Cyber-Policies Soar on Insurance Market

Not so long ago cyber-liability was something you would read about only in science fiction.

Now it’s the hottest topic of conversation in the insurance industry.

Business Insurance magazine surveyed risk managers across the nation and asked them to identify their leading areas of concern. Topping the list: cyber-exposures.

Not winter storms or melting icecaps. Not lawyer malpractice or runaway juries.  Not the holiday shopping season.

Hackers. That’s the main thing that keeps risk managers up at night.

“We’ve been pushing cyber liabilities for over a decade, but recently it has really come to the fore, and more companies and risk managers are exploring it,” said one survey participant.

Insurers are busy cranking out new cyber-liability policies. Others are adding endorsements to existing products. Competition is heating up – one national insurer reported a 30 percent increase in cyber-policy sales in 2013 – and prices are going down.

All of which could be very good news for lawyers.

Expanding Market for Cyber Coverage

“Ten years ago it was an expensive coverage, and only the largest technology companies were buying it,” according to a risk manager quoted in the survey. “Now the numbers of carriers in the market and capacity has risen, and prices are low. For smaller and midsized markets, prices are very competitive.”

What’s driving this trend is the fact that cyber-threats have metastasized far beyond the reach of IT departments and DIY tools like firewalls and anti-virus software.

Now the risks include:

• Private data breaches
• Lost or stolen data
• Business interruption
• Violation of privacy laws
• Patent, trademark and copyright infringement
• Theft of trade secrets
• Defamation
• Reputational damage to corporation in a data breach
• Reputational damage via social media

And that’s where lawyers come in.

Help from Lawyers Insurance Agency

“Imagine showing up to your office in the morning to find someone had broken into it,” writes Adam Pierce, Director of P&C Operations at Lawyers Insurance Agency. “It is pretty clear what you would do – call your property insurer and file a claim.  Most firms have this coverage, so you will likely be up and running in no time.  Now let’s assume that you have come to the office to find a different kind of theft.  Someone has hacked your system and stolen either sensitive client data or money out of a trust account belonging to a client.  Now what do you do?  The answer may not be so clear.”

How can lawyers here in North Carolina protect themselves in this scenario? Here are three options:

• Add cyber coverage to your property policy. This looks like the simplest choice. You already have a property policy in place, after all, and you have an ongoing relationship with your insurer. But it might not be a smart move. Pierce points out that you will probably only be able to add relatively low limits of coverage (up to $250,000, perhaps) to your existing policy. This will cover some basic items such as notification expenses and litigation defense costs. But it is far from blanket protection.
• Adding cyber coverage to your professional liability policy. The problem here is that many malpractice providers do not yet offer this option. When they do (typically by endorsement) the resulting coverage is often quite limited.
• Buy a separate cyber policy. This is your best bet. It will “cover the items mentioned above, but also adds coverage for computer and funds transfer fraud (think money being stolen from a client’s trust account) and regulatory fines,” says Pierce.

Do you have insurance coverage for cyber-losses? What type? Would you recommend it to others? Please send us a comment. We would love to hear from you.

Sources:

• Business Insurance, Bill Kenealy http://www.businessinsurance.com/article/20140216/NEWS07/302169992?tags=%7C299%7C303%7C335
• Adam Pierce, Lawyers Insurance Agency http://www.lawyersinsuranceagency.com/inner.asp?category=5&id=193
• Lawyers Mutual/Lawyers Insurance Agency http://www.lawyersmutualnc.com/blog/how-much-risk-in-cyber-liability
• American Oil and gas Reporter http://www.aogr.com/web-features/exclusive-story/survey-assesses-new-era-in-cyber-risk

Jay Reeves a/k/a The Risk Man has practiced law in North Carolina and South Carolina. Formerly he was Legal Editor at Lawyers Weekly and Risk Manager at Lawyers Mutual. Contact him at 919-619-2441 or jay.reeves@ymail.com.