Cyber Risk

Cyber Market Dramatically Increases

Middle-market companies are being targeted by insurers, but some industry sectors are finding it increasingly difficult to get coverage.
By: | December 1, 2015 • 4 min read

Cyber risk has become one of the top priorities for company boards, regulators and governments following the sharp rise in data breaches, according to Moody’s, the ratings agency.

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“Given the rising frequency and severity of cyber attacks, boards have become particularly focused on making sure corporations have adequate systems and controls in place to safeguard their own data and that of their customers,” said the in-depth report on cyber insurance released in mid-November.

Cyber attacks have increased by 30 percent year-over-year between the start of 2013 and 2015 — a trend that has continued, with 577 breaches reported in the first six months of this year, the report found.

However, the scale of the problem is much worse, as many attacks go unpublicized.

Over the last 15 years, the cyber insurance market has grown from about 10 insurers to about 50 carriers providing stand-alone cyber insurance, generating $2.75 billion in gross written premiums (GWP) in the U.S. this year. — Moody’s

Worse still, the average cost of cyber crime in the U.S. climbed by 22 percent, to $15 million this year, according to a new report by independent research firm the Ponemon Institute.

It’s understandable then, according to Moody’s, that the lack of credible data on losses and the potential risk accumulations have made insurers cautious, resulting in some offering relatively small limits.

“Given the uncertainties of this evolving market, with limited historical loss data and large potential risk correlations, we view expansion into the cyber risk insurance market as similar to that of other high risk/return product segments, such as catastrophe risk, fidelity/crime and terrorism,” the report said.

“One of the most significant challenges to insurers in this market is a lack of actuarially analyzable data about cyber attacks. Over time, we expect this to shift as companies gain experience from continued cyber assaults as well as through increasing disclosure requirements for publicly traded corporations.”

Fast Growing Market

It’s no surprise given the high-profile attacks on Target, Sony, JP Morgan, U.S. Office of Personnel Management and others that cyber insurance is one of the fastest growing markets for property and casualty insurers.

Over the last 15 years, the market has grown from about 10 insurers to about 50 carriers providing stand-alone cyber insurance, generating $2.75 billion in gross written premiums (GWP) in the U.S. this year, said Moody’s, which noted GWP was about $2 billion a year earlier.

Other carriers provide cyber-related endorsements to commercial general liability or multi-peril policies, according to the ratings agency.

The report noted that PricewaterhouseCoopers has forecast the cyber insurance market to grow to as much as $7.5 billion by 2020.

However, despite the recent growth, the ratings agency said that some insurers have reduced capacity, and increased rates and deductibles in response to large claims, particularly in retail and health care.

The biggest demand for stand-alone cyber insurance, according to Marsh, is from the hospitality, gaming, education, and power and utilities sectors, with a 32 percent increase in the overall number of U.S. clients buying cover in the first half of 2015.

Robert Parisi, managing director, Marsh FINRPO

Robert Parisi, managing director, Marsh FINRPO

Robert Parisi, managing director of Marsh FINRPO, said that estimates of the cyber insurance market continue to grow dramatically, with GWP up anywhere between 50 percent and 100 percent between 2014 and 2015.

“We’re seeing several industry classes start to buy a lot more of it,” he said. “One of those is general manufacturing or industrial clients who are incredibly, if not wholly, dependent on technology throughout the lifecycle of their process from supply chain to distribution and sales.

“As a result, we have seen a real growth in the property-related cyber risks.”

Increased Competition

Moody’s reported that new carriers have entered the cyber insurance market, adding to the competition.

Kevin Kalinich, global practice leader for cyber risk at Aon Risk Solutions, said increased competition has surfaced among insurers targeting middle market companies for comprehensive coverage and aggressive pricing strategies.

However for large companies in retail, health care, finance and hospitality, it’s become increasingly difficult to get cover because insurers find it hard to price those risks, he said.

Kevin Kalinich, global practice leader, cyber risk, Aon Risk Solutions

Kevin Kalinich, global practice leader, cyber risk, Aon Risk Solutions

“In the future, companies are going to have to make a choice between maximizing coverage and capacity, in which case they are going to have to pay a higher premium, or pay the least amount they can, which is going to limit their capacity on a program or else pay an inverted pricing,” he said.

“Cyber insurance is also going to become much more of a macro-level issue for insurance. It’s going to affect property, general liability and crime insurance.”

He said that companies can improve their risk management by using a third party provider, while also benefiting from insurers offering more value-added services.

Peter Foster, executive vice president, FINEX North America, Willis, said that underwriters have become discerning about the policies they write for large retailers and health care companies, and are reviewing premiums across all industries as a result of the substantial losses incurred due to recent breaches.

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“The insurance industry is responding to the threat of cyber attacks,” he said. “It’s still a robust marketplace even though these losses are occurring.”

Moody’s noted that insurers themselves are also at risk and if attacked, could face a severe and prolonged disruption to their business, resulting in a negative impact to their ratings or outlook.

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

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]