Cyber Insurance Today:Lots of Interest, Lots of Product

Innovation, and Lots of RiskRichard S. Betterley, CMC

Betterley Risk Consultants, Inc.

Sterling, MA

Independent Risk Management Consultants since 1932

Publishers of The Betterley Report at www.betterley.com

A Cyber Risk Insurance Refresher:What Does (or Should) it Cover?

Liability for loss of personally identifiable information Not just electronic, but all types of data, including paper Corporate information, not just individuals All types of data, not just financial Some cover loss of data when in the possession of a 3rd party, such as a vendor Many think it covers all liability for all types of electronic activity, such as social

media; it doesn’t Costs for responding to a data breach

Public relations response Legal guidance Victim notification Credit monitoring

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Coverage (cont’d.)

Fines and penalties Defense costs Consumer Redress funds Civil money penalties (but not if unlawful to insure; look for most favored venue

language) Penalties imposed by credit card issuing entities (Visa/MasterCard, etc.) Typically sub limited

Value-added Services Discounted response services Network testing

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Coverage Options

1st Party Loss of Data Business Interruption and Extra Expense Cyber Extortion Crisis Response Fund

Theft Data $$$ Products or Services

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Media Liability All media activities or just online media (including social

media) Intellectual Property liability coverage:

Copyright infringement – can be included Trade or Service Mark infringement – can be included Patent Infringement – cannot be included in most forms

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Notable Exclusions

Dishonest/Criminal/Intentional Acts (but severability generally applies)

Contractual Liability Data Outside of Your Network

This is in reference to cloud-type computing, which is often insurable

Non-electronic data Such as paper documents; generally insurable

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U.S.-based Premium Volume

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Estimated Premium Volume (GWP for U.S.-based Insureds (mid-range estimate) (millions)

Problem Areas

Serious concern whether underwriting and pricing can keep up with the black hats Active hostiles operating outside the law and largely

invisible Extensive cooperative network to share and improve tools Automated attacks Rapidly evolving tools and techniques

National Actors as Hackers When will the war exclusion be imposed?

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Distribution Problems

Technology-oriented coverage is not well understood by agents/brokers and insureds (and probably consultants) Confusion in the marketplace leading to bad buying

decisions – or no buying decision Copycat carriers lack tools to understand and manage the

risk Not enough knowledgeable underwriters and claims staff

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Reinsurance Support is Needed

Higher limits are needed Tough to assemble more than $300 million/insured

Accumulation risk The cyber hurricane is only a matter of time And it won’t be just one

The vendor risk SMEs as the threat vector (i.e., Target)

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Opportunity

Potential for rapid growth Add-in for package policies and Management

Liability products Declining cost of breach response services Mandated coverage for vendors to larger

organizations (proof of insurance) Ability to improve the risk by ‘loss prevention’

services

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????

Can Cyber be written safely? Too much risk/too much demand

Which carrier will be the FM Global or Hartford Steam Boiler of

Cyber?

Can private insurers cover attacks by national actors and terrorists?

Will Cyber products be broadened to cover the real exposures?

Damage to reputation

Theft of IP

Theft

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The Betterley Report

A series of 6 annual evaluations of specialty commercial lines insurance products; including: Technology E&O (February) Intellectual Property and Media Liability (April) Cyber/Privacy (June) Private Company Management Liability (August) Side A D&O (October) EPLI (December)

For more information, go to www.betterley.com13