Disaster Recovery

Irma’s Business Interruption Claims

Contingent business interruption claims from Hurricane Irma could take years to resolve.
By: | September 20, 2017 • 4 min read

Hurricane Irma tore through Florida and the Caribbean destroying tens of thousands of homes and businesses, forcing people to be evacuated, and causing an estimated $25-35 billion in damage. On a commercial scale, however, the industries hardest hit were hospitality, retail and construction, as well as health care and manufacturing, say experts.

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But worse than the initial physical damage caused to their properties are the mounting business interruption (BI) and contingent business interruption (CBI) claims from companies forced to shut down because of the storm. At one point it was estimated that 62 percent of residents had lost power, exacerbating the problem and leading to issues such as mold.

And with further storms approaching, notably Hurricane Maria, there’s the added challenge for claims adjustors of scrambling to try and differentiate the damage caused by each event, particularly in the more inaccessible areas. That’s on top of trying to reallocate resources from other storm affected parts of the country including Texas.

“Hospitality clients and real estate clients including commercial condominiums and apartments have had some significant claims,” said Marsh’s U.S. property practice leader Duncan Ellis. “Then there are the school boards and retailers, from strip malls to individual big box stalls, a lot of whom have suffered significant damage.”

Estimating overall insured losses in the “tens of billions,” Lockton’s national property claims director Sheri Wilson expects tourism and hospitals, nursing homes and assisted care facilities to be the worst affected in terms of commercial losses.

Duncan Ellis, U.S. Property Practice Leader, Marsh

“Florida’s tourism industry is going to take a battering, not just because of the short-term damage, but with the high season just around the corner they are not going to be able to recover in time because of the lack of materials and manpower,” said Wilson.

“The hospitals are a bit unique in terms of business interruption because they have so many different sources of revenue, so it takes time for that to work itself through the claims process and we won’t know the true financial impact until later this year.”

Willis Towers Watson’s head of property broking Gary Marchitello also expects Irma to result in “significant business interruption losses” arising from extensive power outages, taking months to resolve.

“These business interruption claims could take months to calculate,” he said. “Even if a specific property is not damaged, the insured’s property may face other obstacles to its operations, for example it could be impaired by civil authority and/or it may not have a means of ingress/egress due to nearby road closures.”

Beazley’s head of property Mark Bernacki added: “A key part of the loss escalation will be what’s covered under the extended period of indemnity. This allows the insured, post the normal period of indemnity, to pick up additional business interruption loss until the business can resume full operations.”

Hospitality clients and real estate clients including commercial condominiums and apartments have had some significant claims. —Duncan Ellis, Marsh’s U.S. property practice leader.

While Irma has forced many businesses to shut, Kevin Kavanagh, a partner at Wilson Elser LLP, believes that the longer-term implications are much worse, including lost jobs.

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“How long can you be shut down and not be bringing in any money or paying your employees?” he said. “It’s just devastating for smaller businesses, a lot of whom don’t have contingent business interruption and barely enough business interruption to cover their losses.”

Given the scale of the storm, it could also have a knock-on effect on the supply chain for months or even years down the line, said EY’s Americas Insurance & Federal Claims Services Leader Allen Melton.

“Take for example a manufacturing facility that had to close before the hurricane, came back and discovered they have little physical damage to their facility, but they have suppliers that produce key components or raw materials that were either severely impacted or completely destroyed,” he said.

“If they have coverage for contingent business interruption in their policy, they could have a fairly complex claim that could continue well into next year.”

Another issue is mold. With its humid environment, Florida is susceptible to mold and other diseases like Legionella, exacerbated by the power outages resulting from Irma.

Sheri Wilson, national proprerty claims director, Lockton

Veronica Benzinger, chief broking officer at Aon Risk Solutions Environmental Services Group, said that mold has the potential to grow within 36 hours of water intrusion of a building. While many policies cover water intrusion, she said that they often don’t extend to mold.

“The chances are that you are also dealing with potentially contaminated water full of chemicals, petrochemicals or biologics including sewage and so the process may become more extensive that just simply drying out, replacing wall board or pumping water out of your property,” she said.

“The protracted period of no power will also add to the severity, potentially, of the loss, which combined with the humid environment and organic material to feed on, will only encourage mold to grow.”

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Report: Entertainment

On With the Show

Entertainment companies are attractive and vulnerable targets for cyber criminals.
By: | December 14, 2017 • 7 min read

Recent hacks on the likes of Sony, HBO and Netflix highlight the vulnerability entertainment companies have to cyber attack. The threat can take many forms, from the destruction or early release of stolen content to the sabotage of broadcast, production or streaming feeds.

Brian Taliaferro, entertainment and hospitality specialist, JLT Specialty USA

“Cyber attacks are becoming the biggest emerging threat for entertainment companies, bringing risk to reputations, bottom lines and the product itself,” said Brian Taliaferro, entertainment and hospitality specialist, JLT Specialty USA.

For most entertainment firms, intellectual property (IP) is the crown jewel that must be protected at all costs, though risk profiles vary by sub-sector. Maintaining an uninterrupted service may be the biggest single concern for live broadcasters and online streaming providers, for example.

In the case of Sony, North Korea was allegedly behind the leak of stolen private information in 2014 in response to a film casting leader Kim Jong Un in what it considered an unfavorable light.

This year, Netflix and HBO both faced pre-broadcast leaks of popular TV series, and Netflix last year also had its systems interrupted by a hack.

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Online video game platforms are also ripe for attack, with Steam admitting that 77,000 of its gamer accounts are hacked every month.

The list goes on and will only get more extensive over time.

Regardless of the platform, any cyber attack that prevents companies from producing or distributing content as planned can have huge financial implications, particularly when it comes to major releases and marquee content, which can make or break a financial year.

