Unpredictable. It’s one of the most hated words in the insurance industry.
When underwriters can’t evaluate risks accurately, claim adjusters spend more than the expected reserve amount, and actuaries can’t soundly determine premiums — and that’s a recipe for disaster.
Insurers always err on the side of caution when dealing with the unknown. They typically leverage pricing, limits, and exclusions to mitigate loss until more information becomes available. This approach not only protects themselves but also minimizes exposure to reinsurers.
[FREE CHECKLIST DOWNLOAD] How to Secure Cyber Insurance Capacity
Risk is a given within the insurance industry. But when that risk is caused by higher than anticipated losses or costs exceeding the capital reserved, then it can significantly impact profitability.
Assessing Cyber Risk
Brokers and agents need to understand the big picture on why cyber insurance rates are skyrocketing. The only predictable aspect of cyber is it’s going to remain unpredictable for the foreseeable future.
Insurers are combating the unknown by increasing rates by 50% or more, increasing coinsurance, and decreasing limits and coverages. This also includes major changes within sub-limits as well. So, when the renewal comes, the sticker shock of the new premium is only one aspect brokers and agents need to review with their customers.
Brokers and agents also need to do a detailed risk analysis with their customers. This conversation should cover the following:
- Are the new coverages ample enough for the customers' needs?
- Can the customer handle an increased coinsurance limit if a loss occurs?
- Do the new exclusions create a major risk concern?
- Can an endorsement remedy any of these adjustments?
- Can the customer increase internal measures to minimize the need for higher limits?
These are just a few questions brokers and agents need to be prepared to review. Simply advising the customer that cyber rates have skyrocketed without any course of action is a poor selling strategy.
By educating customers, brokers and agents can learn more about their customers' needs, empowering them to compare quotes more accurately or even write more business. For example, education may help the insured recognize overlooked areas within their risk management processes or uncover a new avenue for the broker or agent to explore through a new policy.
Understanding the Cyber Market
The learning curve with cyber insurance is ever-growing due to major changes in the last few years. Brokers and agents can’t expect customers to have a working knowledge of the current cyber market. With the premium and limit changes, reviewing the customer's company and risk management framework is a must — now more than ever.
Customers may want to remove certain coverages or increase coinsurance to decrease premiums. Brokers and agents need to explain the ramifications of a potential loss with reduced or no coverage. Due to premium hikes, it could be more cost-effective for insureds to increase their IT infrastructure budgets, as adding internal risk measures can decrease insurance dependency.
All these situations and questions apply to new applicants as well. New applicants may have the typical documents ready to submit with the application, such as financial statements and employee organization charts. But would they expect a deep analysis of their cybersecurity settings? Do most company risk managers review the coverages needed with their cybersecurity team?
Brokers and agents need to remind applicants not to overlook these details. Integrating the head insurance and cybersecurity contacts to assess and review an application may be required to truly maximize cyber coverage. Completing this due diligence upfront minimizes the brokers' or agents’ culpability for any errors or omissions claim.
Cyber insurance is complex. Fortunately, there are plenty of resources that can help. Contact Relay for more information on addressing rising cyber rates in a hard market.