Sponsored: Beecher Carlson

Cyber: A Tale of Two Markets

Inconsistencies in cyber insurance policies can lead to "Swiss cheese towers" of coverage.
By: | March 15, 2017 • 5 min read

You know a risk category is mature when people start to refer to it as “traditional.”

The cyber market is a perfect example. Despite the evolving nature of cyber risk, the industry has developed a set of traditional coverages that are well understood by underwriters and buyers alike.

Those policies include both first- and third-party coverage for well-known risks like privacy liability, breach response costs, cyber extortion and lost revenue from a hack; however, non-traditional risks such as physical damage and bodily injury resulting from a cyber breach or system failure pose new threats and challenges.

The cyber insurance market has been growing at roughly 25 to 30 percent per year and is estimated to reach almost $3 billion in 2017, according to Chris Keegan, National Cyber Practice Leader, Beecher Carlson.

As the cyber market continues to grow, buyers need to gain a better understanding of both their traditional and non-traditional exposures and the coverage they have in place to address them. Meanwhile, the insurance industry is working to develop coordinated solutions to more cohesively address the variety of traditional and emerging cyber risks.

Understanding Exposures beyond Liability

Chris Keegan, National Cyber Practice Leader

Though “cyber liability” is the common term for cyber policies, liability is just the tip of the iceberg of cyber exposure.

“We have a taxonomy problem,” Keegan said. “The term ‘cyber liability’ is misleading because cyber is so much bigger than liability. Cyber is property policies. Cyber is recall policies. Cyber is crime policies. The cyber world encompasses many different risk areas.”

The most prominent cyber risk on risk managers’ minds is usually privacy liability. A breach of employees’ and customers’ personal information – whether through theft or negligence – that results in direct costs of notification, hiring forensics investigators and lawyers, and public relations damage control.

Another high-impact but underestimated cyber exposure is business interruption.

If the server hosting your company website or intranet goes down, how will your business be affected and for how long? What if it’s your cloud provider or the platform where you store data? How many locations will it affect? Not only will a system failure interrupt regular business operations, it can also require rebuilding and replacing any lost data or in some cases hardware.

“You have to understand your exposure first before you even start to think about insurance,” Keegan said.

Models are useful tools that paint a detailed picture of the risk.

“Beecher Carlson’s In-Site suite of models applies to traditional risk exposures like privacy liability and to some non-traditional aspects like cyber property damage,” explains Keegan.

The privacy calculator is a maximum probable loss model based on cost information from the largest breaches, fees charged by breach response vendors, and Beecher Carlson’s independent market research. Those data points are combined to create a calculator that estimates the impact of a breach event.

The business interruption model takes into account all of the immediate extra expenses that come with a breach or failure; it also considers how the impact trickles throughout a company’s various locations. This depends on the type of cyber event. A downed network, for example, may have greater impact than a ransomware attack at a specific location.

“You can take all of that information, input the different variables, and see what your maximum loss might be in different scenarios,” Keegan said. “This differs from more traditional business interruption models that focus only on the impact to specific locations.”

Assessing exposure means looking at more than just data. Insurance buyers in every industry have to consider the physical damages that can result from a cyber incident as well.

If the code directing robots at a manufacturing plant fails, for example, it could not only damage an expensive piece of machinery, but also damage the goods it’s producing and present a safety risk to workers in the vicinity.

For an energy producer, a malfunction in software controlling the flow of oil through a pipeline can cause it to blow up and pollute the environment. In the auto industry, cyber risk increases as cars become more digitized, opening them to hack via on-board systems that cause malfunctions.

“If a hacker disables the brakes, for example, there will be property damage to the car and bodily injury to the driver, both caused by a cyber event. The end result is a liability back to the auto manufacturer,” Keegan said.

“Some of this can be covered under traditional general liability and property policies, but there is no guarantee. Not every property/casualty market will offer this coverage.”

This inconsistency leads to what Keegan calls “Swiss cheese towers” of coverage, where there may be coverage for cyber-related physical damage at the primary level, but further up the tower there are holes and gaps.

Mind the Tower Gaps

Cyber coverage can be found in a variety of different policies, resulting in both overlaps and gaps in coverage for some exposures.

Buyers are looking for a cohesive, streamlined solution to cover all of their cyber risks efficiently. And underwriters grapple with how to factor in “silent” cyber coverages, which respond to unexpected cyber events that fall outside the scope of risk for which the coverage was originally built.

Once the extent of a risk is understood, buyers should examine their cyber coverage across all of their policies and look for the gaps that need filling.

Increasingly, property/casualty insurers are able to tack cyber coverage onto property programs on a sub-limited basis, but the terms may vary from form to form. Ultimately, new solutions are needed to handle the full capacity of potential cyber-related losses.

