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Liability losses tough to calculate

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Setting loss reserves for the liability side of cyber claims is its most challenging aspect, say experts.

“When you talk reserves for cyber, you almost have to look at it in two categories,” said Eric Cernak, Hartford, Connecticutbased cyber risk and privacy practice leader at Munich Reinsurance America Inc.

The first is how you would reserve for first-party exposures, including notification and data restoration. The “more challenging is the liability side,” he said. “You may not know the full nature and extent of the breach. That’s the issue, I think, that gets refined over time, but from the outset you may not have the full understanding of how bad it may or may not be.”

Paul Handy, London-based head of global technical services for Europe, the Middle East and Africa for claims management firm Crawford & Co., said potential liability exposures are “obviously much harder to put a number against.”

“We would tend not to reserve for that at the early stage,” and this is not something Crawford would tend to put in writing at that point, although it would be aware of the risk and discuss this with its expert partners, Mr. Handy said.

Jason Trahan, Dallas-based senior vice president in Marsh L.L.C.’s forensic accounting and claim services group, suggested policyholders have professional fees endorsements included in their cyber policies.

These endorsements, which are standard in property insurance, allow policyholders to hire a claims specialist to help present their claims to their insurer, he said.

“This is going to benefit the policyholder in helping them to clear their claims,” as well as enable the underwriter to “quickly being able to get their arms around what the total exposure is after a loss event has occurred so they can properly set reserves,” said Mr. Trahan.