ability to absorb risk through crisis after crisis. And right now across the world when we look at the risks that are out there, there is certainly business and governments and individuals who are confronted with some enormous change and challenges, which some of us have never faced before. And I think what’s very interesting is while the world is always changing and moving forward, it’s the pace of change that’s so dramatic now and that’s what technology in a digital revolution is bringing to all of us.

The other mega trends that cannot be ignored include climate change. Another is the shift in economic powers that’s happening as China becomes the biggest economy in the world—it is already home to the largest insurers in the world. Another trend is urbanization in countries such as China where they have got cities that we have never heard of with bigger GDP than entire countries in the world. This is quite staggering when one also thinks of the enormous concentration of risk that was never there before. And these are the things that challenge us as we are trying to take that risk off businesses and off governments.

Fundamentally, we want to move along as the world moves along and enable that human progress to move forward. Although there is no magic formula, we do our best to try and understand trends/changes and grapple with them. I attended the World Economic Forum in Davos, Switzerland. The most recent event in 2018 was also one of the most high profile. And it had an unprecedented amount of government representation, government leaders, and business leaders.

Lloyd’s attended Davos as it puts us at the heart of the important debates that are going on between business and government around the challenges that are facing the world. We can then determine our response based on many of those conversations that we have in Davos.

Now that annual meeting began 47 years ago and the world, I can say, has changed dramatically since then and we have seen so much progress as a global society, but what we are also seeing right now is a growing disparity that has emerged between those fortunate enough to benefit from globalization and those who feel let down and left out. And particularly left out by many of the institutions that of course promised to work in their favour. And this globalization was at the heart of what people were talking about in Davos, and some leaders were saying globalization is good and some were saying globalization is very bad.

There is a lot of uncertainty and unrest in the world and many ponder how it’s going to end up. Brexit is one example as the United Kingdom prepares to exit from the European Union. In 2017, the U.S. president was being inaugurated and consequently did not attend Davos. President Xi from China stepped in and talked about how globalization is so good—this seemed unusual given the barriers to entry to the Chinese marketplace. In 2018, Prime Minister Modi from India talked about the benefits of globalization—again a country known for being very protectionist and having various barriers to do business there. So it’s very interesting when we think about what’s happening in the world today, and India and China are not the only ones talking about the need for globalization. You have Canada, France, Germany, and others with the same message. Then President Trump spoke of America first.

But when we look at what’s happening, we know that there are more restrictive trade measures coming in all the time, and if you look at what the World Trade organization monitors, there have been, in the past 2 years, 200 new trade restrictive measures that have come into play.

For a global business such as Lloyd’s, that is a serious threat to our model and it’s also a serious threat to the ecosystem. If you think about what I talked about, about the syndicates sharing the risk, this means we can take on risks from Japan and Chile because we know there is limited correlation and, therefore, it enables us to spread risk. That’s why we are proponents of the globalized world and proponents of moving those barriers. But we have enormous challenges against a backdrop of antiglobalization going on in many parts of society and countries.

Digital connectedness is significant, and while we might think that globalization is bad, we are connected, and we can’t break those connections. I don’t see those connections breaking now. They are there and it means we are living in an ever-connected world.

The digital revolution is having a profound impact on the way we are communicating and doing business. It is not a new thing. It’s just the pace of change that is so new. And instead of posting letters, we use emails—a concept that is likely to become outdated for the next generation. And instead of consulting books and writing stuff down, we turn to the World Wide Web. And instead of getting out music on vinyl or even CDs, it’s now all digital. And we are even being told what we want to listen to, it is being streamed automatically to us. There are so many, so many examples.

Change has been incredible. Most jobs have been or are being transformed beyond all recognition. We live in a world that if you are not paying for it, you are the product. And what I mean by that is everything we do on our phones and computers is being captured somehow in the form of data. And your age, location, interests, spending habits, political bias, these are all really valuable data points that companies are collecting through apps, through social media platforms, and so on. And all of these organizations need to prove that they are behaving responsibly with the masses of data they are collecting, and that they are protecting it from those who could be out to misuse it. This is just one of the consequences of the digital world. We have seen huge advancements in technology, but most importantly, what is going to be happening to your data are that you are giving out freely most of the time. And we in the insurance sector, need to understand all of that because it’s putting new risks out there that we, if we want to enable human progress, have to grapple with. We have to find solutions and products to make sure that the world doesn’t stop progressing.

Driverless cars are one example of the use of advanced technologies, and how things are going to change. Autonomous vehicles are around the corner. We know they are already developed and they will be on our streets. Last year alone the number of self-driving cars that were being tested in Silicon Valley increased to 180 and the number of companies building and investing in them has gone up to 27. So that was more than twice as many as a year ago.

