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Taking the Fear Out of Cyber

Resources are available to help insureds assess and manage their cyber exposures.
By: | November 1, 2017 • 7 min read

Cyber risk is everywhere. Embedded in the hardware of every computer system, in the cloud, in the headlines of national newspapers, and in the worries of risk managers across every sector.

It’s not a new risk, but its constantly evolving nature makes it tough for companies to stay up to speed on exposures, and to know how best to mitigate and transfer the risk.

“While the market for cyber coverage is maturing rapidly, it’s still less developed than other lines,” said Tim Marlin, Head of Cyber Underwriting, The Hartford.

“We hear a lot of clients say they want cyber coverage, but often they aren’t really sure what that means.”

“There’s no uniformity of cyber products on the market,” said Marlin. “That complicates conversations about exposures and cyber coverage.”

Oftentimes insureds may not understand the full extent of their exposure, so they don’t know what kind of coverage to ask for.

Without industry-wide standards, it’s a real challenge for brokers to advise clients on what good cyber coverage should look like. Just because a coverage is available in the market doesn’t mean it’s a good fit for the client. A lack of understanding makes insureds more likely to buy improper coverage, or buy nothing at all.

“As an industry, we need to do a better job of talking with our clients about cyber in a clear and concise way. We have to remove the fear around the risk,” Marlin said.

Demystifying Cyber

Cyber becomes less scary when it’s broken down into the exposures and coverages that insureds already are familiar with.

“The coverage is much simpler than many people realize.  Do you understand coverage for third-party liability? Do you understand coverage for the first-party costs related to notification and credit monitoring in the event of a breach? If you have a firm grasp of those, then you already have a basic understanding of cyber coverage,” Marlin said.

“It’s the cryptic term ‘cyber’ that throws people off. It conjures up images of bad guys in black hats, doing nefarious things over the internet, but the exposure is much older and broader than that.”

Cyber risk connotes computer and network-related exposures. But good “cyber” coverage and advice addresses a much broader range of information risk.

“It has to do with the use and exchange of information; how we move it around; how we process it; and how we store it,” Marlin said.

Digital Era Drives Risk

Tim Marlin, Head of Cyber Underwriting

The dominance of digital media, a richly connected society, distributed processing, and the speed at which information moves amplifies risk.

Compound that with controls that lag behind both technology and threats, a bit of regulatory uncertainty, and you have a rather intimidating risk landscape. It’s our job to help simplify that for clients.

Core business functions are carried out electronically. Paper-based processes, where they still exist, are surely on the way out.

The information housed in digital processes, however, is much harder to protect when buried in an internet server or floating around in the cloud. A locked filing cabinet was a simpler, more easily-understood solution.

Some industries, like health care, financial services and education, are better-versed in the protection of private information in the digital era, simply because they bear greater scrutiny from regulators.  Often, they’re also better resourced, and more focused on the issue making them more likely to buy cyber coverage.

However, other industries have been slower to understand their cyber risk exposure.

In life sciences, for example, the drug discovery process and protection of intellectual property has changed dramatically.

“Generations ago, drug discovery was done more or less in the lab and documented in lab notebooks,” said Mark Silvestri, Sr. Managing Director, Products & Innovation, The Hartford Specialty Commercial.

“Now, it’s often enabled computationally through bioinformatics or computational biology. Molecular models for drug compounds can be built online and scientists can simulate their effect on biological systems on a computer,” Silvestri said.

An early stage life sciences company’s value is primarily its intellectual property. That IP is now stored on a computer system, making it more susceptible to theft or ransomware attacks. There’s a market for that stolen IP too.

Manufacturing faces similar challenges.

“They are relying on information in a number of ways that are critical to their ability to make money and service their clients,” Silvestri said. “Just-in-time inventory supply management, for example, is all done on a computer. Any sort of cyber outage could disrupt the delivery of crucial materials.”

Supply chain or network disruption could disrupt income or delay production and delivery. Manufacturers generally understand these risks in the physical world. Connecting them back to a cyber incident as the underlying cause is a step many just haven’t taken yet —  and where some fall short on protecting themselves.

These are just two examples of industries that may not necessarily think they are in the crosshairs of cyber risk, but they have just as much exposure as any other sector.

“We hear a lot of clients say they want cyber coverage, but often they aren’t really sure what that means.”
-Tim Marlin, Head of Cyber Underwriting, The Hartford

Coverage and Services

In the move to a digital environment, access to data at any given moment is critical.

Third party liability, business interruption and IP risks may be covered under other policies, but forgoing cyber coverage could leave companies in a lurch if they cannot quickly get to their data or begin the remediation process after a breach.

Partnering with the right carrier means more than getting the right coverage. It means access to the expertise and guidance to help companies actually understand what cyber risk means for them, and what they can do to mitigate their exposure.

At The Hartford, a panel of experts dubbed The Hartford First RespondersSM is available to help insureds assess their information security practices, review contracts with third parties, and get a better understanding of the full breadth of their cyber exposure.

“We negotiated below-market rates with a number of risk service providers and security vendors that our customers can take advantage of to remediate any pre-existing weaknesses they have in their system security,” Marlin said. “They are also there to help companies react quickly in the event of a breach or other cyber incident.

“In addition, we provide a cyber risk services fund, which is rather unique in the industry,” Marlin said.  In the event that an insured has a covered loss, The Hartford provides insureds with a fund, in addition to incident related expenses and costs to help remediate the issues that resulted in the incident in the first place.

“The better off our customers are, the better off we are,” Marlin said. “The bottom line is, we’re here to help you become a better risk before, during and after a loss.”

To learn more about The Hartford’s cyber coverage, visit www.thehartford.com/cyber.

FOR PRODUCERS ONLY. CyberChoice First Response is offered on a SURPLUS LINES* basis. This material is not to be used for solicitation purposes. The Hartford has arranged for data risk management services for our policyholders at a discount from some third-party service providers. Such service providers are independent contractors and not agents of The Hartford. The Hartford does not warrant the performance of third-party service providers even if paid for as part of the policy coverage, and disclaims all liability with respect to use of or reliance on such third-party service providers.

*Eligibility for surplus insurance coverage is subject to state regulation and requires the use of a licensed surplus line broker. Surplus lines insurance policies are generally not protected by state guaranty funds. Policies should be examined carefully for suitability and to identify all exclusions, limitations, and other terms and conditions. Surplus lines coverage is underwritten by Pacific Ins. Co. Ltd (except in CT and HI) and The Hartford Ins. Co. of Illinois in CT and HI. The Hartford® is The Hartford Financial Services Group, Inc. and its subsidiaries. Its headquarters is in Hartford, CT. All rights reserved.

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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 The Hartford. The editorial staff of Risk & Insurance had no role in its preparation.




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More from Risk & Insurance

More from Risk & Insurance

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

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“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

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“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

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“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.