Within both the market and contracts the exclusion of communicable diseases is unsurprisingly a key focus, but there are other, similarly difficult to predict losses that companies should be examining, according to industry experts.
“While cyber certainly shouldn’t be unexpected, I really don’t think we’ve got our arms around it, as yet,” said Heather Kitson, Deputy Chief Executive Officer (CEO), Convex Re, during a panel discussion focused on terms and conditions (T&Cs) at Prospectus 2021.
Towards the end of the debate, panellists stressed that while the ongoing Covid-19 pandemic has undoubtedly shifted the focus, in terms of contracts and their wordings, to the exclusion of infectious diseases, there are other exposures out there that the industry needs to address, such as cyber.
“I’m sure most will be familiar with the term silent cyber, for losses stemming from traditional property and liability policies that weren’t intended or designed to cover cyber risk, and therefore didn’t implicitly include or exclude cyber risk. This coverage ambiguity can still result in silent cyber or non-affirmative cyber coverage,” said Kitson.
Adding, “This shouldn’t be a surprise to people, but I really don’t think that the industry has got their arms around the exposure.
“The PRA and the rating agencies expect us to be able to identify, quantify and manage cyber insurance underwriting risk, to ensure that there are no shocks. I’m sure that everyone is taking this very seriously, but the global property and casualty markets are filled with massive insurance programmes written decades ago, often with out-dated exclusions.
“I think we’ve got a long way to go to achieve clarity on the $3 trillion of non-life premium over multiple lines.”
Similar to a pandemic, a large cyber event has no geographical boundaries and there’s potential for huge impacts to traditional covers, including where coverage was originally envisaged.
“So, I would continue to highlight cyber risk as something that we really need to keep our eyes on, both in terms of making sure we don’t have unexpected losses but also making sure that we continue to provide proactive solutions for our clients,” she explained.
The issue of non-affirmative cyber losses was highlighted by the NotPetya event, which as noted by panellist Michael Millette, Founder & Managing Partner, Hudson Structured Capital Management, generated $3 billion plus of insured claims, of which around only $300 million hit explicit cyber covers.
“NotPetya was a foreshock for coronavirus, it’s what we’re talking about,” said Millette.
“So, let me propose a general thesis of insurance, which is that if corporations are buying corporate level cover, you need to make sure that all the risks are covered. Because, even if they’re not, they’ll come after you anyway.
“NotPetya, $3 billion of silent cyber against $300 million of explicit cyber. We should actually be aggressively thinking about these intangible risks, and making sure to box and contain, and price and underwrite them. Because the corporations have those risks anyway, and they’re going to try to use a very creative plaintiffs’ bar to find ways that their existing coverages indirectly, actually wrap over those,” he continued.
Much like the debate around the insurability of a pandemic, cyber risk is both a challenge and an opportunity for the traditional and alternative reinsurance markets.
“The happy mission is: companies need this industry. The industry has the skills to do this. If we can cut ourselves free from a 1950s policy framework, we will be so much better for people that actually need this industry to function for them,” said Millette.
To watch every session on-demand please visit the Prospectus 2021 website.