In 2021, it’s estimated that there will be 22.5 billion Internet devices—all connected, for a world population of 6.6 billion [2016 figures]. So there are going to be many more mobile devices than individuals on the planet and we have also seen things like the sharing economy taking off. There are now 17 companies worth more than a billion dollars with 60,000 employees and US$15 billion in funding just from the sharing economy.

Airbnb and Uber are obviously the most prominent that we know of very well in this country but there are many more. And then we have got things such as cryptocurrencies going on, a particularly fast-moving area—this could be the wild west if you like of financial markets. But there are now 1,100 different cryptocurrencies and a total market cap of about US$150 billion circulating today in cryptocurrencies. All of these advanced technologies have one thing in common, whatever they are. And that is that they are susceptible to a cyberattack.

Yes, and I will give an example of a recent attack. One morning an employee in a chain of opticians received an email saying she had been caught speeding on camera. She clicked on the link and it offered to show her a photograph of her being caught in the act of speeding. This was a cyberattack as the email was not genuine. By clicking on the link she triggered a virus that infected all the files on her company’s servers. Then she received the email that said, your files are all encrypted and we need a fee from you, payable in bitcoin to unlock the encryption. The files contained sensitive patient records as well as the software to run the business. Without access to them the business couldn’t operate. They had no choice but to pay up to these hackers, whoever they were. The company’s insurer, a Lloyd’s syndicate, paid for the ransom and provided the reimbursement for the entire costs for getting up and running.

But of course, it didn’t end there because the encryption key that the hackers then released only covered 90% of the files and the company needed an IT contractor to come in and rebuild and recover the remainder of them. The company eventually got up and running again, but it was a traumatic experience for everyone involved. And I am afraid that is a typical story that we hear a lot because Lloyd’s is the leading insurer of cyber in the world. We have premiums of about £1 billion just on cyberinsurance, it’s our fastest growing line. So we see a lot of cases like this. And that’s why we know it’s so real. And that’s why I personally talk a lot about it and we take it very seriously.

It doesn’t matter how small or how large a company is, if it is not immune from attack. Just for the central corporation of Lloyd’s, we restrict 98% of our email traffic from even coming in. And that’s the extent to which people are constantly battering all of the businesses out there just with email traffic that could be infected.

Forbes suggests that cyber attacks can cost approximately US$6 trillion per year on average through 2021. In 2017, there were almost one billion victims of cybercrime with over US$175 billion stolen from consumers. That was just what they stole from individuals and did not take into account the costs for organizations in reconstructing their systems. Cyber attacks are estimated to cost US$450 to US$500 billion a year for the global economy. Our research at Lloyd’s, suggests that a major global cyberattack has the potential to trigger over US$50 billion of economic losses, a figure that dwarfs some of the big natural catastrophes such as hurricanes, earthquakes, and floods. One of the largest events of recent years was super storm Sandy, which hit lower Manhattan in New York—a cyberattack will easily make that look small in terms of economic loss. So cybercrime is the new risk, the biggest risk.

A cyberattack is one of the biggest threats that is there now and also one of the most complex threats. We are confronting this challenge head on by fully understanding it.

Today’s world is so interconnected, there are no geographic boundaries to this threat, and it really becomes an impossible threat that not one single government can solve it on their own. It can only be overcome with collaboration. And it could strike a blow to the global economy equivalent to some of the biggest and costliest natural disasters that have ever happened in history.

Upon a discussion at Davos, it was unanimously agreed that a cyberattack has the potential to be the biggest risk for the financial sector and create a financial crisis similar to that of 2008. The number of strong economies across the world, and the widespread diversification means that the risk of a 2008-type crisis is not as likely whereas a cyberattack is more likely.

Many firms are still complacent believing that their firewalls are adequate and accepting the assurances from IT departments that their systems are robust. Firms should not be complacent and neither should individuals. Everyone needs to be careful about opening emails—as many look like they are genuine.

Under the new GDPR regulations, every business is going to have to show they are acting properly. There are fines of €20 million or 4% of global turnover for data breaches and if firms have not taken the appropriate action. Hacking into a company to access customer data will inevitably have an impact on the chief executive and their team—and it is not unknown for the CEO to resign.

Interestingly, the asset structure of the FTSE 100 and the S&P500 companies has completely changed. The S&P 500 companies in the 1970s had physical asset values comprising 83% of the total asset value. Lloyd’s used to insure against damage to buildings; it was all tangible. Fast forward it to today, 84% of the asset value of the S&P 500 companies are intangible—see companies such as Uber and Airbnb. The whole essence of what’s forming these companies is totally intangible.

