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4 Cyber Insurance Myths That Are Putting Your Business at Risk

Lack of education, emerging risks, and inconsistent policy language sow confusion in the cyber market. Two experts debunk common but dangerous myths.
By: | September 19, 2018 • 6 min read

Be honest: Do you know what your cyber policy actually covers?

“There still seems to be a lot of mysteriousness around cyber insurance policies, especially from the perspective of technologists and security specialists,” said Nick Graf, Assistant Vice President of Information Security, Risk Control, CNA. “Many of them are unsure if these policies ever actually pay out.”

The rapid evolution of cyber coverage and the lack of a standard industry-wide form has left plenty of room for variation from policy to policy. Combined with the constant emergence of new cyber risks, nuances in policy language create confusion over exactly what’s covered and what’s not.

Underwriters with true expertise in information technology and security, however, can demystify and debunk common myths risk managers believe about their cyber insurance:

Myth #1: Cyber insurance covers every loss related to the use of a computer.

Nick Graf, Assistant Vice President of Information Security, Risk Control, CNA.

“Calling it ‘cyber insurance’ is a little bit of a misnomer,” said Brian Robb, Underwriting Director, Cyber Industry Leader, CNA. “Just because a computer is involved doesn’t mean it’s going to trigger a cyber policy.”

Organizations get into trouble when they assume that their cyber policy will also respond to losses from social engineering schemes, business interruption, reputational harm, or property damage resulting from a network breach.

“Some of these secondary coverages may be tacked on as endorsements, but they are not as significant or as necessary as privacy liability or incident response coverages, which are the core parts of a cyber policy,” Graf said. “They certainly do not come standard.”

Traditional cyber coverages include first-party breach response including forensic investigation, notification and credit monitoring, and third-party protections for lawsuits arising either out of a breach that violated privacy laws, or a network failure that disrupted services for customers.

“The vast majority of your claims will fall into one of these three buckets,” Robb said. “These coverages are consistent in almost every standalone cyber policy on the market.”

Fact: Cyber insurance is only designed to cover network security and privacy liability.

Myth #2: Terms and conditions are consistent across all basic standalone cyber policies.

Although the traditional cyber market has matured to the point where first- and third-party coverages have grown fairly consistent, there is still no standard form used by all carriers. This means policy wording, terms and conditions and exclusions can — and do — vary from one insurer to the next.

In fact, policy differentiation is often how carriers seek to find their own niche in a crowded market.

“A recent cyber market update by Aon Benfield, ‘2017 US Cyber Insurance Profits and Performance,’ stated there were 170 U.S. insurers writing policies and collecting premium on cyber,” Robb said. “In some cases, there are E&O or crime underwriters writing a cyber form just to try and get in the game, and these new entrants are often the ones offering secondary coverages that look attractive to buyers.”

If brokers and insureds are drawn in by “bonus” coverage for reputation damage or contingent business interruption, for example, they risk overlooking the strength of the core cyber coverages and of the claims team backing them up. Graf and Robb say a lack of education in the marketplace means risk managers don’t necessarily know what to look for when it comes to these core components.

Fact: Variance among policy language means risk managers need a thorough review of coverage with their brokers to fully understand what they’re buying.

Myth #3: My cyber and other P/C policies together will protect me from emerging risks.

Brian Robb, Underwriting Director, Cyber Industry Leader, CNA

Cyber exposures increasingly intermingle with other categories of risk, including property and fidelity. More automation in manufacturing, for example, creates more opportunities for system failures. Machinery malfunction could lead to property damage, bodily injury, or product defects.

“It’s possible that either through deliberate hacking or a coding mistake that a machine stops operating the way it’s supposed to,” Graf said. “But when the damage incurred is physical rather than related to intangible data, it’s often not covered under a cyber policy.”

Some carriers are also moving to specifically exclude coverage for physical damage losses from a cyber event in their property policies. The same goes for theft of funds perpetrated via a social engineering scam.

“A cyber policy likely won’t cover a fraudulent transfer when no one actually infiltrated your network. And because the funds were willingly sent, a crime policy often will not pick up that loss either, even though the employee was tricked,” Robb said.

Fact: Tangible losses resulting from a network security issue or phishing may not be covered under cyber, property or crime policy.

Myth #4: It doesn’t matter which carrier I buy my policy from.

“I see a lot of insureds making decisions mostly based on cost,” Graf said. “Comparing two cyber policies is like comparing apples to oranges because the types of coverages included in the policies, how broadly things are defined, the exclusions — they can vary greatly.”

The cost of a policy also does not reflect the strength of a carrier’s claims team or their risk mitigation services. A less expensive policy from a new entrant in the market may not come with a dedicated claims staff, which means claims and breach response are handled more slowly.

Established carriers also bring with them their relationships with loss prevention vendors, like security, PR, and forensics firms.

“A handful of us have been doing this for quite some time and have fully staffed teams and fully vetted panels,” Robb said. That enables a fast claims response and a much better customer service experience.”

Fact: Vetted risk control services and a dedicated claims team are just as important as a policy itself.

Expertise Matters in a Changing Market

In the ever-evolving work of cyber risk and insurance, partnering with experts is critical to be as prepared as possible when a loss eventually occurs

Within their Risk Control group, CNA has 11 Certified Information Privacy Technologists, many of whom hold other certifications through the International Association of Privacy Professionals. Graf himself comes with 15 years of experience including ethical hacking and penetration testing.

“They are there working day-in, day-out with the underwriting teams, and I occasionally work with our claims team when they have a complicated claim that comes in,” Graf said. “This way we all understand what actually happened.”

A dedicated 10-person claims staff also works on cyber claims, all of them former attorneys, and many of them with more than 10 years of experience.

“We’ve been in the cyber market since the beginning, and we’re not going anywhere,” Robb said. “We’ve committed the time and resources to remain a leader in this space and provide a best-in-class cyber offering.”

To learn more, visit cna.com/cyber.

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




Serving business and professionals since 1897, CNA is the commercial insurance carrier of choice for more than 1 million businesses and professionals worldwide.

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]