Cyber Coverage

Plugging the Cyber Gap

Marrying property and cyber coverage seamlessly is an area of increased focus for risk managers and underwriters.
By: | April 9, 2018 • 6 min read

Manufacturing and logistics companies are living in constant fear of the next big cyber event. Advancements in smart technology and interconnectivity in the manufacturing and supply chain process only heighten cyber risk.

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This has had the unintended consequence of leaving companies more vulnerable to cyber attacks than ever, as evidenced by the recent spate of NotPetya and WannaCry attacks that devastated many businesses last year.

Once hackers get hold of the relevant codes, they can shut down entire manufacturing processes and supply chains, causing untold damage and costing companies billions in lost revenue.

As a result, demand for cyber coverage has spiked over the last year. However, given the relatively new nature of cyber as a risk, there’s less historical data available, making coverage harder to find.

Added to that, as an admitted risk, property coverage is regulated on a state-by-state basis. But because cyber risk is non-admitted, bolting it on to an existing property program, particularly for a company operating in multiple states, can be problematic because of the different way the two types of cover are regulated.

Graeme Newman, chief innovation officer, CFC Underwriting

An even deeper-lying issue: Many companies don’t understand what coverage they have and whether they will be covered for a cyber event that causes property damage or business interruption.

This was tested by last year’s NotPetya cyber attack on Merck & Co, which disrupted production of its medicines and vaccines on a mass scale. The company has yet to quantify its total losses.

“We have seen a definite increase in the inclusion of non-physical business interruption coverage within manufacturers’ property policies,” said Tracie Grella, global head of cyber insurance, AIG.

“Since property policies provide coverage for business interruption caused by physical loss, it is only logical to want to extend coverage within the property policy to include business interruption caused by a cyber attack, rather than by having a standalone cyber product.”

System Failure

Emy Donovan, global head of cyber and tech PI, Allianz Global Corporate & Specialty, said cyber threat increased as a result of manufacturing companies connecting more of their processes to the internet. Added to that, there has been a move toward smarter processes, which, when they go wrong, can leave the company exposed to even wider business interruption (BI) problems, she said.

“Now companies have got the internet of things devices within their production facilities and rely on connected functionalities for critical operations,” she said. “Additionally, we all used to have manual work-arounds for processes that were somewhat connected.

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“But now we have all dismantled those work-arounds in favor of ‘smart’ processes. That means that if something ‘smart’ breaks, there’s no other way to complete the task, so the BI loss gets worse.”

The problem has been exacerbated because companies rely so heavily on these interconnected systems to run their day-to-day business, leaving them susceptible to malware and ransomware attacks, said Graeme Newman, chief innovation officer, CFC Underwriting. But this has at least caused risk managers and companies to sit up and take notice of the problem.

“Following the surge in ransomware and destructive malware that we witnessed in 2017, the awareness of cyber risk among more traditional industries has risen,” he said.

“For them, the exposure is more akin to the risks covered under their property policies, hence why they have turned to these to look for cover.”

Coverage Headache

Many companies have a standard property program and are only now waking up to the cyber threat following recent attacks. As a result, Marcin Weryk, underwriting manager, cyber and technology, XL Catlin, said there has been an increase in clients looking for more inclusive property policies with cyber bolted on.

But because of the mismatch between property being an admitted risk and cyber being non-admitted, it’s often tricky to add on cyber, he said. Companies are seeking guidance on whether their property program will cover them for a cyber event, he added.

“We have seen a definite increase in the inclusion of non-physical business interruption coverage within manufacturers’ property policies.” — Tracie Grella, global head of cyber insurance, AIG

To overcome the problem, Stephanie Snyder, national cyber sales leader, Aon Risk Solutions, said that companies need to consider using the same carrier to provide their property and cyber coverage to ensure the two are streamlined. The need to work with specialist property and cyber brokers is also paramount.

“Many carriers are now making sure that any type of cyber risk that’s bolted on to their property policy is underwritten by a cyber underwriter,” she said.

“It helps to give them a better understanding of the potential aggregation of risk and eliminate any gray areas or overlaps in coverage.”

A greater problem, said Newman, is carriers’ understanding and appetite to insure these risks. Given the limited knowledge of cyber risk and a fear of aggregation, he said, often the only alternative has been for companies to turn to the excess and surplus market.

“The very real fear that one piece of malware could result in simultaneous limit losses across a huge property portfolio is what is preventing more insurers from entering this market,” he said.

“Had NotPetya been targeted at the U.S. rather than Ukraine, then we could have witnessed an economic impact well in excess of $50 billion, much of which would have fallen on the property market had they provided affirmative cover for cyber risk.”

Streamlined Solutions

Despite this, great strides have been made in aligning property and cyber coverage, said Tom Reagan, managing director and cyber practice leader, Marsh. But there’s still a long way to go.

Grace Reis, VP, cyber risk insurance products, FM Global

“Brokers and carriers have done a great deal of work over the last few years to try to align the two coverages. In general, the property market has continued to be responsive to physical events arising from cyberattacks, but on the other hand, the property market has been moving towards excluding non-physical cyber events,” he said.

Companies also need to work with their brokers and carriers to identify any gaps in their programs, said Weryk. At the end of day, he said, risk managers must decide between an overarching policy covering all cyber and property risks or having separate ones.

“They have to make a clear decision as to whether they go for numerous separate policies or explicit coverage using one program,” he said. “Both have merits and drawbacks, but it’s up to them what suits their business.”

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Education is another key area to help companies, said Grace Reis, VP, cyber risk insurance products, FM Global. She said clients and brokers need to understand how their policy will respond to an event.

“You need to put in the groundwork before an event happens,” she said.

“The last thing you want is to get a nasty shock at 2 a.m. Companies need to treat cyber as an enterprise risk that affects all operations rather than just an IT issue. In a business sense, cyber and property may live in two different segmentations, but companies need to ensure they are plugging that gap.” &

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]