The peril of packaging Cyber Liability with other lines of business. Why does it happen?
Cyber Insurance is an innovative, unique, and in general, it is unknown, misunderstood, and undersold. Carrier education of the agency plant is unproductive and uninformative. Meanwhile, every day more uninsured or underinsured businesses have events and agents remain confused how to explain the coverage and identify the exposures.
Some agents refer those quotes to wholesale brokers like us. A whole lot more choose the cheaper and easier path of packaging this product into either P&C coverage, D&O coverage, or E&O coverage. It is generally inexpensive and at times a “throw in” coverage. READER: TAKE WARNING! Let the buyer beware!
Property & Casualty Packaging
The path used most often by some retail agents is the one of least resistance. Over the last couple of years, many of the standard market P&C carriers have created a Cyber coverage endorsement which can be added to a Package policy for very little cost. This is a cheap and easy sale for an agent, unaware of the potential for coverage deficiencies.
These kinds of endorsements often lack in scope of coverage for many reasons:
- Only third party coverage components are provided;
- When first party costs coverages are provided, many key coverages may not be included;
- Third party and first party costs coverage limits are too low;
- Event response services are inadequate or non-existent
As a result, the money saved by packaging the coverage is often money wasted when an event does occur.
D&O and E&O Packaging
Another more recently popular way to include Cyber coverage is to package it into D&O/Management Liablity policies, or with E&O coverage. Again, while convenient and less expensive, it too brings with it a number of negative features:
- Coverage modules almost always provide lower limits for first party coverage components;
- Deductibles for coverage parts are often higher than stand alone carriers;
- Aggregate limit of liability is diluted by addition of this coverage;
- Event response services, while better than package carriers, is inferior to specialty carriers;
The BIG exception to this rule is when the risk is technology or media related. For these industries US Pro ALWAYS recommends combining E&O and Cyber together. Doing so eliminates the gap created when an event does occur as to what caused it to occur.
The 2 BIG Negatives to Packaging Cyber
Even though we have provided important bullet points above showing the clear disadvantages to packaging Cyber, there remains two even larger potential negative consequences from packaging: Agency E&O claims, and Adverse Underwriting Effect.
Agency E&O Claims
The insurance agent has a duty and professional responsibility to adequately understand a client’s exposures and provide adequate insurance to protect against loss. Insureds make coverage selections based on the professional advice of their agent. With responsibility comes liability, and when an uninsured or underinsured event arises, a client seeks to blame the insurance agent for bad advice (or NO advice).
Adverse Underwriting Effect
AUE is one of the most costly and negative impacts of them all that comes with coverage packaging. AUE occurs when a GL, D&O or E&O risk packaged with Cyber has a Cyber claim. Suddenly, the loss ratio against the non-Cyber line of business is affected. As a result, coverage may be restricted, premiums increased for several policy periods to come, or even worse, all coverage non-renewed. At the same time, losses in those primary lines may result in the Cyber component being non-renewed.
US Pro is THE expert in Cyber. We have seen the effects of packaging Cyber, and we have also seen the impact events have on the uninsured business. Every day businessowners and insurance agents dismiss the importance of the coverage and the probability of risk. Underestimating this will be costly to one or both of them eventually.
Let us give you better options today.
Send all submissionto us at ksneed@usproins.com
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