United States: The Cyber Coverage Jungle: How To Cut Your Way Through

Last Updated: December 14 2015
Article by   Orrick

What's a risk manager to do? The "cyber" insurance marketplace can seem like an impenetrable thicket filled with a baffling array of disparate, disconnected coverages, a lack of any uniformity in policy wording, vast disparities in cost, and little available guidance. Comparing the quality and cost-effectiveness of competing products is a daunting task. It's enough to make a risk manager's headache: How do I choose among the products the broker has presented to me? Am I buying the right types of coverage, in the right amounts, and at the right price? How can I demonstrate to my management that I am making the right choice?

The challenge is often compounded because the company approaches the purchasing decision from the wrong direction. When a company decides it needs cyber coverage, it generally starts by asking its broker: What's available in the marketplace?  What's the broadest coverage I can get at the best price? The broker then collects basic information about the company's business and finds some insurers willing to quote. The broker comes back to the company with several proposals—each consisting of a policy form, a schedule of coverage limits the insurer is willing to offer, and the corresponding premiums at which the insurer is willing to sell. Although the policy forms are not standard vis-à-vis one another, each one is standard for that insurer. Consequently, each insurer's receptiveness to changes to the form may range from minimal to non-existent. The package may include a few endorsements designed to address issues specific to the individual company, but the policy as a whole can hardly be said to be tailor-made.

All too frequently, the company doesn't start by asking itself the most important questions: Why do we need cyber coverage? What is our risk in relation to cyber events? Without knowing the answers to these questions, selecting from among the often widely differing options becomes an even more bewildering process. The result can be a cyber package including a hodgepodge of coverages, many of which are not responsive to the company's risk profile—providing unnecessary coverages for which the company nevertheless must pay premiums, and leaving important gaps in coverage.

By contrast, the more rigorous the company is in analyzing its own risk factors before approaching the marketplace, the better job the broker can do in identifying the right insurers with the right policy forms, the better job the insurers can do in assessing the risk and pricing the coverage, and the better job the risk manager can do in evaluating the products being offered.

By way of example, here's a list of just a few sources of cyber risks and corresponding coverages:

SOURCE OF RISK

COVERAGE

  • Handling and/or storage of significant amounts of third-party personally identifiable information (PII)
  • Security and privacy liability, including regulatory action coverage
  • Privacy event response costs, including forensic investigation, crisis management, privacy notification, and identity protection services

 

  • Processing of large volume of credit card transactions
  • Payment Card Industry Data Security Standard (PCI DSS) fines and penalties

 

  • Large volume of online sales and/or other revenue dependence on network and internet functionality
  • Network interruption and extra expense
  • Data asset recovery/restoration

 

  • Need to maintain uninterrupted service because of critical infrastructure role
  • Liability arising out of interruption of SCADA (supervisory control and data acquisition) systems
  • Failure to supply liability
  • Network (including SCADA systems) interruption and extra expense

 

  • Vendor/supplier/customer vulnerability to cyber risk
  • Dependent/contingent security and privacy liability
  • Dependent/contingent network interruption and extra expense

 

  • Internet services for others, including hosting, e-commerce, web portal services, search, access, and cloud computing services
  • Internet professional liability
  • Exception to contractual liability/breach of contract exclusion

 

  • Technology services for others, including systems design and analysis, software development and programming, data processing, and related products
  • Technology services and products liability
  • Exception to contractual liability/breach of contract exclusion

 

  • Other cyber-based or cyber-dependent professional services for others
  • Specialty professional liability (note that it is extremely important to accurately and completely characterize the services the company performs in the policy itself or an endorsement)
  • Exception to contractual liability/breach of contract exclusion

 

  • Creation, distribution, publication, broadcasting, exhibition, etc. of electronic media content
  • Media content liability, including infringement, misappropriation, invasion of privacy, and defamation

 

  • Storage and/or transfer of electronic funds
  • Crime, including computer fraud

 

  • Controversial business activities or other potential target of politically-charged criticism
  • Cyber extortion
  • Criminal reward/kidnap and ransom
  • Cyberterrorism exception to war or terrorism exclusions

 

Forearmed with a robust understanding of the company's cyber risk profile, every risk manager will be better equipped to instruct the broker on what coverage to look for and to evaluate the options presented. It's a cyber jungle out there—it's best to map your needs and objectives before you venture.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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