New Trends in Crime Coverage and Global Exposures

Posted by on March 4, 2015 | Be the First to Comment

White-Paper-Hero_Crime-Coverage-and-Global-Exposures

New trends in criminal activity, together with corporations expanding into new territories where they might be unfamiliar with business practices, culture, and customs, have challenged the traditional view of what is adequate balance sheet protection. Most multinational corporations will have either a global crime insurance cover or fidelity bond in place, thinking that will secure them against losses caused by fraud for gain.

However, wording in these policy forms for this area of coverage is from the 1980s and has not kept pace with developing loss trends and global exposures. Examples are provided below, along with what Lockton recommends so clients can not only be covered, but equally important, keep up to date in the current global market:

Michael Lea Blog Table

Increasingly, we are seeing requests for companies and their subsidiaries to be able to evidence valid crime insurance as a mandatory cover where they are engaged tenders. Being able to evidence crime insurance protection is becoming a requirement, particularly for financial service companies and contractors.

Read more in my latest white paper, which offers further details on the risks that companies should navigate – including scams - and what they can do to ensure they have the proper crime coverage no matter where they operate in the world.

Print Friendly

Product Recall: Understand Your Policy, or Else

Posted by on February 23, 2015 | Be the First to Comment

recalleggs-crop-600x338

As with many developing niche insurance markets, the product recall market currently faces a potential crisis of confidence.

Losses are building, new regulations and political issues are impacting insureds, and pricing competition and wording creep are making the sector less attractive to insurers. There is a spate of client litigation cases linked to nonpayment of claims due to misinterpretation of policy wording, and other incidents linked to lack of clarity over claims triggers are seeing clients and prospects question the value of cover. Many brokers are concerned that client dissatisfaction with wording is making the sector more risky, and they are less keen to invest in expertise and grow their product recall teams.

So how do we learn from the mistakes of the past and avoid a potential market dislocation in the future?

Learning from Collective Mistakes
Nearly all emerging insurance classes go through growth and loss cycles. Markets usually learn from their collective mistakes, reset policy language and pricing, and emerge stronger, larger, and more relevant to clients. The product recall market is no different.

In the late ’90s, AIG dominated in what was then a highly profitable, burgeoning market. CIGNA (ACE) then attacked AIG’s market dominance by offering higher limits, wider wordings, and attractive premium discounts. The inevitable result was that CIGNA got burned and exited the market. This exit, combined with resulting higher reinsurer costs, lowering of limits, and tightening of wording, saw a significant reduction in the size of the market in terms of numbers of policies written and premium income.

Since early 2000, the market has grown steadily, and today there are 15 markets, primarily based in London, with new capacity via Barbican and Apollo, recent Lloyd’s syndicates entering the market. Gross premium levels are probably in excess of $300 million, policy limits can be purchased above $200 million, and policy language is very broad.

In terms of policy development, once cutting-edge aspects of coverage have become standard and valued parts of recall policies. For example, rehabilitation of product covers the increased marketing costs incurred to help bring sales back to previous levels after a recall, and therefore can help to mitigate loss of profit claims for insurers. Despite initial concerns, insureds have not abused this clause through over-generous sales promotions funded by insurers, and it has benefited all parties.

Customer’s loss of profit (CLOP) is another example, which has become vital cover for private label manufacturers for large retailers. If these manufacturers damage a retailer’s image through contaminated or defective products, the retailer will expect loss of profit reimbursement, threaten, or delist the supplier. Offering CLOP has reduced far more significant losses to insurers and maintained retail trust in their supply chain.

Learn more from my post about the product recall market, including topics such as:

  • Growing Losses
  • Understanding the Cover
  • Growth via Segmentation
  • Protecting your Business
Print Friendly

Lockton Presents Replay of Data Breach Webcast

Posted by on February 18, 2015 | Be the First to Comment

Data Breach

On Tuesday, Feb. 17, Lockton Companies hosted a webcast to address the Anthem Data Breach. For those that could not attend, or would like to review again, a replay and copy of the presentation handouts have been made available, by simply clicking on the links below:

Attendees can learn about the attack, the response, and the responsibilities of a plan sponsor and employer. In addition, while Benefit clients may be at the forefront of concern, given the far-reaching implications of this data breach, the webcast is advantageous for P&C clients as well. Both types of clients will receive:

  • An understanding of the contractual and legal relationship between their company and its third-party partners
  • “Takeaways” and “lessons learned” from a large event such as this to help protect their company in the future
  • Renewed insight into the vital role that cyber risk coverage plays in event response
Print Friendly

Triggering the (Cyber Liability) Change in Europe

Posted by on February 9, 2015 | Be the First to Comment

UK Cyber Liability

The cyber liability insurance market has gone through a rapid evolution in recent years. Today, there is a range of first-and third-party products on offer designed to meet a variety of clients’’ needs, and a buoyant and competitive market keen to write this business. The US is leading the world in terms of product use and acceptance. While European clients are interested in cyber cover and we are seeing inquiries from non-US businesses, particularly from the retail sector, the take-up of cover in Europe is not happening as quickly as predicted.