“Excess DIC/DIL – or difference in conditions / difference in limits coverage – is one option that’s not yet offered widely by the markets but presents a promising solution,” Keegan said. Excess DIC/ DIL would sit on top of other designated policies and fill in the gaps between those policies.  Broader cyber coverage that includes traditional and non-traditional risks can be coordinated with property and casualty policies when the details of those policies are disclosed.

“This comes back to knowing your exposure. You need to know which policies this coverage should be in excess of in order to be sure it drops down and fills in gaps where it needs to,” Keegan continued.

Luckily, Keegan and other cyber leaders are working on developing more streamlined solutions.

“Technology is changing rapidly,” he said. “To be effective, the insurance that covers it has to adapt just as rapidly.”

To learn more about Beecher Carlson’s Cyber Risk, Cyber Liability practice, visit http://www.beechercarlson.com/services-delivered/cyber-liability.

SponsoredContent

BrandStudioLogo

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Beecher Carlson. The editorial staff of Risk & Insurance had no role in its preparation.




Beecher Carlson is a large account risk management broker that delivers expertise by industry focus and product specialization. We strive to develop new and better technologies to support your business requirements and drive operational excellence.

Emerging Risks

Stadium Safety

Soft targets, such as sports stadiums, must increase measures to protect lives and their business.
By: | January 10, 2018 • 8 min read

Acts of violence and terror can break out in even the unlikeliest of places.

Look at the 2013 Boston Marathon, where two bombs went off, killing three and injuring dozens of others in a terrorist attack. Or consider the Orlando Pulse nightclub, where 49 people were killed and 58 wounded. Most recently in Las Vegas, a gunman killed 58 and injured hundreds of others.

Advertisement




The world is not inherently evil, but these evil acts still find a way into places like churches, schools, concerts and stadiums.

“We didn’t see these kinds of attacks 20 years ago,” said Glenn Chavious, managing director, global sports & recreation practice leader, Industria Risk & Insurance Services.

As a society, we have advanced through technology, he said. Technology’s platform has enabled the message of terror to spread further faster.

“But it’s not just with technology. Our cultures, our personal grievances, have brought people out of their comfort zones.”

Chavious said that people still had these grievances 20 years ago but were less likely to act out. Tech has linked people around the globe to other like-minded individuals, allowing for others to join in on messages of terror.

“The progression of terrorist acts over the last 10 years has very much been central to the emergence of ‘lone wolf’ actors. As was the case in both Manchester and Las Vegas, the ‘lone wolf’ dynamic presents an altogether unique set of challenges for law enforcement and event service professionals,” said John

Glenn Chavious, managing director, global sports & recreation practice leader, Industria Risk & Insurance Services

Tomlinson, senior vice president, head of entertainment, Lockton.

As more violent outbreaks take place in public spaces, risk managers learn from and better understand what attackers want. Each new event enables risk managers to see what works and what can be improved upon to better protect people and places.

But the fact remains that the nature and pattern of attacks are changing.

“Many of these actions are devised in complete obscurity and on impulse, and are carried out by individuals with little to no prior visibility, in terms of behavioral patterns or threat recognition, thus making it virtually impossible to maintain any elements of anticipation by security officials,” said Tomlinson.

With vehicles driving into crowds, active shooters and the random nature of attacks, it’s hard to gauge what might come next, said Warren Harper, global sports & events practice leader, Marsh.

Public spaces like sporting arenas are particularly vulnerable because they are considered ‘soft targets.’ They are areas where people gather in large numbers for recreation. They are welcoming to their patrons and visitors, much like a hospital, and the crowds that attend come in droves.

NFL football stadiums, for example, can hold anywhere from 25,000 to 93,000 people at maximum capacity — and that number doesn’t include workers, players or other behind-the-scenes personnel.

“Attacks are a big risk management issue,” said Chavious. “Insurance is the last resort we want to rely upon. We’d rather be preventing it to avoid such events.”

Preparing for Danger

The second half of 2017 proved a trying few months for the insurance industry, facing hurricanes, earthquakes, wildfires and — unfortunately — multiple mass shootings.

The industry was estimated to take a more than $1 billion hit from the Las Vegas massacre in October 2017. A few years back, the Boston Marathon bombings cost businesses around $333 million each day the city was shut down following the attack. Officials were on a manhunt for the suspects in question, and Boston was on lockdown.

“Many of these actions are devised in complete obscurity and on impulse, and are carried out by individuals with little to no prior visibility.” — John Tomlinson, senior vice president, head of entertainment, Lockton

“Fortunately, we have not had a complete stadium go down,” said Harper. But a mass casualty event at a stadium can lead to the death or injury of athletes, spectators and guests; psychological trauma; potential workers’ comp claims from injured employees; lawsuits; significant reputational damage; property damage and prolonged business interruption losses.

The physical damage, said Harper, might be something risk managers can gauge beforehand, but loss of life is immeasurable.

Advertisement




The best practice then, said Chavious, is awareness and education.

“A lot of preparedness comes from education. [Stadiums] need a risk management plan.”

