26 June 2017

Commercial Risk Europe: Standalone cyber policies becoming the norm

A new report from AM Best states: “With the increasing frequency and severity of cyber attacks during the past couple of years, insurers have become more aware of the risks and rewards of this line of business.”

Given the seriousness, scope and scale of a number of attacks in 2016 and 2017, as well as the potential damage these attacks can cause, AM Best notes that there is plenty of opportunity for insurers.

However, it warns: “Due to the uncertainty of this risk, companies need to be prudent in their underwriting practices and exercise appropriate risk management and mitigation measures.”

Data quality is a key factor. Industry observers have predicted that the cyber line of business will be one of the leading growth areas within the property and casualty space.

AM Best points out: “Comparing 2016 data with 2015, one of the key takeaways is that the top cyber policy writers have shifted from packaged policies to standalone policies.”

It views this as a positive change since most claims have been covered under traditional insurance products such as commercial general liability policies (CGLP), business interruption (BI), or directors and officers (D&O).

It explains: “The extension of implied coverages to these lines was not intended; without any exclusory language, however, some court rulings have sided with policyholders. Due to the general language of these polices, and expensive litigation, many insurance companies realised that tailored coverage forms addressing cyber liability risks separate from CGLP/BI/D&O were more efficient and effective.

“This transition to standalone cyber policies may contribute to better pricing and reserving methods, which may ultimately lead to refinements in modelling tools and contribute to more accurate understanding of risk aggregation,” it concludes.

Full article on Commercial Risk (subscription required)

A.M. Best_press release

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