Ohio Law Requires Insurers to Adopt NAIC Cyber Security Model; More States Expected to Follow

Ohio is the second state to adopt the Insurance Data Security Model Law from the NAIC. Rumor has it, other states are likely to follow.

By: Jared Shelly | April 3, 2019

Ohio has enacted a new cyber security law requiring insurance companies (including health insurers) to develop detailed plans to safeguard the vast amounts of personal and business data they collect. That includes health care data, financial information and Social Security numbers.

The law requires insurers to create a comprehensive cyber security plan that’s based on their risk profile; designate someone to be responsible for the program; and develop an incident response plan in case of a breach.

The law is based on the National Association of Insurance Commissioners (NAIC) Insurance Data Security Model Law and is the second such law in the country after South Carolina.

What the Law Says

There are a number of specific requirements under the law, which are laid out in great detail by the National Law Review. Here are some things of note:

Create a written cyber security plan based on size and risk profile
Identify reasonably foreseeable internal or external threats that could compromise data
Assess the likelihood and potential damage of cyber security threats on an annual basis
Implement administrative, technical and physical safeguards to protect data
Report any cyber security incidents to the Ohio Department of Insurance in great detail
Insure that all vendors have adequate security protocols

No Perfect Answer for Cyber

The law is based on taking a risk management approach to cyber security. But cyber threats are constantly changing and there’s no uniform answer for solving the problem. That’ll make it hard for insurers to always be in compliance with the law.

Writing about similar regulations in South Carolina and New York, Christopher M. Brubaker, an attorney with Clark Hill in Philadelphia, wrote in the Legal Intelligencer: “What is still very much in question is the ability of regulations of this type to actually improve cyber security.

“As both the Data Security Act and New York cyber rules tacitly acknowledge, there is no perfect answer or approach to cyber security. Security measures that would be commonplace for large companies will often not fit smaller companies and vice versa. Examples include the frequency and sophistication of penetration and other testing methods and the scope and intensity of employee training. Given that it is widely understood by security experts that everybody is vulnerable, even those with the most robust cyber security, it still remains to be seen what impact these regulations will have.”

Directors and Officers Beware?

The Ohio law could mean fresh worries for directors and officers.

That was certainly the feeling across the industry in 2017, when New York passed similar regulations aimed at the financial industry. Back then, Risk & Insurance® took a deep dive into the implications, writing: “The responsibility for cyber security will now fall squarely on the board and senior management actively overseeing the entity’s overall program. Some experts fear that the D&O insurance market is far from prepared to absorb this risk.”

In addition to New York and Ohio, few states have these kinds of laws in place, including Connecticut, South Carolina and Michigan. With more than 270 insurers and 1,600 insurance companies, Ohio is the sixth largest insurance market in the nation. The law came into effect on March 20, 2019, and it gave licensees one year to comply with the new requirements.

But whether you’re in Ohio or not, it’s smart to make sure you’re cyber risk management protocols are up to snuff. Here are a number of recent articles we’ve written that can help you accomplish that goal:

Data Regulations Are Increasing; It’s Time to Reevaluate Your Cyber Defense Now

Cyber Insurance Does Pay Claims. You Can’t Afford Not to Be Covered

As Cyber Crime Intensifies, Focus on Critical Exposures

How to Keep the Board Aligned and Invested in Your Cyber Security

Why Manufacturing Companies Must Prioritize Getting Cyber Liability Insurance

How the Medical Industry Can Close Coverage Gaps and Stem Huge Losses from Cyber Attacks

Jared Shelly is a journalist based in Philadelphia. He can be reached at [email protected].

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.