Do You Even Know What a Puni-Wrap Is? Hint — It Could Protect You From GDPR Fines

With many coverage questions yet to be answered about GDPR fines and penalties, there are a handful of solutions available for those who don’t want to take a wait-and-see approach.
By: | April 22, 2019

When GDPR, the EU’s General Data Protection Regulation, went into effect May 25 of last year, with it came widespread hand-wringing over the size of the potential fines companies could face: The larger of $20 million or 4 percent of annual top line revenues.


Just shy of a year later, many are still asking the question: Are those fines insurable? The best answer, still, is “it depends.” Questions surrounding insurability are complex, and there is as yet no case law to provide guidance.

That hasn’t been a major problem so far. Despite more than 95,000 complaints received by data protection authorities, only around 90 fines have been levied, most of them moderately sized, with the exception of a $57 million fine levied against Google in January.

But that’s expected to change. In its February 2019 GDPR Data Breach survey, global law firm DLA Piper noted: “We anticipate that 2019 will see more fines for tens and potentially even hundreds of millions of Euros as regulators deal with the backlog of GDPR data breach notifications.”

Location, Location, Location

The obvious question on risk managers’ minds: “Is coverage available?” The fact is some cyber policies already out there could likely respond to a GDPR fine. Many do contain language that allows for coverage of regulatory fines and penalties. But there are significant caveats, and risk managers should be cognizant of their own policy language.

Bill Boeck, insurance & claims counsel, Lockton Financial Services

Some policy language requires a data breach to trigger coverage. However, GDPR fines can be levied in the absence of a breach, meaning that such coverage could not respond.

Some policies contain the phrase “to the extent insurable by law.” And that’s where things start to get sticky. If French regulators assess a $50,000 fine but such fines aren’t insurable under French law, sorry — no coverage.

Also, that obstacle isn’t necessarily removed if that phrase isn’t written into the policy terms. Few domestic insurers would be comfortable trying to pay a claim into a country that considered such payments unlawful — a point that is the crux of many coverage questions related to GDPR fines.

“EU countries have not taken a position on the insurability of fines, that I’m aware of,” said Bill Boeck, insurance & claims counsel for Lockton Financial Services.

“So there has been a lot of speculation based on decisions in other contexts — either by courts or regulators in the various countries — and people are trying to read the tea leaves about whether GDPR fines will be insurable. There is a report out there that hypothesizes that fines would be insurable in a couple of different countries. But at this point that’s no better than informed speculation.”

And of course, even in those countries where fines would be insurable, any direct wrongdoing or gross negligence on the part of the insured would shut down any questions of insurability.

What’s Available Now

With so much uncertainty on how questions of insurability will shake out, insurers are being cautious, said Boeck.

Nevertheless, some carriers and brokers have been working to develop options for insureds.

“Right now, insurers are kind of all over the place on thinking on what they can do and how they can pay,” said a brokerage executive familiar with the Bermuda market who requested anonymity.

One existing option is a twist on a punitive damages wrap (puni-wrap). A carrier will write a domestic cyber policy, and an offshore affiliate will pair it with a punitive wraparound policy.

Such wraparounds have been in use for at least two decades for other liability risks including EPL, D&O and E&O. Puni-wraps are typically used to insure against punitive damages awards in states where such awards are not payable with insurance.  Some of these are now in play to cover GDPR fines.

“They took that same concept and came up with a couple of … variations,” he explained.

“One market, Chubb, will issue a GDPR wrap that’ll only wrap Chubb’s domestic policy. Now that is only good if Chubb is on the primary.”

Another alternative, he explained, is an AXA XL product that’s sometimes called a wrap even though it’s not.

“They have a difference in conditions (DIC) option,” the executive said.

“[AXA] XL has to sit on the tower as a regular excess player and they will issue a DIC endorsement that will drop down [and provide affirmative coverage] in the event that the primary is unable to pay it due to insurability reasons.”

The DIC product is more flexible, because while it was designed to pay GDPR fines and penalties, it’s not GDPR-specific and can be used to respond to similar regulations that come down the pike.

Notably, the executive said, the first primary cyber policy will be available out of Bermuda soon, and it will automatically give affirmative coverage for fines and penalties.

For now, he said, it’s important to remember the existing solutions do have certain limitations.

“You have to remember too that the primary policy has to cover GDPR already. So, the DIC or the wraps are no broader than the primary policy. They are just giving affirmative coverage in the event that it cannot be paid.”

“People are trying to read the tea leaves about whether GDPR fines will be insurable. There is a report out there that hypothesizes that fines would be insurable in a couple of different countries. But at this point that’s no better than informed speculation.” — Bill Boeck, insurance & claims counsel, Lockton Financial Services

On whether there is enough capacity in the market to handle the coming fines, Lockton’s Boeck is pragmatic.


“If you’re a very large company with tremendous revenues, and some data protection authority in the EU decides to throw the book at you and nick you for 4 percent, there just isn’t insurance for that. You can’t hope to cobble together enough capacity to cover what could be billions of dollars in fines.

“The better question is, is there enough capacity to cover the fines that are likely to be assessed,” he said.

“You’re only looking at [limits] right now of 50 to 75 million, but that is really pushing it a little bit as far as limits,” said the unnamed executive.

It’s worth noting, he added, that a wrap doesn’t add any additional capacity to the tower.

“So if the wrap pays, then the primary limit is eroded, presuming the wrap is on the primary or whatever layer its wrapping, the limit in that layer is eroded if the wrap pays out, whereas if the DIC drops down and pays out, it’ll only erode the excess layer that it sits in, that it’s dropping down from.”

Experts said that while insureds are asking questions and brokers and carriers are actively talking about it, the lack of case law will remain an obstacle for the near-term.

“This is an issue, which is holding up insurers, and it’s holding up clients buying or analyzing whether they need to buy or not buy,” said the executive. “I think [in the case of the products being sold out of Bermuda right now] it’s the clients taking the perspective that it’s safer to buy than to wait.” &

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

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.


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.


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]