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

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The Profession

For This Pharmaceutical Risk Director, Managing Risk Means Being Part of the Mission to Save Lives

Meet Eric Dobkin, director, insurance and risk management, for Merck & Co. Inc.
By: | September 28, 2018 • 5 min read

R&I: What was your first job?
My first job out of undergrad was as an actuarial trainee at Chubb.I was a math major in school, and I think the options for a math major coming out are either a teacher or an actuary, right? Anyway, I was really happy when the opportunity at Chubb presented itself. Fantastic company. I learned a lot there.

R&I: How did you come to work in risk management?
After I went back to get my MBA, I decided I wanted to work in corporate finance. When I was interviewing, one of the opportunities was with Merck. I really liked their mission, and things worked out. Given my background, they thought a good starting job would be in Merck’s risk management group. I started there, rotated through other areas within Merck finance but ultimately came back to the Insurance & Risk Management group. I guess I’m just one of those people who enjoy this type of work.


R&I: What is risk management doing right?
I think the community is doing a good job of promoting education, sharing ideas and advancing knowledge. Opportunities like this help make us all better business partners. We can take these ideas and translate them into actionable solutions to help our companies.

R&I: What could the risk management community be doing a better job of?
I think we have made good advancements in articulating the value proposition of investing in risk management, but much more can be done. Sometimes there is such a focus on delivering immediate value, such as cost savings, that risk management does not get appropriate attention (until something happens). We need to develop better tools that can reinforce that risk management is value-creating and good for operational efficiency, customers and shareholders.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?
I’d actually say there hasn’t been as much change as I would have hoped. I think the industry speaks about innovation more often than it does it. To be fair, at Merck we do have key partners that are innovators, but some in the industry are less enthusiastic to consider new approaches. I think there is a real need to find new and relevant solutions for large, complex risks.

R&I: What emerging commercial risk most concerns you?
Cyber risk. While it’s not emerging anymore, it’s evolving, dynamic and deserves the attention it gets. Merck was an early adopter of risk transfer solutions for cyber risk, and we continue to see insurance as an important component of the overall cyber risk management framework. From my perspective, this risk, more than any other, demands continuous forward-thinking to ensure we evolve solutions.

R&I: What’s the biggest challenge you’ve faced in your career?
Sticking with the cyber theme, I’d say navigating through a cyber incident is right up there. In June 2017, Merck experienced a network cyber attack that led to a disruption of its worldwide operations, including manufacturing, research and sales. It was a very challenging environment. And managing the insurance claim that resulted has been extremely complex. But at the same time, I have learned a tremendous amount in terms of how to think about the risk, enterprise resiliency and how to manage through a cyber incident.

R&I: What advice might you give to students or other aspiring risk managers?
Have strong intellectual curiosity. Always be willing to listen and learn. Ask “why?” We deal with a lot of ambiguity in our business, and the more you seek to understand, the better you will be able to apply those learnings toward developing solutions that meet the evolving risk landscape and needs of the business.


R&I: What role does technology play in your company’s approach to risk management?
We’re continuing to look for ways to apply technology. For example, being able to extract and leverage data that resides in our systems to evaluate risk, drive efficiencies and make things like property-value reporting easier. We’re also looking to utilize data visualization tools to help gain insights into our risks.

R&I: What are your goals for the next five to 10 years of your career?
I think, at this time, I would like to continue to learn and grow in the type of work I do and broaden my scope of responsibilities. There are many opportunities to deliver value. I want to continue to focus on becoming a stronger business partner and help enable growth.

R&I: What is your favorite book or movie?
I’d say right now Star Wars is top on my list. It has been magical re-watching and re-living the series I watched as a kid through the eyes of my children.

R&I: What is the riskiest activity you ever engaged in? When I was about 15, I went to a New York Rangers versus Philadelphia Flyers game at the Philadelphia Spectrum. I wore my Rangers jersey. I would not do that again.

Eric Dobkin, director, insurance & risk management, Merck & Co. Inc

R&I: What is it about this work you find most fulfilling or rewarding?
I am passionate about Merck’s mission of saving and improving lives. “Inventing for Life” is Merck’s tagline. It’s funny, but most people don’t associate “inventing” with medicine. But Merck has been inventing medicines and vaccines for many of the world’s most challenging diseases for a long time. It’s amazing to think the products we make can help people fight terrible diseases like cancer. Whatever little bit I can do to help advance that mission is very fulfilling and rewarding.

R&I: What do your friends and family think you do?
Ha! My kids think I make medicine. I guess they think that because I work for Merck. I suppose if even in a small way I can contribute to Merck’s mission of saving and improving lives, I am good with that. &

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]