Lloyd’s recently looked at how connected everything is. Much of the information is stored in the Cloud provided by a few firms. Our research suggests that if one of those cloud providers came down because of a cyberattack for 3 days, it would affect 12.5 million business users just in the United States alone. And that is the kind of threat we are confronted with. We are moving to cloud, we are going to store our data in the cloud so I am not saying you shouldn’t do it but we have to understand what these threats are. And the only way we really believe that we can combat these threats is to work collaboratively together.

The Geneva Association of the largest insurers of the world are working governments, Interpol, U.S. Homeland Security, and others to understand how can we mitigate this risk. The issue is that some of the players are state actors. So who can you trust? Who can you work with? How can you work with government agencies in countries where they may be at the heart of this warfare? It’s the most difficult thing to contend with right now. We also are working with the World Economic Forum to understand this and the interconnectedness of the world and trying to think about how we can build resilience into the whole global ecosystem.

Business leaders should take this seriously bearing in mind that the insurance sector is helping businesses to understand their own cybersecurity safeguards. Business should adopt the 10 cybersecurity elements that the government is encouraging as well as investing in people training, and discussing with the head of IT about the adequacy of current systems.

Commentary

Dame Inga Beale’s interview provides us with a snapshot of how creative leadership reliant on synthesizing (Sternberg, Kaufman, & Pretz, 2003) existing paradigms of Lloyd’s is necessary to address technological and social expectations of a rapidly changing global environment. Given that accurate estimation of risk is central to Lloyd’s ability to grow market share, the synthesizing view of leadership needs to factor in changes to customer experience, alterations in the value proposition as a result of opting for different business models, as well as cope with the sheer scale of online transactions driven by customer data (Westerman et al., 2014). In a world where the variety and scale of cyber attacks are forever on the rise (von Solms & van Niekerk, 2013), the business of Lloyd’s is likely to be adversely affected if the apprehension of such attacks don’t translate into the need for insurance protection among its clientele. Effectiveness of Inga’s leadership seems to be predicated on a clear connection to a social contract, which is a driver in building trust within the insurance market. The social purpose of Lloyd’s seems to be borne out through the quest for building resilience within the community:

Insurance has an incredibly important social purpose. We change the lives of millions for the better by protecting them, strengthening and helping communities to build resilience.

The assimilation and connectedness of the strategic view of creative leadership that Inga advocates seems to be characterized by continuously discovering and defining new problems, solving them, and implementing new solutions (Basadur, 2004). Although admitting that Lloyd’s has helped mitigate risk of individuals, countries, and groups over world wars, natural calamities, and other crises, Inga has also highlighted the changing milieu of progress where such rapid pace of change has hitherto never been seen before. Features of the new challenges of markets, Inga mentions, include climate change (Kollewe, 2014). Climate change accompanied by urbanization, which implies concentration of risk within city boundaries. Among Chinese cities the role of insurance is significant as the budgets of these cities can be larger than countries. China has the biggest economy and being home to the largest insurers in the world. With vast swathes of urbanization of Chinese cities, Inga points out the high concentration of risk and in this the enormous challenges to the insurance sector in general and Lloyd’s in particular when there is need to take risk off businesses and off governments.

By being involved in conversations that are simultaneously going on in, for example, the World Economic Forum in Davos, Lloyds has tried to keep abreast of new elements in the engaging new world order. Reiterating that Lloyd’s does not have a magic formula, Inga points out that, Lloyd’s tends “to move along as the world moves along enabling human progress to move forward.” Participation in the Davos summit at the start of 2018 seems to have brought to the fore a cross section of leadership views between those who support globalization and those who are against it. Inga touched upon the contradictions she has noticed in the Davos speeches of Jin Xi Ping of China in 2017 and Narendra Modi of India in 2018 when both leaders talked about the advantages of globalization when both countries are fairly protectionist in allowing international businesses to operate within them. According to Inga, trade restrictive measures are on the increase with Canada, France, Germany, the United States, and others harping on similar points of view. This need to operate with a widened dual approach to dealing with opposite constructs of globalization and antiglobalization is also a facet of Inga’s creative leadership, which conforms to taking the conversation forward to make others think creatively (Basadur, 2004).

