Cyber Coverage

Plugging the Cyber Gap

Marrying property and cyber coverage seamlessly is an area of increased focus for risk managers and underwriters.
By: | April 9, 2018 • 6 min read

Manufacturing and logistics companies are living in constant fear of the next big cyber event. Advancements in smart technology and interconnectivity in the manufacturing and supply chain process only heighten cyber risk.


This has had the unintended consequence of leaving companies more vulnerable to cyber attacks than ever, as evidenced by the recent spate of NotPetya and WannaCry attacks that devastated many businesses last year.

Once hackers get hold of the relevant codes, they can shut down entire manufacturing processes and supply chains, causing untold damage and costing companies billions in lost revenue.

As a result, demand for cyber coverage has spiked over the last year. However, given the relatively new nature of cyber as a risk, there’s less historical data available, making coverage harder to find.

Added to that, as an admitted risk, property coverage is regulated on a state-by-state basis. But because cyber risk is non-admitted, bolting it on to an existing property program, particularly for a company operating in multiple states, can be problematic because of the different way the two types of cover are regulated.

Graeme Newman, chief innovation officer, CFC Underwriting

An even deeper-lying issue: Many companies don’t understand what coverage they have and whether they will be covered for a cyber event that causes property damage or business interruption.

This was tested by last year’s NotPetya cyber attack on Merck & Co, which disrupted production of its medicines and vaccines on a mass scale. The company has yet to quantify its total losses.

“We have seen a definite increase in the inclusion of non-physical business interruption coverage within manufacturers’ property policies,” said Tracie Grella, global head of cyber insurance, AIG.

“Since property policies provide coverage for business interruption caused by physical loss, it is only logical to want to extend coverage within the property policy to include business interruption caused by a cyber attack, rather than by having a standalone cyber product.”

System Failure

Emy Donovan, global head of cyber and tech PI, Allianz Global Corporate & Specialty, said cyber threat increased as a result of manufacturing companies connecting more of their processes to the internet. Added to that, there has been a move toward smarter processes, which, when they go wrong, can leave the company exposed to even wider business interruption (BI) problems, she said.

“Now companies have got the internet of things devices within their production facilities and rely on connected functionalities for critical operations,” she said. “Additionally, we all used to have manual work-arounds for processes that were somewhat connected.


“But now we have all dismantled those work-arounds in favor of ‘smart’ processes. That means that if something ‘smart’ breaks, there’s no other way to complete the task, so the BI loss gets worse.”

The problem has been exacerbated because companies rely so heavily on these interconnected systems to run their day-to-day business, leaving them susceptible to malware and ransomware attacks, said Graeme Newman, chief innovation officer, CFC Underwriting. But this has at least caused risk managers and companies to sit up and take notice of the problem.

“Following the surge in ransomware and destructive malware that we witnessed in 2017, the awareness of cyber risk among more traditional industries has risen,” he said.

“For them, the exposure is more akin to the risks covered under their property policies, hence why they have turned to these to look for cover.”

Coverage Headache

Many companies have a standard property program and are only now waking up to the cyber threat following recent attacks. As a result, Marcin Weryk, underwriting manager, cyber and technology, XL Catlin, said there has been an increase in clients looking for more inclusive property policies with cyber bolted on.

But because of the mismatch between property being an admitted risk and cyber being non-admitted, it’s often tricky to add on cyber, he said. Companies are seeking guidance on whether their property program will cover them for a cyber event, he added.

“We have seen a definite increase in the inclusion of non-physical business interruption coverage within manufacturers’ property policies.” — Tracie Grella, global head of cyber insurance, AIG

To overcome the problem, Stephanie Snyder, national cyber sales leader, Aon Risk Solutions, said that companies need to consider using the same carrier to provide their property and cyber coverage to ensure the two are streamlined. The need to work with specialist property and cyber brokers is also paramount.

“Many carriers are now making sure that any type of cyber risk that’s bolted on to their property policy is underwritten by a cyber underwriter,” she said.

“It helps to give them a better understanding of the potential aggregation of risk and eliminate any gray areas or overlaps in coverage.”

A greater problem, said Newman, is carriers’ understanding and appetite to insure these risks. Given the limited knowledge of cyber risk and a fear of aggregation, he said, often the only alternative has been for companies to turn to the excess and surplus market.

“The very real fear that one piece of malware could result in simultaneous limit losses across a huge property portfolio is what is preventing more insurers from entering this market,” he said.

“Had NotPetya been targeted at the U.S. rather than Ukraine, then we could have witnessed an economic impact well in excess of $50 billion, much of which would have fallen on the property market had they provided affirmative cover for cyber risk.”

Streamlined Solutions

Despite this, great strides have been made in aligning property and cyber coverage, said Tom Reagan, managing director and cyber practice leader, Marsh. But there’s still a long way to go.

