Cyber insurance is one of the fastest growing property/casualty insurance markets. But the sector remains the Wild West of risk prevention, a fast moving target with rapidly-evolving risk portfolios, along with losses and liabilities that remain hard to quantify.
On March 19, cyber experts from different parts of the industry testified about what is at stake, and what insurers need, before the U.S. Senate Subcommittee on Consumer Protection, Product Safety, Insurance and Data Security in Washington, D.C. Among the biggest concerns they raised: the ever-changing nature of cyber security risk, and the need to find a way for both government and insurers to share data in an effort to boost their chances in the fight.
“We believe the industry as a whole would welcome the introduction of legislation that would reduce barriers and incentivize organizations to share threat indicators with the government, and each other, while also protecting individual privacy, Ben Beeson, vice president of cyber security and privacy for Lockton Companies, told the committee in his written testimony. “Actuarial data is extremely thin on the ground and is holding back the growth in market capacity, particularly to address the previously highlighted risks to critical infrastructure industries.”
Catherine Mulligan, senior vice president of Zurich North America’s management solutions group, told the committee that “scope of the exposures is too broad to be solved by the private sector alone.”
She said, for example, that a public company that faces a cyber security breach could face a shareholder derivative suit or many other liabilities, because “one event can lead to multiple claims for many insureds” within one company. Making things worse, that event can even physically harm a manufacturer or utility, Mulligan noted.
Adding to the challenge, Milligan cited statistics from Dowling & Partners that point out more than 60 carriers wrote cyber security coverage as of October 2014. But that number is misleading, she said in her written testimony, because of “a number of excess markets pulled out of the product line” since then “or limited their appetite.”
Mulligan said there is need for a national database that collects cyber threat information to help the insurance industry catch up with the fast-evolving situation. At the same time, the practical issues of who would “own” the data, what kind of information goes into the database, and how to make it anonymous, yet available, has yet to be determined after some early government/industry committee meetings, she pointed out. Mulligan, on behalf of Zurich, has participated in public sector dialogue on cyber insurance through a Department of Homeland Security Working Group focused on the issue and in other venues.
“Breeches are outpacing the time it would take for insurance product/pricing to develop,” Mulligan added, noting she supports a national standard for cyber breach notification requirements.
Relying on individual state standards for cyber breach notifications is more than problematic and inhibits the growth of proper cyber security coverage, Michael Menapace, counsel at Wiggin and Dana LLP, and adjunct professor of insurance law at the Quinnipac University School of Law, told senators on the committee.
Menapace said that 47 states have data breach notification laws, some of which are inconsistent with each other.
“A consumer in one state may be notified, but a consumer in another state impacted by the same [cyber breach] may not be notified,” he said. “The [insurance] market as a whole could benefit from the sharing of information about data breaches.”
Ola Sage is CEO of e-Management, a small business provider of IT services and cyber security products for private and public-sector clients. She told the committee that there are three basic actions that could help boost cyber insurance coverage and effectiveness.
First, there must be action to increase awareness of cyber security insurance as a risk transfer option for small businesses, Sage said.
She asserted in her written testimony that most small businesses are not aware of cyber security insurance, and that a cyber attack could force many to shut their doors. With that in mind, Sage argued that cyber security insurance must be made affordable for small businesses, considering that they may be “the fasted growing segment of cyber attack victims.”
Third, Sage said small businesses should be rewarded in their insurance purchases for actively managing their cyber security risks and implementing “reasonable security measures.” She cited the Cyber Security Framework (CSF) developed by the federal agency known as the National Institute of Standards and Technology as a possible tool to make this happen.
“We strongly believe that any small business that uses the CSF can significantly reduce their cyber security risk exposure,” she said.
U.S. Sen. Jerry Moran (R-Kan.), the subcommittee chairman, hinted at an effort to come up with an insurance industry-friendly solution. At the start of the hearing he said: “cyber insurance may be a market-led approach to help businesses improve their cyber security posture.”