Sponsored: Philadelphia Insurance Companies

These 4 Cyber Trends Demonstrate That Your Risk Exposure is Bigger than You Think

Technological advancement, increased connectivity, and more cunning hackers all drive the evolution of cyber risk. Companies that don’t keep pace are exposed.
By: | October 2, 2018 • 6 min read

The earliest iterations of cyber insurance covered liabilities associated with network failures or breaches of private data — if your system security failed for any reason, cyber insurance covered the cost of the response. Traditionally, the retail, healthcare and financial services sectors were the top buyers of cyber polices; as handlers of personally identifiable information, their exposure was greatest.

But it’s not just about credit card or Social Security numbers any more.

Due to rapid advancements and increasing reliance on technology by businesses of all kinds, cyber risk has grown much bigger and much harder to define.  Companies in every industry are waking up to the fact that, as long as they use technology to conduct business in any way, they are vulnerable to cyber risks.

“Especially in the past few years, there’s been a growing demand from non-traditional cyber buyers like manufacturers and nonprofits, for example,” said Evan Fenaroli, Cyber Product Manager, Philadelphia Insurance Companies (PHLY).

Though they recognize their exposure, newer and nontraditional buyers also need to stay attuned to the fact that cyber risks are constantly evolving. A cyber policy purchased five years ago may not suit today’s risk profile.

“A cyber product is not a one-and-done solution,” Fenaroli said.

These four emerging threats exemplify how rapidly cyber risk changes, and why evaluating coverage needs should be an ongoing conversation:

1. There Are More Opportunities and More Severe Consequences of System Failure

Evan Fenaroli, Cyber Product Manager, Philadelphia Insurance Companies

Business Interruption coverage has been a primary component of most stand-alone cyber insurance products for at least a decade now, with coverage traditionally triggered by distributed denial of service (DDoS) attacks, malware, or other malicious attacks directed at the insured’s own computer system or website.

But exposure to network disruption extends well beyond the internal computer system, particularly as businesses become increasingly reliant on cloud-based platforms, third party applications and other outsourced services. An attack on a critical vendor or unplanned outage at a cloud provider could cause major downstream interruption.

“We’re in an era where cloud computing is the norm rather than the exception,” Fenaroli said. “If you’ve outsourced your IT services or any network components, and that third party suffers a service interruption, that directly impacts your business.”

Errant updates and other internal operational errors can also be a source of network failure. To keep antivirus and firewall software up to date, companies are encouraged to run updates as regularly as possible. Often, organizations will install new software overnight or over a weekend to minimize disruption during working hours, but if a glitch takes everything offline, it could be anywhere from a few hours to a few days before the problem gets fixed.

Though denial-of-service attacks and data theft make headlines, these more unassuming sources of system failure can still cause substantial business interruption and contingent business interruption losses.  Luckily, coverage triggers under many cyber policies have expanded to encompass these scenarios, although buyers should look out for sub-limits or other restrictions.

2. Ransomware Attacks Are Growing More Costly

“Ransomware used to be run-of-the-mill crypto lockers, where target companies would have to pay $300 or some small sum to get their data released and regain access to their systems,” Fenaroli said.

“But today more cyber thieves are asking for payments in Bitcoin, and if they realize they’ve caught a company with deep pockets, they’ll negotiate a higher payment rather than setting a ransom up front.”

Paying ransoms in cryptocurrency requires access to a crypto-wallet — not something every organization has readily available. And increasingly, paying the ransom is no longer a guarantee that data and network access will be restored.

Amateur hackers can purchase ransomware “starter kits” on the dark web. These ready-to-use packages allow thieves of any skill level to launch their own attacks, Fenaroli said, and they may not include a key to unlock hostage data after a ransom is paid. Often, targeted companies find that their data is permanently corrupted or lost, and subsequently must pay to have it restored on top of paying a steep ransom.

“The best thing a company can do is update security patches to seal vulnerabilities in their systems and keep these viruses out,” Fenaroli said. Moreover, incident response planning and well-practiced back-up recovery procedures can go a long way toward mitigating the business impact when incidents do occur.

3. More IoT-Connected Devices Amplify Exposure to Hacks or Malfunction

Smart devices connected to a corporate network via the Internet of Things exponentially increase the number of access points for hackers and represent more single points of failure.

Failures of IoT-connected devices can also result in damages that fall outside the scope of a cyber policy. If a temperature-monitoring device on a cargo truck fails, for example, liability for damaged inventory likely won’t be picked up by cyber coverage even though the underlying cause was a system failure.

“It’s important to recognize the additional risks created by IoT technology and ensure you have coverage for it somewhere, because a standalone cyber policy likely won’t respond to every scenario,” Fenaroli said.

“Even before you think about coverage, evaluate whether adopting IoT technology is actually a good business decision. Is it going to improve your operations, make you more efficient and make you money? Or are you just doing it because it seems cool?”

4. The Growing Threat of a Cyber CAT Imperils Market Stability

Increasing connectivity and technology dependence presents risk not just for businesses, but for the carriers who insure them.

In 2016, domain name provider Dyn was targeted in a DDoS attack that caused shutdowns of major Internet platforms and services across large portions of Europe and North America. The attack was launched in three waves over a single day, causing at least six hours of downtime for Dyn clients and, according to some estimates, about $110 million in total business interruption losses.

While this particular incident did not make a huge dent on insurers’ balance sheets, it did bring attention to the catastrophic loss potential of aggregated cyber risk.

“On one hand, there’s a lot of capacity in the cyber market leading to soft conditions where pricing is going down and coverage is expanding, but then there is this looming threat of a catastrophic cyber event that could flip the market on its head,” Fenaroli said.

To best position themselves for success amid market disruption, companies should look for carriers that work with modelers on cyber CAT scenarios.

“Work with an underwriter who is aware of this threat and writing their coverage accordingly,” Fenaroli said.

For Best Outcomes, Turn to Experienced and Adaptable Cyber Carriers

Philadelphia Insurance works with modelers to assess the impact to their portfolio business if a common operating system or cloud provider goes down.

“That knowledge allows us to come up with more accurate pricing and ensure we’re not taking on too much exposure, so that we can pay these losses if they were to occur,” Fenaroli said. “Our top priority is trying to be that stable backstop for the buyer.”

Since launching a stand-alone cyber product in 2009, Philadelphia Insurance’s broad form has served the needs of small- to medium-sized businesses in all sectors, including traditional cyber exposures in healthcare and financial services, as well as newer buyers in the nonprofit and manufacturing sectors.

“But our policyholders have come to know Philadelphia not just for our coverage, but for our pricing stability, our risk management resources, and our claims handling.”

Along with a recommended panel of breach response vendors — including forensic investigation, public relations and law firms — Philadelphia also offers an online cyber risk management portal with tools like a breach cost calculator and sample policies and procedures.

“It helps to get the ball rolling on implementing some of the policies, procedures and incident response plans,” Fenaroli said. “Being prepared is just as important as having the coverage.”

To learn more, visit



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

Philadelphia Insurance Companies (PHLY) offers product-specific resources, alliances, and service capabilities to achieve a multi-faceted approach to risk management, including safety program development, site audits, and training (including interactive web-based training). We offer a wide range of products and value-added services at financial terms to be agreed upon to help you achieve your risk management goals.

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.


Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”


Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.


“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]