“People and culture are the biggest challenges but also the keys to success.” — David Legassick, head of life science, technology and cyber, CNA Hardy

The bottom line, said David Legassick, head of life science, technology and cyber, CNA Hardy, is that these firms have a combination of both assets and business models that are inherently open to attack.

“Vulnerabilities exist at every point in the supply chain because it’s all tech-dependent,” he said, adding that projects often run on public schedules, allowing criminals to time their attacks to maximize impact.

“The combination of IP, revenue and reputation risk make entertainment a hot sector for cyber criminals.”

Touch Point Vulnerabilities

Film, TV, literary and music projects invariably involve numerous collaborators and third-party vendors at every stage, from development to distribution. This creates multiple touchpoints through which hackers could gain access to materials or systems.

According to Kyle Bryant, regional cyber manager, Europe, for Chubb, there is nothing unique about the type of attack media companies suffer — usually non-targeted ransomware attacks with a demand built in.

“However, once inside, the hackers often have a goldmine to exploit,” he said.

He added targeted attacks can be more damaging, however. Some sophisticated types of ransomware attack, for example, are tailored to detect certain file types to extract or destroy.

“NotPetya was designed to be non-recoverable. For a media company, it could be critical if intellectual property is destroyed.”

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As entertainment companies have large consumer bases, they are also attractive targets for ideological attackers wishing to spread messages by hijacking websites and other media, he added.

They also have vast quantities of personal information on cast and crew, including celebrities, which may also have monetary value for hackers.

“It is essential to identify the most critical information assets and then put a value on them. After that, it is all about putting protection in place that matches the level of concern,” Bryant advised.

As with any cyber risk, humans are almost always the biggest point of vulnerability, so training staff to identify risks such as suspicious messages and phishing scams, as well as security and crisis response protocols, is essential. Sources also agree it is vital for entertainment companies to give responsibility for cyber security to a C-suite executive.

“People and culture are the biggest challenges but also the keys to success,” said Legassick.

“Managing the cyber threat is not a job that can just be left to the IT team. It must come from the top and pervade every aspect of how a company works.”

David Legassick, head of life science, technology and cyber, CNA Hardy

Joe DePaul, head of cyber, North America, Willis Towers Watson, suggested entertainment companies adopt a “holistic, integrated approach to cyber risk management,” which includes clearly defining processes and conducting background checks on the cyber security of any third party that touches the IP.

This includes establishing that the third parties understand the importance of the media they are handling and have appropriate physical and non-physical security at least equal to the IP owner in place. These requirements should also be written into contracts with vendors, he added.

“The touchpoints in creating content used to be much more open and collaborative, but following the events of the last few years, entertainment firms have rapidly introduced cyber and physical security to create a more secure environment,” said Ryan Griffin, cyber specialist, JLT Specialty USA.

“These companies are dealing with all the issues large data aggregators have dealt with for years. Some use secure third-party vendors, while others build their own infrastructure. Those who do business securely and avoid leaks can gain an advantage over their competitors.”

Quantification Elusive

If IP is leaked or destroyed, there is little that can be done to reverse the damage. Insurance can cushion the financial blow, though full recovery is very difficult to achieve in the entertainment space, as quantifying the financial impact is so speculative.

As Bill Boeck, insurance and claims counsel, Lockton, pointed out, there are only “a handful of underwriters in the world that would even consider writing this risk,” and sources agreed that even entertainment firms themselves struggle to put a monetary value on this type of exposure.

“The actual value of the IP taken isn’t generally going to be covered unless you have negotiated a bespoke policy,” said Boeck.

“If you’re in season five of a series with a track record and associated income stream, that is much easier, but putting a value on a new script, series or novel is difficult.”

Companies for whom live feeds or streaming are the primary source of revenue may find it easier to recoup losses. Determining the cost of a hack of that sort of service is a more easily quantifiable business interruption loss based on minutes, hours, ad dollars and subscription fees.

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Brokers and insurers agree that while the cyber insurance market has not to date developed specific entertainment products, underwriters are open for negotiation when it comes to covering IP. The ball is therefore in the insured’s court to bring the most accurate projections to the table.

“Clients can get out of the insurance market what they bring to the equation. If you identify your concerns and what you want to get from insurance, the market will respond,” said Bryant.And according to Griffin, entertainment companies are working with their brokers to improve forecasts for the impact of interruptions and IP hacks and to proactively agree to terms with underwriters in advance.

However, Legassick noted that many entertainment firms still add cyber extensions to their standard property policies to cover non-physical damage business interruption, and many may not have the extent of coverage they need.

Crisis Response

Having a well-planned and practiced crisis response plan is critical to minimizing financial and reputational costs. This should involve the input of experienced, specialist third parties, as well as numerous internal departments.

Ryan Griffin, cyber specialist, JLT Specialty USA

“The more business operation leaders can get involved the better,” said Griffin.

Given the entertainment industry’s highly public nature, “it is critically important that the victim of a hack brings in a PR firm to communicate statements both outside and within the organization,” said Boeck, while DePaul added that given that most cyber attacks are not detected for 200-plus days, bringing in a forensic investigator to determine what happened is also essential.

Indeed, said Griffin, knowing who perpetrated the attack could help bring the event to a swifter and cheaper conclusion.

“Is it a nation state upset about the way it’s been portrayed or criminals after a quick buck? Understanding your enemy’s motivation is important in mitigating the damage.”

Some hackers, he noted, have in the past lived up to their word and released encryption keys to unlock stolen data if ransoms are paid. Inevitably, entertainment firms won’t always get so lucky.

Given the potentially catastrophic stakes, it is little surprise these firms are now waking up to the need for robust crisis plans and Fort Knox-level security for valuable projects going forward. &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected]