Cyber Liability – What You Must Know
“Understanding the First and the Worst”
The First
Cyber Liability Insurance is the first insurance that any business should buy. It is the only insurance that is more likely than not to pay for an event that is otherwise unrecoverable without insurance.
Consider any commercial business and its insurance portfolio. The actual exposure to the risk of a covered event under a Property or General Liability policy is smaller, more frequent events. Under Cyber, the exposure to the frequency risk of an event is less, but the exposure to severity from that event is very real. In fact, 60% of all businesses will go out of business within 12 months following an event. Almost all of these will be uninsured businesses.
Therefore, if an event was to occur, with no Cyber Insurance in place a business is more likely than not to shut its doors for good. This means that all the other money paid out for all of their insurance will become useless if they cannot sustain operations as a result of the financial loss.
Another aspect of Cyber Insurance vs. other insurance policies that a typical business will buy is the probability of an event occurring. Many respected industry organizations as well as national intelligence agencies have repeatedly claimed that all business is at risk, and it’s not a matter of “if” but rather a matter of “when” it will occur.
Buying Cyber Insurance FIRST ensures that a business’ viability is better protected against severity of loss in the face of the high probability of an event occurring.
The Worst
Another very important reason that buying Cyber Insurance should be the first is because the average Cyber claim is also the worst. The average Cyber event as of 2015 can cost a business $190,000+ in total expenses. This average, once calculated, is suspected to rise over $200,000 in 2016.
Another problem with Cyber exposures is that more events are occurring on a small cost scale, primarily Business Interruption losses and ransom payment from Ransomware events. Ransoms in 2015 paid out were $20 million. This figure rose to more than $1 billion in 2016.
Add to this the explosion of Cyber Crime losses to business impacted by hacking, social engineering, or other means of theft of monies and/or property. So many of these events are occurring, and since many businesses who are currently insured do not have this coverage included, the losses are uninsured. These financial losses average in the 10’s of thousands to a business.
What to Do?
5 years ago we could count maybe a dozen carriers writing Cyber Liability Insurance. Today, there are dozens of programs, including coverage packaged into the P&C program a business has in place.
The first thing to do is to understand what Cyber Liability Insurance really is- Property and Liability coverage protecting the digital assets of an insured against what we refer to as “non-physical fires”. It is a comprehensive package policy.
Knowing this, a business should never package its Cyber Insurance with any other package policy, or with a Management Liability program. Only Technology E&O and Cyber should be packaged together. Also, when presenting Cyber Liability options to your customer, bigger is not necessarily better- broader is better.
A common misconception is that a standard carrier or the largest insurers in America have better coverage since they are bigger companies. This is a false narrative. While there are many competitive forms out their today, standard market or otherwise, the broadest carriers are the boutique Cyber carriers who have been writing this line of business for almost a decade.
These carriers evolve their coverages as quickly as new exposures emerge, and they have proven risk response experience. Broader coverage in Cyber will be the difference between an uninsured or underinsured risk, and financial peace of mind.
Send US Pro your Specialty Lines or Cyber Liability submission for a quote today at ksneed@usproins.com.
USPro
