Cyber Insurance Program Update

Cyber Insurance Program Update

April 4, 2022

Cyber Insurance Program Update

For many months your association director has been working on a cyber insurance program that will help WPMA members and be relatively affordable.

Listed below is information from a large insurance company, WR Berkley Corp. that was written for an insurance agent blog titled “2022 Cyber Market Observations- A Carrier Perspective.”

Available capacity continues to be a challenge and potential threat to the overall viability of the market.  Large settlements from major breach events and several eight figure extortion payments from Ransomware events forced the majority of markets to reevaluate the capacity and cut back on limits deployed per risk.  The tightening of terms from the reinsurance market are also driving the momentum for reduced limits per insured.   A consistent reduction in Ransomware attacks would be needed before carriers feel comfortable putting up large limits for these events.

The result is that threat actors are going after smaller targets with greater frequency.  Insurance buyers should expect to take on a larger portion of the financial loss, which could lead to improved risk management and investment in security solutions that have a positive impact on frequency.

Risk selection will continue to be a top priority.  Carriers will continue to scrutinize applications, require specialty applications, or their own applications that have implemented risk scoring metrics to enable carriers too properly select only those risks they deem appropriate to insure based on their model.

In the near term, policy holders are going to bear the rate increases to support the increases in loss ratios and perceived changes in the threat environment.

Carriers will seek clarification from policy holders regarding findings from specialized reports, ask insureds to participate in the assessment process, and send automatic alerts to the policyholders when a risk finding is identified.  Losses from 3rd parties continue to add to frequency and severity to carriers.  A policyholder’s vendor management controls will be more closely evaluated, including evaluating vendor contracts for indemnification clauses to ensure rights of recovery from the responsible party are available.  Companies should expect their carrier to pursue subrogation more frequently and request your support in this effort.

Rate increases will continue to be applied by carriers in all industry classes and organizational sizes.  There is clear evidence that frequency of events continues to increase, in loss costs and severity.  There is clear evidence that Ransomware extortion payments could continue to be the largest single claims cost category.

Single extortion demands have morphed into double, triple and even quadruple demand attempts which should give credence to the concept of NEVER be paid.  As carriers continue to pay these losses, pricing for this coverage my become more restrictive and potentially more expensive.

Most carriers have already taken steps to address the above problems by doing such things as:

Adding exclusions for universal events

Adding exclusions for state sponsored events or by eliminating coverage for certain industries with a lot of annual claims.

These restrictions are unpopular as many will cite this as the “unknown” that policy holders seek to insure, but without alternative mechanisms for carriers to transfer a portion of this risk, if it is not sustainable for them to bear on their balance sheets.

The bottom line is that you and your staff must be extremely careful to not burry your insurance company with a lot of claims or the prices will continue to sky rocket and the number of companies wishing to offer coverage will continue to shrink.