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Cyber risk uncertainty causes client, underwriter tension

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Two years of high-profile cyber breaches have put insurers under increasing pressure, a panel of experts said during the Business Insurance 2015 Cyber Risk Summit in San Francisco.

Such breaches can be costly, according to a study this year by the Ponemon Institute. It estimates the cost of data breaches involving large companies increased to an average of $4.8 million per incident.

Meredith Schnur, Madison, New Jersey-based senior vice president and professional risk national practice leader at Wells Fargo Insurance Services USA Inc., said challenges in securing sufficient coverage depend on the size of the company.

While large, high-profile breaches have affected major retailers, smaller organizations also are being hit. And more insurers are willing to provide $5 million to $10 million in cyber capacity to small and midsize firms, she said.

One issue buyers often raise is skepticism that insurers will pay claims resulting from a cyber event.

“For years we had skeptics, but on the data breach side, these claims have been paid; overall the good news is that cyber policies work,” said Steve Bridges, Chicago-based senior vice president of cyber and the errors and omissions practice at JLT Specialty Insurance Services Inc.

“From a lost laptop to a highly publicized data breach, policies are working,” Ms. Schnur said.

“Business interruption coverage has not been one of the drivers of the coverage, but I think going forward it is going to become more significant,” said Brad Gow, Purchase, New York-based senior vice president of Endurance Pro, a unit of Endurance Specialty Holdings Ltd. Targeting networks to shut them down, such as last year's Sony Pictures Entertainment Inc. breach, is a newer threat, he said.

“Every company that has a reliance upon technology needs (cyber insurance),” said Robert Parisi, managing director at Marsh USA Inc. “But what the underwriters will provide is where the rubber meets the road.”

One pricing challenge with which the cyber insurance industry is struggling is there is no historical data on which to base cyber insurance pricing. Mr. Gow said.

“It's not like a property risk where you can look back at … years of hurricane history. This makes it difficult to price,” he said.