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The Path of Least Resistance Is Leading Clients in the Wrong Direction

The relaxed underwriting characteristic of a soft market, paired with an evolving risk like cyber, can spell trouble for brokers and clients.
By: | July 12, 2017 • 6 min read

The cyber insurance market today bears little resemblance to the cyber market of just three years ago.

As cyber risk evolved and expanded —and more organizations grasped their exposures — the demand for coverage rose sharply. Now a dynamic typical of a traditional insurance marketplace is playing out: more carriers and more capital have ushered in a soft market cycle.

This influx of capacity has led to increased competition among carriers, and the overarching theme seems to be more about gaining short-term market share than establishing sustainable portfolios by virtue of thoughtful risk selection. With the threat landscape continuing to deteriorate at a rapid pace, and malicious actors becoming increasingly sophisticated, Jeff Bores, Vice President, Cyber Liability, at Aspen Insurance, has noticed a potentially alarming trend. “There is tremendous pressure on both underwriters and brokers to produce at a high level,” Bores remarked. “The underwriting community is feeling it from their brokering partners, who are in turn feeling it from their clients. The dramatic increase in competition has really led to a relaxation in underwriting scrutiny.”

“We have a duty as underwriters to evaluate each risk on its merits and raise questions about deficiencies we recognize in an applicant’s security posture,” Bores said. “Ultimately, our responsibility is to the risk bearing entities we represent to select the strongest risks. Our ability as underwriters to push back on our brokering partners has a potential trickle-down effect to the client level, where it can apply pressure to applicants to devote additional attention and resources to their security posture. If we fail to bring the deficiencies we recognize to light or just gloss over them, our silence sends a message of positive reinforcement to insureds that their approach to security is sound; that is often not the case, especially in the small and mid-market space.”

Brokers Beware: Choose Your Markets (and Underwriters) Carefully

Jeff Bores, Vice President, Cyber Liability

With multiple Cyber markets from which to choose, brokers and their clients are at a crossroads. They can take the path of least resistance by placing coverage with a less sophisticated market that offers broad coverage without pressing for details on the client’s security posture. Doing so makes a broker’s job easier in the short term, and gets coverage in force more quickly for the client.

But this route bears significant intermediate and long-term risks for both clients and brokers.

“Ultimately, as the threat landscape continues to worsen and client security programs fail to evolve, the gap between the client and malicious actors will likely widen,” Bores remarked. “This will lead to a material increase in losses, which generally translates to increased volatility on the carrier side.”

The best way for an organization to prevent a breach is to have a holistic view of their exposure and employ a thoughtful defense-in-depth based approach to security. One way to evaluate those defenses is by having them reviewed by outside, technical third parties, including the underwriting community.

Underwriters who are able to evaluate the details of a client’s security posture and identify areas for improvement are extremely valuable.

By seeking out underwriters with a deeper knowledge of sound privacy and network security practices, brokers bring greater value to their clients beyond just purchasing an appropriate policy.

The Benefits of Strong Underwriting

Strong underwriting can help to keep security standards high and costs more consistent over time. Asking follow-up questions and selecting quality risks are signs of an underwriter that has technical expertise and longevity in the cyber market.

“Even if the insured has network protections in place like a firewall and an intrusion detection system, the underwriter should be probing for more details,” Bores said. “And they should absolutely be looking into any boxes on the application in which the applicant checked ‘no,’ signaling a lack of security in that area, as the absence of those controls could be detrimental to the client dependent on their operations and exposure basis.”

Failing to follow up or push back on poor controls can foster a sense of complacency for clients, which can be damaging to the individual insureds and financially perilous to the insurance industry in aggregate.

“When underwriters fail to press clients on substandard security measures, it could lead insureds to assume they have sound controls in place. As a result, their behavior remains static while the hackers and cyber criminals remain on the attack and continue to evolve,” Bores said.

Five years (or even one year) down the road, that under-preparedness will likely come back to haunt those insureds and the carriers who cover them. A spate of material losses could then spur a shakeup of the marketplace and trigger a carrier exodus, driving up prices across the market and ultimately leaving companies looking for new, and likely more expensive coverage.

The implications extend beyond the insurance market. Lack of strong and up-to-date system security could have dangerous effects for the financial markets, critical infrastructure, and for national security.

What a Knowledgeable Cyber Underwriter Looks Like

Information security expertise enables underwriters to communicate effectively with clients, including with Chief Information Security Officers or IT Security Directors, who regularly and actively participate in underwriting meetings.

Both Bores and Josh Ladeau, Senior Vice President, Head of U.S. Cyber Risk for Aspen, are Certified Information Systems Security Professionals (CISSP). That industry knowledge allows them to ask the right questions to understand clients’ full breadth of cyber risk, and to know whether a given response is suitable; that can give them an edge over other markets.

“I frequently go to underwriting meetings where there are nine or ten different markets represented, and it’s the same two to three people who are asking specific questions about the risk,” Bores said. “Establishing a dialogue with a client’s privacy and network security professionals is important; not only does it help to establish the security posture of a client, but it also lets those professionals know that we have the capacity to appreciate the security investments made by their organization.”

“I think it’s important, particularly to well-secured clients, that they are partnered with an insurance carrier that understands the nuances of their security policies and controls,” said Bores.

It’s just as important to work with brokers who are equally concerned with the technical aspects of a client’s cyber risk exposure. “We’ve found that when brokers are willing to engage the client along with us, the client is much more likely to pay attention. In that way, we’re able to interact on a deeper level and demonstrate the heightened value we offer.”

As a testament to its dedication to clients who work hard at strengthening their security, Aspen will routinely provide any element of cyber coverage its insureds need, without applying sub-limits.

For U.S.-based clients, Aspen also differentiates itself from the market by offering a concise, plain-English form that brokers can more easily explain to clients. At eight pages in length, it’s half the size of the 15 to 20 pages that has become the industry standard. There are no sub-limits inherent to the base policy form, and some aspects are even offered on an uncapped basis.

“We may not always charge the lowest premiums, but we pride ourselves on the expertise and full support we provide for our clients, in addition to an insurance product of the highest quality. That’s where our value lies,” Bores said.

To learn more about Aspen’s cyber liability products and services, visit https://www.aspen.co/Insurance/Insurance-lines/Financial-and-Professional-Lines/cyber-risk/.

This article is provided for informational purposes only, does not necessarily represent Aspen’s views, and reflects the opinion of the authors in light of market, regulatory and other conditions which may change over time. Aspen does not undertake a duty to update the article.

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




Aspen Insurance is a business segment of Aspen Insurance Holdings Limited.

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.

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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.

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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.

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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]