Given the widespread advent of such restrictive trade practices, leadership vision at Lloyd’s led by Inga is also being altered, as there is a threat to its business model. In the Lloyd’s model, where syndicates share risk, for instance, in the case of Japan and Chile, there may be limited correlation leading to arrangements that would spread the risk in more favorable market environments. Although globalization-promoting markets actually support trade restrictive measures, there are also many antiglobalization movements that are going on around the world. So it is a combination of a variety of strategies that enables Lloyd’s to successfully propose value through their dynamic syndicate-based business model. Inga mentions digital connectedness to be an abiding feature that automatically enables the realization of a more globalized world, while it is being challenged in pockets by groups that vouch antiglobalization. This is likely to lead to a new kind of business environment, which is characterized by the disappearance of the middleman. For instance, the use of block chain technologies could lead to the need for redistribution of trust (Siedel, 2018) as traditional intermediaries become unnecessary. In a commerce that is mediated by block chain technology, there is disintermediation of traditional intermediaries such that the role of financial intermediaries could become irrelevant.

Elaborating on the profound changes that are being witnessed, Inga alludes to the, “cost of free online services debate,” when she says, “We live in a (data) world that if you are not paying for it, you are the product.” In this milieu, Inga believes the insurance sector has special responsibilities given the magnitude of new risks that needs to be carefully considered to ensure that the world doesn’t stop progressing. Cyber attacks are another sphere that is the focus of Inga’s creative leadership strategy. Although an interconnected world of 22.5 billion, Internet-enabled devices along with the advent of some 1,100 different cryptocurrencies creates unprecedented susceptibilities to cyber attacks. Inga considers cybercrime to be dangerous, as it cannot be limited by geographical boundaries as well as the fact that no one government or agency can solve it on their own. It can only be overcome with collaborations.

The complexities of the inevitable growth of the sharing economy (Cohen & Kietzmann, 2014) is one that is being keenly followed by the insurance industry. Inga points out that there is going to be more mobile devices than human beings on the planet. It is remarkable to note that the funding from the sharing economy alone has enabled 17 companies that are worth more than a billion dollars with 60,000 employees and US$15 billion in funding. Lloyd’s currently has premium of about £1 billion on cyberinsurance, which is the fastest growing sector of Lloyd’s business. The fact that Lloyd’s considers the menace of cyber attacks seriously is borne out by the fact that 98% of email traffic is restricted from even coming into the organizational systems. Dame Inga considers cybervulnerability and cost of cyber attacks are likely to far exceed those of natural disasters such as storms and hurricanes. Alluding to discussions in Davos, Inga mentions that a cyberattack has the potential to be the biggest risk for the financial sector in bringing about a similar crisis like that of 2008. Given the number of strong economies around the world, a 2008-type crisis is not likely whereas a cyberattack is more likely.

Modification of the asset structure of organizations is an important development that seems to be adding to the embedded risks in different industries. In particular, this conversion requires a sea change in the way an insurance company such as Lloyd’s needs to operate. Inga pointed out that

The S&P500 companies of the 1970s, had physical asset values comprising 83% of the total asset value. Lloyd’s used to insure against damage to buildings, it was all tangible. Instead today 84% of the asset value of S&P500 companies are intangible—for instance, companies like Uber and Airbnb.

Today much of the information is stored in the cloud by a few firms. Lloyd’s own research has revealed that, “if any one of those cloud providers came down as a result of a cyber-attack for 3 days, it would affect 12.5 million business users just in the US alone.” Moving to the cloud is an inevitable part of the modernization process for organizations (Brynjolfsson & McAfee, 2014), however, according to Inga, working collaboratively is the only way forward given such vulnerability of cloud-based asset management. Addressing social needs by building resilience in communities through insurance products that redistribute trust (Colquitt, Lepine, Zapata, & Wild, 2011) is a model that could disrupt (Bolden & O’Regan, 2018) thinking in the insurance industry.

Given that there are many unknowns in managing intangible assets, Lloyd’s is part of the Geneva Association, which is a body of the largest insurers in the world, working governments, Interpol, U.S. Homeland Security, and others. A key challenge with regard to trust building in this context is that some of the players are state actors, who may be at the heart of building some of the warfare themselves.

Inga Beale has been one of the distinctive thought leaders of her generation. Her ability to delineate the broader picture punctuated by micro- and macroconcerns ensures an abiding legacy in both the theory and practice of innovative leadership within the cyber asset management space in the United Kingdom and beyond. Interconnectedness of issues such as climate change, urbanization, globalization on one hand and the digital connectedness brought about by the widespread use of Internet-enabled devices and cryptocurrencies on the other hand, point to vulnerabilities that need addressing through a creative visualization of leadership as enunciated by Inga in this interview.