6 November 2020Actuarial & underwriting

Silent cyber threatening insurers and policyholders alike: Airmic

Silent cyber is jeopardising the financial solvency and credit ratings of some insurers, according to a white paper published by Airmic titled Silent Cyber: Can You Hear It?

Meanwhile, policyholders are receiving inconsistent treatment from insurers and facing inadvertent loss of intended coverage and programme gaps, warned Lyndsey Bauer, partner at Paragon, a specialist insurance broker, who authored the report.

The white paper noted that ransomware attacks such as WannaCry have been classified as a cyber catastrophe events, leading to silent cyber issues developing into coverage disputes.

With cyber risk now a pervasive threat to all operating entities, it impacts practically every line of commercial insurance, the report said. Despite this many insurers have not addressed the issue, it added.

“The lack of clarity in some standard property and casualty policies can lead to confusion or misunderstanding about coverage for cyber risks,” the white paper said. It left insureds with an argument for coverage but could not be relied on, which would “likely evolve into a legal dispute.”

Legal disputes could also result from non affirmative language in policy wordings which could be open to multiple interpretations, the white paper added.

Bauer said both insurers and regulators are working to address the risk of silent cyber. “Policy language is evolving and that is impacting coverage,” she said. “Besides being untested, the drafted language could also overreach.”

The Airmic white paper argued that “many of the proposed cyber endorsements on traditional P&C policies have been inconsistent or simply too broad.” It cited endorsements that exclude loss stemming from previously covered physical perils because technology use was involved in the chain of causation as an example.

“Many proposed wordings by insurers continue to sidestep the fact that technology is central to business operations across all sectors today,” it said. “A one-size-fits-all approach does not work.”

The white paper advised policyholders to consider rejecting endorsements proposed by insurers but warned this risked leaving them uninsured if they did not address the issue early. “Give yourself, and your broker, time to find alternatives,” it said.