Cyber risk is everywhere. Embedded in the hardware of every computer system, in the cloud, in the headlines of national newspapers, and in the worries of risk managers across every sector.
It’s not a new risk, but its constantly evolving nature makes it tough for companies to stay up to speed on exposures, and to know how best to mitigate and transfer the risk.
“While the market for cyber coverage is maturing rapidly, it’s still less developed than other lines,” said Tim Marlin, Head of Cyber Underwriting, The Hartford.
“We hear a lot of clients say they want cyber coverage, but often they aren’t really sure what that means.”
“There’s no uniformity of cyber products on the market,” said Marlin. “That complicates conversations about exposures and cyber coverage.”
Oftentimes insureds may not understand the full extent of their exposure, so they don’t know what kind of coverage to ask for.
Without industry-wide standards, it’s a real challenge for brokers to advise clients on what good cyber coverage should look like. Just because a coverage is available in the market doesn’t mean it’s a good fit for the client. A lack of understanding makes insureds more likely to buy improper coverage, or buy nothing at all.
“As an industry, we need to do a better job of talking with our clients about cyber in a clear and concise way. We have to remove the fear around the risk,” Marlin said.
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Cyber becomes less scary when it’s broken down into the exposures and coverages that insureds already are familiar with.
“The coverage is much simpler than many people realize. Do you understand coverage for third-party liability? Do you understand coverage for the first-party costs related to notification and credit monitoring in the event of a breach? If you have a firm grasp of those, then you already have a basic understanding of cyber coverage,” Marlin said.
“It’s the cryptic term ‘cyber’ that throws people off. It conjures up images of bad guys in black hats, doing nefarious things over the internet, but the exposure is much older and broader than that.”
Cyber risk connotes computer and network-related exposures. But good “cyber” coverage and advice addresses a much broader range of information risk.
“It has to do with the use and exchange of information; how we move it around; how we process it; and how we store it,” Marlin said.
Digital Era Drives Risk
The dominance of digital media, a richly connected society, distributed processing, and the speed at which information moves amplifies risk.
Compound that with controls that lag behind both technology and threats, a bit of regulatory uncertainty, and you have a rather intimidating risk landscape. It’s our job to help simplify that for clients.
Core business functions are carried out electronically. Paper-based processes, where they still exist, are surely on the way out.
The information housed in digital processes, however, is much harder to protect when buried in an internet server or floating around in the cloud. A locked filing cabinet was a simpler, more easily-understood solution.
Some industries, like health care, financial services and education, are better-versed in the protection of private information in the digital era, simply because they bear greater scrutiny from regulators. Often, they’re also better resourced, and more focused on the issue making them more likely to buy cyber coverage.
However, other industries have been slower to understand their cyber risk exposure.
In life sciences, for example, the drug discovery process and protection of intellectual property has changed dramatically.
“Generations ago, drug discovery was done more or less in the lab and documented in lab notebooks,” said Mark Silvestri, Sr. Managing Director, Products & Innovation, The Hartford Specialty Commercial.
“Now, it’s often enabled computationally through bioinformatics or computational biology. Molecular models for drug compounds can be built online and scientists can simulate their effect on biological systems on a computer,” Silvestri said.
An early stage life sciences company’s value is primarily its intellectual property. That IP is now stored on a computer system, making it more susceptible to theft or ransomware attacks. There’s a market for that stolen IP too.
Manufacturing faces similar challenges.
“They are relying on information in a number of ways that are critical to their ability to make money and service their clients,” Silvestri said. “Just-in-time inventory supply management, for example, is all done on a computer. Any sort of cyber outage could disrupt the delivery of crucial materials.”
Supply chain or network disruption could disrupt income or delay production and delivery. Manufacturers generally understand these risks in the physical world. Connecting them back to a cyber incident as the underlying cause is a step many just haven’t taken yet — and where some fall short on protecting themselves.
These are just two examples of industries that may not necessarily think they are in the crosshairs of cyber risk, but they have just as much exposure as any other sector.
In the move to a digital environment, access to data at any given moment is critical.
Third party liability, business interruption and IP risks may be covered under other policies, but forgoing cyber coverage could leave companies in a lurch if they cannot quickly get to their data or begin the remediation process after a breach.
Partnering with the right carrier means more than getting the right coverage. It means access to the expertise and guidance to help companies actually understand what cyber risk means for them, and what they can do to mitigate their exposure.
At The Hartford, a panel of experts dubbed The Hartford First RespondersSM is available to help insureds assess their information security practices, review contracts with third parties, and get a better understanding of the full breadth of their cyber exposure.
“We negotiated below-market rates with a number of risk service providers and security vendors that our customers can take advantage of to remediate any pre-existing weaknesses they have in their system security,” Marlin said. “They are also there to help companies react quickly in the event of a breach or other cyber incident.
“In addition, we provide a cyber risk services fund, which is rather unique in the industry,” Marlin said. In the event that an insured has a covered loss, The Hartford provides insureds with a fund, in addition to incident related expenses and costs to help remediate the issues that resulted in the incident in the first place.
“The better off our customers are, the better off we are,” Marlin said. “The bottom line is, we’re here to help you become a better risk before, during and after a loss.”
By: The Hartford | June 2017