What cyber insurers can learn from property insurance policies

An increase in frequency and severity of cyber insurance claims may be on the horizon, but insurers may be able to stick-handle this risk by taking inspiration from property insurance programs, said one cyber expert during a Canadian Underwriter webinar.  

This model will mimic the commonly used layered model of insurance for personal home policies, said Erin Flett, vice president of cyber & professional liability, North America financial lines at Chubb. 

“In order to address what we see on the horizon being a catastrophic loss, we’re introducing…an innovative new structure,” said Flett, “We’re borrowing from property insurance.”  

This structure works by having a basic package offering broad coverage for policyholders for specific risks, with optional add-on endorsements — similar to a home policy, she said. 

“We’re offering in what we call layers,” said Flett. “Just like a property policy would have separate limits, retentions and coinsurance for flooding and quake, Chubb has done the same thing by offering separate limits, retention and coinsurance…so that we can continue to offer the coverage, continue to offer capacity and price for it in an appropriate way.”  

This model allows Chubb to continue to offer products even in the cyber hard market, she added. “When we think about the systemic risks that we could potentially have from a widespread loss across many policyholders, in order to be stable and continue to offer capacity, we’ve changed our approach in the way that we offer coverage.” 

The industry also needs to adapt to risks as they approach. “Cyber criminals are changing their tactics and the claims that we’re seeing are changing — and they’re different from the last five years…we are seeing frequency and severity changing, [and] pricing, terms and conditions are changing,” Flett said. 

Obstacles in cyber insurance are cropping up just as quickly as the industry is adapting, observed Patrick Bourk, senior vice-president and co-leader, complex risk division, national cyber practice leader, HUB International. 

“The cyber insurance market has had to catch up quicker than, I would suggest, any other product that’s ever been out there.” 

Luckily, not many insurers are backing out of the market, he said. “We’ve actually seen two new markets enter Canada as well, which bodes well that the market is learning and prepared to accept the risk on the right terms.” 

 Feature image by iStock.com/taylanibrahim