Grace Reis, VP, cyber risk insurance products, FM Global

“Brokers and carriers have done a great deal of work over the last few years to try to align the two coverages. In general, the property market has continued to be responsive to physical events arising from cyberattacks, but on the other hand, the property market has been moving towards excluding non-physical cyber events,” he said.

Companies also need to work with their brokers and carriers to identify any gaps in their programs, said Weryk. At the end of day, he said, risk managers must decide between an overarching policy covering all cyber and property risks or having separate ones.

“They have to make a clear decision as to whether they go for numerous separate policies or explicit coverage using one program,” he said. “Both have merits and drawbacks, but it’s up to them what suits their business.”


Education is another key area to help companies, said Grace Reis, VP, cyber risk insurance products, FM Global. She said clients and brokers need to understand how their policy will respond to an event.

“You need to put in the groundwork before an event happens,” she said.

“The last thing you want is to get a nasty shock at 2 a.m. Companies need to treat cyber as an enterprise risk that affects all operations rather than just an IT issue. In a business sense, cyber and property may live in two different segmentations, but companies need to ensure they are plugging that gap.” &

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

2018 Most Dangerous Emerging Risks

Emerging Multipliers

It’s not that these risks are new; it’s that they’re coming at you at a volume and rate you never imagined before.
By: | April 9, 2018 • 3 min read

Underwriters have plenty to worry about, but there is one word that perhaps rattles them more than any other word. That word is aggregation.


Aggregation, in the transferred or covered risk usage, represents the multiplying potential of a risk. For examples, we can look back to the asbestos claims that did so much damage to Lloyds’ of London names and syndicates in the mid-1990s.

More recently, underwriters expressed fears about the aggregation of risk from lawsuits by football players at various levels of the sport. Players, from Pee Wee on up to the NFL, claim to have suffered irreversible brain damage from hits to the head.

That risk scenario has yet to fully play out — it will be decades in doing so — but it is already producing claims in the billions.

This year’s edition of our national-award winning coverage of the Most Dangerous Emerging Risks focuses on risks that have always existed. The emergent — and more dangerous — piece to the puzzle is that these risks are now super-charged with risk multipliers.

Take reputational risk, for example. Businesses and individuals that were sharply managed have always protected their reputations fiercely. In days past, a lapse in ethics or morals could be extremely damaging to one’s reputation, but it might take days, weeks, even years of work by newspaper reporters, idle gossips or political enemies to dig it out and make it public.

Brand new technologies, brand new commercial covers. It all works well; until it doesn’t.

These days, the speed at which Internet connectedness and social media can spread information makes reputational risk an existential threat. Information that can stop a glittering career dead in its tracks can be shared by millions with a casual, thoughtless tap or swipe on their smartphones.

Aggregation of uninsured risk is another area of focus of our Most Dangerous Emerging Risks (MDER) coverage.

The beauty of the insurance model is that the business expands to cover personal and commercial risks as the world expands. The more cars on the planet, the more car insurance to sell.

The more people, the more life insurance. Brand new technologies, brand new commercial covers. It all works well; until it doesn’t.

As Risk & Insurance® associate editor Michelle Kerr and her sources point out, growing populations and rising property values, combined with an increase in high-severity catastrophes, threaten to push the insurance coverage gap to critical levels.

This aggregation of uninsured value got a recent proof in CAT-filled 2017. The global tally for natural disaster losses in 2017 was $330 billion; 60 percent of it was uninsured.


This uninsured gap threatens to place unsustainable pressure on public resources and hamstring society’s ability to respond to natural disasters, which show no sign of slowing down or tempering.

A related threat, the combination of a failing infrastructure and increasing storm severity, marks our third MDER. This MDER looks at the largely uninsurable risk of business interruption that results not from damage to your property or your suppliers’ property, but to publicly maintained infrastructure that provides ingress and egress to your property. It’s a danger coming into shape more and more frequently.

As always, our goal in writing about these threats is not to engage in fear mongering. It’s to initiate and expand a dialogue that can hopefully result in better planning and mitigation, saving the lives and limbs of businesses here and around the world.

2018 Most Dangerous Emerging Risks

Critical Coverage Gap

Growing populations and rising property values, combined with an increase in high-severity catastrophes, are pushing the insurance protection gap to a critical level.

Climate Change as a Business Interruption Multiplier

Crumbling roads and bridges isolate companies and trigger business interruption losses.


Reputation’s Existential Threat

Social media — the very tool used to connect people in an instant — can threaten a business’s reputation just as quickly.


AI as a Risk Multiplier

AI has potential, but it comes with risks. Mitigating these risks helps insurers and insureds alike, enabling advances in almost every field.


Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]