Why Manufacturing Companies Must Prioritize Getting Cyber Liability Insurance

By: | February 7, 2019 • 4 min read

Eric O’Neill is a Producer at Graham Company, helping organizations drive down their total cost of risk by utilizing Graham’s Safety, Claims, and Account Management teams to tailor programs to control and reduce losses. Before joining Graham Company, O’Neill worked as a Territory Manager with Ferguson HVAC- Lyon Conklin. O’Neill uses his experience and knowledge from consulting with contracting businesses on growth, operations, marketing and sales strategy to provide high level ideas and plans to Graham’s clients.

In today’s news headlines, a week doesn’t pass without a mention of a large company experiencing some type of cyber attack or breach. Examples of high-profile cyber attacks in the news over the last few years include the Equifax breach, which has cost the company over $242 million, and the WannaCry attack, which has cost companies a total of $4 billion.

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In fact, it was estimated that cyber attacks in 2017 cost companies more than $500 billion.

The price tag of cyber attacks are not only limited to first party costs but can also result in millions – or in some cases, billions – in third-party costs, like regulatory fines.

Uber recently settled an investigation into its 2016 data breach for $148 million, a consequence of not disclosing the breach in the required timeframe. Not to mention Facebook could face a $1.63 billion fine from the EU for not adhering to the recently enacted General Data Protection Regulation (GDPR) standards.

Cyber liability insurance was created to address this exposure and help protect businesses from financial pain and reputational damage. Prior to this type of insurance, general liability policies typically excluded covering cyber exposures, leaving companies vulnerable and in a tough financial spot should an attack or breach occur.

Now, with cyber liability insurance, companies have both first party coverages – such as data destruction, theft, business interruption, and denial of service attacks – and third-party coverages – like fines for failure to safeguard data. Other benefits that come with cyber liability policies include reimbursement for security audits, post-incident public relations and expenses that stem from the investigation of a breach or attack.

However, one new challenge has emerged related to cyber liability insurance: The crossover it has with other policies, like commercial property insurance. If an insured company doesn’t have a common carrier for cyber and other policies, it typically leads to finger pointing by the respective carriers since incidents can be covered by both policies.

An example of when this may occur is if commercial property is intentionally damaged by a bad actor, such as a hacker setting off a building’s sprinkler which causes damage to the property. This instance could be covered by both cyber liability insurance and commercial property insurance.

While the interplay of various coverages may create some temporary challenges, those challenges should not diminish the value, and necessity, of cyber liability insurance.

The numbers speak for themselves. Currently, the annual gross written premiums of cyber liability policies are more than $5 billion, with the market expected to grow to $7.5 billion by 2020. Cyber liability insurance is increasingly embraced in industries where attacks or breaches are becoming more prevalent, yet, many industries still lack necessary protections. While 50 percent of healthcare, technology and retail companies in the U.S. currently have cyber liability insurance, only 5 percent of manufacturing companies in the U.S. have coverage.

However, one new challenge has emerged related to cyber liability insurance: the crossover it has with other policies, like commercial property insurance. If an insured company doesn’t have a common carrier for cyber and other policies, it typically leads to finger pointing by the respective carriers since incidents can be covered by both policies.

This exposes manufacturing firms to tremendous risk. While manufacturing firms do not participate in the typical business transactions that prompt other firms to purchase cyber liability insurance, that doesn’t mean manufacturers have not faced losses due to cyber perils.

Manufacturing companies could be targeted by cyber attacks that cause equipment to malfunction and result in property damage. For example, in 2014, hackers caused a German steel mill’s blast furnace to overheat, leading to millions of dollars in property damage.

Manufacturing firms can also be affected by cyber attacks that lock companies out of operating systems, shutting down access to company orders, product designs or production equipment. This happened in 2017, when Russian hackers perpetrated an attack, NotPetya, on Ukrainian computer systems that ended up affecting companies in a variety of industries, including manufacturing.

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Companies involved lost millions due to business operations being interrupted by a cyber peril, as hackers locked computers that controlled production equipment, shipping manifests and financial records. Even smaller manufacturers can face cyber risks, since hackers know that smaller firms often use outdated software and do not invest in advanced network security.

These instances may result in coverage crossover with property insurance or could leave a company fully vulnerable if no cyber liability insurance is in place.

In particular, this is the case in an ongoing lawsuit filed by Mondelez, one of the companies affected in the NotPetya attack, against its property insurance carrier, Zurich, over a denied $100 million claim for its disabled computers and servers. Although Mondelez had coverage for the computers and servers in its property policy, Zurich’s position is that NotPetya was an act of war, thus triggering the war exclusion in the policy.

Either way, there’s no question that manufacturing companies must prioritize cyber insurance this year to ensure necessary precautions. Manufacturing firms can benefit from purchasing cyber liability insurance in two ways: (1) by gaining first and third-party protection against losses and claims; and (2) by gaining access to the suite of tools and services cyber liability insurance carriers offer. These tools include vulnerability scans, penetration tests and consulting services to help firms develop a cyber breach response plan.

Regardless of industry, though, every company should be thinking about a tailored risk management and insurance program that provides comprehensive protection from cyber threats.

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]