First and foremost, Chavious said, stadiums need to perform a security risk assessment. Find out where vulnerable spots are, decide where education can be improved upon and develop other safety measures over time.

Areas outside the stadium are soft targets, said Harper. The parking lot, the ticketing and access areas and even the metro transit areas where guests mingle before and after a game are targeted more often than inside.

Last year, for example, a stadium in Manchester was the target of a bomb, which detonated outside the venue as concert-goers left. In 2015, the Stade de France in Paris was the target of suicide bombers and active shooters, who struck the outside of the stadium while a soccer match was held inside.

Security, therefore, needs to be ready to react both inside and outside the vicinity. Reviewing past events and seeing what works has helped risk mangers improve safety strategies.

“A lot of places are getting into table-top exercises” to make sure their people are really trained, added Harper.

In these exercises, employees from various departments come together to brainstorm and work through a hypothetical terrorist situation.

A facilitator will propose the scenario — an active shooter has been spotted right before the game begins, someone has called in a bomb threat, a driver has fled on foot after driving into a crowd — and the stadium’s staff is asked how they should respond.

“People tend to act on assumptions, which may be wrong, but this is a great setting for them to brainstorm and learn,” said Harper.

Technology and Safety

In addition to education, stadiums are ahead of the game, implementing high-tech security cameras and closed-circuit TV monitoring, requiring game-day audiences to use clear/see-through bags when entering the arena, upping employee training on safety protocols and utilizing vapor wake dogs.

Drones are also adding a protective layer.

John Tomlinson, senior vice president, head of entertainment, Lockton

“Drones are helpful in surveying an area and can alert security to any potential threat,” said Chavious.

“Many stadiums have an area between a city’s metro and the stadium itself. If there’s a disturbance there, and you don’t have a camera in that area, you could use the drone instead of moving physical assets.”

Chavious added that “the overhead view will pick up potential crowd concentration, see if there are too many people in one crowd, or drones can fly overhead and be used to assess situations like a vehicle that’s in a place it shouldn’t be.”

But like with all new technology, drones too have their downsides. There’s the expense of owning, maintaining and operating the drone. Weather conditions can affect how and when a drone is used, so it isn’t a reliable source. And what if that drone gets hacked?

“The evolution of venue security protocols most certainly includes the increased usage of unmanned aerial systems (UAS), including drones, as the scope and territorial vastness provided by UAS, from a monitoring perspective, is much more expansive than ground-based apparatus,” said Tomlinson.

“That said,” he continued, “there have been many documented instances in which the intrusion of unauthorized drones at live events have posed major security concerns and have actually heightened the risk of injury to participants and attendees.”

Still, many experts, including Tomlinson, see drones playing a significant role in safety at stadiums moving forward.

“I believe the utilization of drones will continue to be on the forefront of risk mitigation innovation in the live event space, albeit with some very tight operating controls,” he said.

The SAFETY Act

In response to the terrorist attacks on Sept. 11, 2001, U.S. Homeland Security enacted the Support Anti-Terrorism by Fostering Effective

Warren Harper, global sports & events practice leader, Marsh

Technologies Act (SAFETY Act).

The primary purpose of the SAFETY Act was to encourage potential manufacturers or sellers of anti-terrorism technologies to continue to develop and commercialize these technologies (like video monitoring or drones).

There was a worry that the threat of liability in such an event would deter and prevent sellers from pursing these technologies, which are aimed at saving lives. Instead, the SAFETY Act provides incentive by adding a system of risk and litigation management.

“[The SAFETY Act] is geared toward claims arising out of acts of terrorism,” said Harper.

Bottom line: It’s added financial protection. Businesses both large and small can apply for the SAFETY designation — in fact, many NFL teams push for the designation. So far, four have reached SAFETY certification: Lambeau Field, MetLife Stadium, University of Phoenix Stadium and Gillette Stadium.

Advertisement




To become certified, reviewers with the SAFETY Act assess stadiums for their compliance with the most up-to-date terrorism products. They look at their built-in emergency response plans, cyber security measures, hiring and training of employees, among other criteria.

The process can take over a year, but once certified, stadiums benefit because liability for an event is lessened. One thing to remember, however, is that the added SAFETY Act protection only holds weight when a catastrophic event is classified as an act of terrorism.

“Generally speaking, I think the SAFETY Act has been instrumental in paving the way for an accelerated development of anti-terrorism products and services,” said Tomlinson.

“The benefit of gaining elements of impunity from third-party liability related matters has served as a catalyst for developers to continue to push the envelope, so to speak, in terms of ideas and innovation.”

So while attackers are changing their methods and trying to stay ahead of safety protocols at stadiums, the SAFETY Act, as well as risk managers and stadium owners, keep stadiums investing in newer, more secure safety measures. &

Autumn Heisler is a staff writer at Risk & Insurance. She can be reached at [email protected]