You Probably Aren’t Covered for the Next Cyber Incident. Here’s Why

Assuming cyber policies will respond to any loss related to the use of a computer could leave companies in a bind.
By: | November 5, 2018 • 5 min read

“Cyber” is really not the right word to describe both the vast umbrella of threats we call cyber risks, and the insurance policies meant to cover them.


Merriam and Webster define cyber as anything “relating to or involving computers or computer networks.” By that description, a cyber insurance policy could be expected to cover any losses resulting from a network malfunction, a breach, or a transaction conducted over the web.

By now we know that’s not the case.

That disconnect between terminology and reality is one reason why insureds increasingly find themselves lacking coverage for a variety of tangible losses resulting from cyber events. Increasing reliance on technology, automation and constant connectivity have amplified the risk of falling into a coverage gap where digital and physical worlds collide.

“Clients think that their cyber policy will cover any and all events related to a computer. It’s a fair misunderstanding. But it’s becoming more commonplace to see a cyber event that results in bodily injury or property damage, and it’s less well-understood how traditional cyber policies respond to those losses,” said Adam Cottini, managing director of the Cyber Liability Practice at Gallagher.

“Cyber insurance as a product is designed for a specific purpose — to protect data and information,” said Graeme Newman, CFC Underwriting’s chief innovation officer. “We use the word ‘cyber’ as if everyone knows what it means. The reason there is so much confusion around this risk is because there are two distinct interpretations: cyber as any risk associated with using technology; and cyber insurance as a product line.”

“It’s becoming more commonplace to see a cyber event that results in bodily injury or property damage, and it’s less well-understood how traditional cyber policies respond to those losses.” – Adam Cottini, managing director, Cyber Liability Practice, Gallagher

Conflating the two could result in some unpleasant claim denials for companies counting on their cyber policies to respond to certain physical or financial losses stemming from any computer-related error.

Physical Losses from Cyber Events

Cyber policies typically do not cover physical property damage or bodily injury arising from a network failure. Though this risk predominantly affects businesses reliant on industrial control systems, like manufacturers and energy companies, the proliferation of IoT devices across industries has expanded the potential for a network error to cause tangible damage.


An all-risk property policy should pick up those damages, but some carriers are beginning to exclude cyber-related events as the likelihood of a loss increases. According to a January 2018 Lloyd’s Market Association report, “the majority of classes of business currently utilize some form of cyber exclusion.”

“On the cyber side, bodily injury and property damage are the biggest issues we get pushed on,” said Elissa Doroff, product manager, cyber and technology, AXA XL. “Our perspective is that those coverages should live in a commercial general liability or property policy, but given the soft market, carriers are more frequently pressed to create coverages to specifically address gaps related to cyber.”

Social Engineering Fraud and the Definition of Crime

Theft of funds through social engineering scams presents another grey area. Since these schemes don’t involve a breach of a corporate network, cyber policies typically don’t respond. Because funds or private data are often willingly transferred to fraudulent accounts in these schemes, crime and fidelity policies likewise may not respond.

Adam Cottini, managing director, Cyber Liability Practice, Gallagher

Crime policies may expressly exclude coverage for “voluntarily parting” with funds even if the employee was tricked into doing so. Coverage for computer fraud or funds-transfer fraud may also be invalidated if there was no unauthorized entry to the insured’s network, and if funds were sent with the organization’s knowledge and consent.

According to an October 2017 Breach Insights report by Beazley, social engineering attacks increased nine-fold in 2017. As the risk increases, so does demand for coverage, and carrier response varies.

“With cyber crime faced by banks, there is a very fine line between what should be covered under a traditional crime policy and what should be covered under a cyber policy. It’s a crime, but it’s also a cyber attack, so which policy should respond?” CFC Underwriting’s Newman said.

Newman described cyber insurance as “the modern-day crime policy.”

Crime coverages are already built into about six or seven other types of policies, Newman said, including property, professional liability, K&R, standalone crime, fidelity and employee theft, and now cyber. Especially for smaller and mid-sized businesses, a cyber policy is likely to cover most crimes they would experience, which are likely to be committed electronically.

Graeme Newman, chief innovation officer, CFC Underwriting

“Extortion is a crime, theft is a crime, sabotage is a crime, and these are all being perpetrated online today. We’re seeing a lot of innovation in the cyber market, which is expanding to cover these exposures while the crime market is eroding,” he said. “I’ve seen crime forms that haven’t changed in 10 years.”

Many carriers do now offer a social engineering endorsement, but some attach it to crime and fidelity coverages while others write it into cyber policies. Insureds should check both for exclusionary language and decide where the risk should live.

Business Interruption Impact

“Last year’s NotPetya attack demonstrated the financial impact of downtime created by cyber events. The focus is shifting from PII toward the financial impact of business interruption,” said Christian Hoffman, president, U.S. Cyber Solutions, Aon.

Both cyber and property policies will cover business interruption, though the waiting periods vary. In instances where two policies come into play, “you have to determine the best structure to place that risk,” said Jason Hogg, CEO, Cyber Solutions, Aon. “The retentions, specific features and language of the policies should be compared closely.”

