Incidents of Extortion and Ransomware Are Up 200% for Small Businesses

Cyber attacks don't discriminate. They target more than large corporations. Is your business covered?

By: Emily Spennato | November 20, 2019

As 2019 comes to a close, one of the most popular business trends was nothing short of unfortunate and exhausting for those it affected.

While cyber is still a growing sector of the insurance industry, the lack of awareness surrounding the importance of cyber coverage has the potential to do paramount damage to businesses. Take the headline-making breaches of the year, for example.

Cyber Crime in 2019

On April 1, 2019Mayor Kathy Sheehan confirmed that a malware attack had hit the Albany Police Department, affecting the computer systems of patrol cars and causing a weekend-long frenzy for city officials.

Capital One fell down a similar rabbit hole in late July when cyber criminals gained access to 100 million credit card applications and accounts.

Most recently, hackers are proving they do not miss a beat in popular culture, either, as thousands of Disney+ accounts have already been accessed and stolen despite the platform launching mere days ago.

According to the 2019 Travelers Risk Index, the percentage of survey respondents from small businesses admitting that their company has been the victim of a data breach or cyber event is up 200% from 2015, yet only 51% of businesses have purchased cyber insurance.

“If you think about cyber being the top overall business concern, then why aren’t more companies who are participating in the survey buying cyber insurance?” said Tim Francis, enterprise cyber lead, Travelers.

“There is a misconception that cyber insurance is not meant for small business customers.”

Hackers Pay Attention. Do You?

In today’s digitally-driven society, no one is immune to a cyber attack. Those who think they are will likely have heavy losses that can range from data breaches and identity theft to extortion and ransomware.

Tim Francis, enterprise cyber lead, Travelers

Whether it’s opening a suspicious email and triggering a virus or having information stolen, cyber threats come in too many shapes and sizes for any one business to be entirely immune. And cost of cleanup could be higher than the attack itself.

So why don’t all companies insure their cyber security from the second they send their first email, just as you would insure your car from the moment you take it out for its first spin?

“I think part of that answer is that an awareness of cyber insurance, particularly as you move from large customers to medium and small, is less mature. It’s still a relatively new product, so most of these companies have less of an awareness of what cyber insurance is and what it can do for them,” said Francis.

Aside from ignorance of its benefits, the high price tag of cyber protection may be a deterrent for some executives, especially for small businesses with less resources.

Fortunately, the industry is modernizing solutions.

The Risk Is Not Worth the Reward

“The cost of cyber insurance is flexible; most of the time, a small business isn’t going to pay as much for a cyber insurance policy as a large corporation. The price they’re paying is commensurate with the exposure and the threats that they face.”

According to Francis, many small businesses face a challenge in offsetting cyber attacks because they don’t have in-house expertise when it comes to information security.

Cyber insurance not only protects against cyber breaches, but it also covers the cost of paying for the experts who are going to respond to it.

As the threat increases and data grows more valuable, cyber risk is creeping into the forefront of business leaders’ minds.

When you combine the newer concept of technology with the arguably ageless concept of business, it’s natural that companies will need the proper time to adjust, but the window of leeway is closing. (Just ask Capital One how much fun they had with the class action lawsuit against them.)

“A lot of systems that private sector companies are using were designed first and foremost to work efficiently and be relatively inexpensive. The security around those systems and their data was at times secondary to the primary focus of the organization, which is the work,” explained Francis on why companies are taking longer to catch up.

As affordable premiums, in-house coverage, and countless other insurance options are emerging on the market, there is a certain security in employee awareness.

On top of sufficient cyber coverage, it’s important for employees to be aware of preventative strategies that can off-set threats, such as appropriate training for those who handle sensitive information.

As some of us have learned the hard way, cyber criminals leave no stone unturned, and neither should your insurance. &

Emily Spennato is a former staff writer with Risk & Insurance.

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

By: Risk & Insurance | April 3, 2024

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

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.