Cyber Insurance Today Lots of Interest Lots of

Cyber Insurance Today: Lots of Interest, Lots of Product Innovation, and Lots of Risk Richard S. Betterley, CMC Betterley Risk Consultants, Inc. Sterling, MA Independent Risk Management Consultants since 1932 Publishers of The Betterley Report at www. betterley. com

A Cyber Risk Insurance Refresher: What Does (or Should) it Cover? n Liability for loss of personally identifiable information § § § n Not just electronic, but all types of data, including paper Corporate information, not just individuals All types of data, not just financial Some cover loss of data when in the possession of a 3 rd party, such as a vendor Many think it covers all liability for all types of electronic activity, such as social media; it doesn’t Costs for responding to a data breach § § Public relations response Legal guidance Victim notification Credit monitoring 2

Coverage (cont’d. ) n Fines and penalties § § § n Defense costs Consumer Redress funds Civil money penalties (but not if unlawful to insure; look for most favored venue language) Penalties imposed by credit card issuing entities (Visa/Master. Card, etc. ) Typically sub limited Value-added Services § § Discounted response services Network testing 3

Coverage Options n 1 st Party § § n Loss of Data Business Interruption and Extra Expense Cyber Extortion Crisis Response Fund Theft § § § Data $$$ Products or Services 4

n Media Liability § § All media activities or just online media (including social media) Intellectual Property liability coverage: § § § Copyright infringement – can be included Trade or Service Mark infringement – can be included Patent Infringement – cannot be included in most forms 5

Notable Exclusions n n n Dishonest/Criminal/Intentional Acts (but severability generally applies) Contractual Liability Data Outside of Your Network § n This is in reference to cloud-type computing, which is often insurable Non-electronic data § Such as paper documents; generally insurable 6

U. S. -based Premium Volume Estimated Premium Volume (GWP for U. S. -based Insureds (mid-range estimate) (millions) $3 000 $2 500 $2 000 $1 500 $1 000 $500 $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 7

Problem Areas n Serious concern whether underwriting and pricing can keep up with the black hats § § n Active hostiles operating outside the law and largely invisible Extensive cooperative network to share and improve tools Automated attacks Rapidly evolving tools and techniques National Actors as Hackers § When will the war exclusion be imposed? 8

Distribution Problems n Technology-oriented coverage is not well understood by agents/brokers and insureds (and probably consultants) § § § Confusion in the marketplace leading to bad buying decisions – or no buying decision Copycat carriers lack tools to understand manage the risk Not enough knowledgeable underwriters and claims staff 9

Reinsurance Support is Needed n Higher limits are needed § n Accumulation risk § § n Tough to assemble more than $300 million/insured The cyber hurricane is only a matter of time And it won’t be just one The vendor risk § SMEs as the threat vector (i. e. , Target) 10

Opportunity n n n Potential for rapid growth Add-in for package policies and Management Liability products Declining cost of breach response services Mandated coverage for vendors to larger organizations (proof of insurance) Ability to improve the risk by ‘loss prevention’ services 11

? ? n Can Cyber be written safely? Too much risk/too much demand n Which carrier will be the FM Global or Hartford Steam Boiler of Cyber? n Can private insurers cover attacks by national actors and terrorists? n Will Cyber products be broadened to cover the real exposures? § Damage to reputation § Theft of IP § Theft 12

The Betterley Report n A series of 6 annual evaluations of specialty commercial lines insurance products; including: § § § n Technology E&O (February) Intellectual Property and Media Liability (April) Cyber/Privacy (June) Private Company Management Liability (August) Side A D&O (October) EPLI (December) For more information, go to www. betterley. com 13