Looking at the way the US market for cyber liability cover has developed, the main driver of sales of cyber products has been data privacy legislation, which forces companies to inform customers of any break of their data- No matter how big or small. This notification element, combined with fines, seems to be the main trigger for an increase in policy sales.

In the EU, the data privacy legislation is due to be ratified. However, there is still no confirmed date for this. When it becomes law, any firm found to be not taking adequate steps to protect a customer’s data will risk significant fines and be forced to notify customers of any breach. The general consensus is this law should be the catalyst that brings cyber policies into mainstream insurance programmes in Europe.

Coverage Confusion

Many clients are confused as to the right cover for them and what cover they have under existing traditional policies.

Some clients just want specific coverage: these clients tend to be from a cross-section of industries and want a “roadside assistance” approach, which provides a hands-on service to help in the event of a cyber incident or data breach. These clients need access to experts who can provide the crisis services required to minimize the impact of the event on their customers, their business operations and brand reputation. Others want third-party cover to protect their business from knock-on liability claims that can result from a cyber incident and some want a combination of the two and are looking to buy both aspects under one policy.

Many clients think they have some coverage under existing property or professional liability policies, but most are unclear as to what this cover is and what the triggers are. Clients need to understand their risk and be explicit about the cover they want. Once of the problems with the cyber market at present is the language used is often a barrier, as there are a range of names for this cover – for example, cyber liability, data breach and technology insurance – which adds to the confusion.

Lack of Data

As a relatively new form of insurance there is minimal loss data available to model risks. If a category five hurricane hits between Miami and Fort Lauderdale, insurers will be able to estimate aggregate losses within hours. However, if a cyber attack caused an infrastructure breakdown in a city or industry sector, it would be virtually impossible to estimate losses. Lloyd’s is focusing on this issue and new risk codes have been introduced to help make aggregation mapping easier, and this lack of loss data will improve over times.

There is also a limited number of people with the requisite experience in the market for this complex area of insurance, so it is not for the uninitiated. There is a need to educate markets and brokers on this form of insurance, who in turn can help to inform clients and build their understanding of the risks and the mitigation options open to them. There are a number of markets interested in entering the sector, but I urge them to only enter with their eyes open and really understand their reasons for doing so, and also to consider carefully the cover they are going to offer.

There is no doubt European market acceptance for this form of insurance is set to grow and it is the one of the most exciting emerging risk sectors today. However, the market has a big role to play in helping clients to understand their risks and in guiding them to the right cover if this area of insurance is to get the credibility and acceptance that it warrants.

 

This piece was originally published in the Feb. 9, 2015 issue of Insurance Day.

Print Friendly

The Cyber Pendulum: Is There a Balance Between Security and Privacy?

Posted by on January 28, 2015 | Be the First to Comment

Internet Security System

Following a year of high-profile cyber breaches, it’s no surprise President Obama included proposals for increased cyber security in his State of the Union address last week.

The President proposed a measure that would establish a federal data breach notification law to replace the existing patchwork that currently exists at the state level. He also hopes to improve law enforcement’s ability to investigate and prosecute cyber criminals, as well as incentivize information sharing about threats from industry with the federal government. He also noted the importance of protecting student data and the need to pare down domestic surveillance:

“As promised, our intelligence agencies have worked hard, with the recommendations of privacy advocates, to increase transparency and build more safeguards against potential abuse. And next month, we’ll issue a report on how we’re keeping our promise to keep our country safe while strengthening privacy.”

Recently, I had the opportunity to discuss this very topic – the balance of security versus privacy – with other cyber risk experts on the Huffington Post Live. While the President aspires to achieve both simultaneously, I see many challenges ahead.

After the Snowden leaks, the pendulum swung more toward privacy, as the extent of surveillance programs became clearer. Now that we’ve seen high-profile cyber hacks like Sony, the pendulum swings back toward security. Each country is going to have to decide for itself how much privacy it’s willing to give up for the sake of increased security.

Watch the full discussion below:

Print Friendly