“Last year’s NotPetya attack demonstrated the financial impact of downtime created by cyber events. The focus is shifting from PII toward the financial impact of business interruption.” – Christian Hoffman, president, U.S. Cyber Solutions, Aon

“That can also be addressed through a separate endorsement outlining which policy pays first,” Doroff said. “Figuring that out proactively means if you have a loss, you can hit the ground running on response and recovery and don’t have to sort out carrier disputes.”


“The nexus of the problem is that one event can have multiple outcomes,” Cottini said. “Then the question is, how would you like your outcomes to be covered?”

“There’s potential aggregation between property and casualty where there’s resulting property damage and bodily injury due to a cyber event with both first-party and liability loss. There is a lot of thought being given to how coverages come together to address cyber events, in terms of providing affirmative coverage and eliminating silent coverage,” said Sandy Codding, global head of cyber and technology, Swiss Re Corporate Solutions.

It is likely that cyber insurers will be the ones tailoring coverages more than other lines. Specialty carriers and new capital are the most likely sources, Newman said. &

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

More from Risk & Insurance

More from Risk & Insurance

In the Fast-Paced World of Retail, This Risk Manager Strives to Mitigate Risks Proactively and Keep Senior Leaders Informed

Janine Kral works to identify and mitigate risks, building strong partnerships with leaders and ensuring they see her as support rather than a blocker. 
By: | October 29, 2018 • 4 min read

R&I: What was your first job?

My very first paid job was working on my uncle’s ranch in British Columbia in the summers. He had cattle, horses and grapes — an unusual combo. But my first real job out of college was as a multi-line claims adjuster at Liberty Mutual.

R&I: How did you come to work in risk management?

Right out of college I applied for a job that turned out to be a claims adjuster at Liberty Mutual. I accepted because they were offering six weeks of training in Southern California, and at the time that sounded really fun. I spent about three years at Liberty Mutual and then I spent a short period of time at a smaller regional insurance company that hired me to start a workers’ compensation claims administration program.

I was hired at Nordstrom as the Washington Region Risk Manager, which was my first job in risk management. When I started at Nordstrom, the risk management department had about five people, and over the years it has grown to about 75. I’ve been vice president for 11 years.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

I would say that technology has probably been the biggest change. When I started many years ago, it was all paper and no RMIS.


R&I: What risks does the retail industry face that are unique?

We deal with a lot of people — employees and customers. With physical brick and mortar settings, there are the unique exposures with people moving in and out in a public environment. And of course, with ecommerce, we have a lot of customer and employee data, which creates cyber risk — which is not necessarily a unique risk in today’s environment.

R&I: Can you describe your approach to working with senior leaders and front-line staff alike to further risk management initiatives?

It starts with keeping the pulse of what’s happening with the business. Retail moves really fast. In order to identify and mitigate risks proactively, we identify top risk areas and topics, and then we ensure that we have strong partnerships with the leaders responsible for those areas. Trust is critical, ensuring that leaders see us as a support rather than a blocker.

R&I: What role does technology play in your company’s approach to risk management?

Janine Kral, claims adjuster, Nordstrom

We have an internal risk management information system that all of our locations report events into — every type of incident is reported, whether insured or uninsured. Most of these events are managed internally by risk management, and our guidelines require that prevention be analyzed on each one. Having all event data in one system allows us to use the data for trending and also helps us better predict what may happen in the future, and who we need to work with to mitigate risks.

R&I: What advice might you give to students or other aspiring risk managers?

My son is a sophomore in college, and I tell him and his friends all the time not to rule out insurance as a career opportunity. My advice is to cast a wide net and do your homework. Research all the different types of opportunities. Read a lot — articles, industry magazines, LinkedIn. Be proactive and reach out to people you find interesting and ask them about their careers. Don’t be shy and wait for people and opportunities to come to you. Ask questions. Build networks. Be curious and keep an open mind.

R&I: What are your goals for the next five to 10 years of your career?

I have always been passionate about continuous improvement. I want to continue to find ways to add value to my company and to this industry.

R&I: What is your favorite book or movie?

My favorite book is Shantaram by Gregory David Roberts. It’s a true story about a man who was in prison in Australia after being convicted of armed robbery, and he escaped to India. While in India, he passed himself off as a doctor in a slum. It’s a really interesting story, because this is a convicted criminal who ends up helping others. I am not always successful in getting others to read the book because it’s 1,000 pages and definitely a commitment.

R&I: What’s the best restaurant you’ve ever eaten at?

Fiorella’s in Newton, Massachusetts. Great Italian food and a great overall experience.


R&I: What is your favorite drink?

“Sister Carol.” I have no idea what is in it, and I can only get it at a local bar in Seattle. It’s green but it’s delicious.

R&I: What is the riskiest activity you ever engaged in?

Skydiving. Not tandem and without any sort of communication from the ground. Scary standing on a wing of a plane, but very peaceful once the chute opened, slowly floating down by myself.

R&I: If the world has a modern hero, who is it and why?

I can’t think of one individual person. For me, the real heroes are people who have a positive attitude in the face of adversity. People who are resilient no matter what life brings them.

R&I: What about this work do you find the most fulfilling or rewarding?

It’s rewarding to help solve problems and help people. I am proud of the support that my team provides others. &

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