The New York State Division of Monetary Companies just lately issued steering for New York-regulated property and casualty insurers to successfully handle the cyber insurance coverage danger current of their insurance coverage portfolio. The DFS’ steering indicators an effort to scale back general volatility within the cyber insurance coverage market, which has been compounded by the latest proliferation of cyberattacks and by insurers’ extensively various approaches to measuring every policyholder’s cyber danger profile.
Though the DFS’ Cyber Insurance coverage Danger Framework applies primarily to New York-regulated property and casualty insurers that write cyber insurance coverage, the framework cautions that insurers that don’t write cyber insurance coverage however ought to consider their potential publicity to “silent danger” of their non-cyber insurance coverage insurance policies. Additional, because the DFS has taken the lead in recent times amongst insurance coverage regulators on cybersecurity points, the framework offers useful steering to insurers that function in states apart from New York.
The framework’s steering is split into seven broad classes.
- Measuring combination cyber danger. The framework advises that insurers set up a proper cyber insurance coverage danger technique for measuring this danger. This technique ought to embody clear qualitative and quantitative objectives for cyber insurance coverage danger, and such technique ought to be directed and permitted by the insurer’s senior administration and board.
- Handle potential cyber danger in “conventional coverages”. The framework cautions that insurers ought to handle and remove publicity to silent cyber insurance coverage danger. Though conventional insurance coverage insurance policies will not be supposed to cowl cyber danger and by no means even explicitly point out cyber, the wording of a coverage however could also be interpreted to cowl loss from a cyber incident. The framework advises insurers to remove or mitigate this silent danger by revisiting the language of conventional coverage kinds in addition to doubtlessly buying enough reinsurance protection to hedge towards this silent danger.
- Measure systemic cyber danger. The framework recommends that insurers usually consider systemic danger and plan for potential losses. Systemic danger is current in interconnected techniques, by which an intrusion in a single a part of the system can create a domino impact to threaten all linked techniques. The framework explains that insurers’ larger reliance on third-party establishments and distributors in recent times has elevated systemic danger. These entities are prime targets for cyberattacks, and diversifying these establishments and distributors used will assist mitigate the consequential impression of an assault on any single one. Additional, the framework advises that insurers ought to usually conduct inner cybersecurity stress assessments to measure the fallout from potential catastrophic cyber occasions.
- Knowledge-driven cyber underwriting. The framework counsels that insurers ought to have a “data-driven, complete plan” that evaluates the cyber danger of every policyholder and potential policyholder. Such plan ought to embody particulars that allow the insurer to judge gaps within the policyholder’s cybersecurity measures, which might result in better-informed pricing and enhance data about methods to reinforce cybersecurity.
- Incentivize sturdy cybersecurity. The framework recommends that insurers educate their policyholders and insurance coverage producer companions in regards to the worth of sturdy cybersecurity measures and will incentivize the adoption of those measures by pricing insurance policies based mostly on their effectiveness. Insurers are uniquely positioned to assist incentivize sturdy cybersecurity practices by leveraging the price of the safety afforded below their insurance policies.
- Make the most of cybersecurity consultants to know danger. Insurers ought to rent cybersecurity consultants and, as essential, complement these workers with extra consultants or distributors. The aim is to enhance insurers’ potential to forecast cyber exposures so they’re appearing proactively and never reactively.
- Legislation enforcement notification. The framework advises that cyber insurance coverage insurance policies embody a requirement that victims of a cyber incident notify legislation enforcement. Usually, cyberattacks towards a number of victims have a typical origin, and notifying legislation enforcement may also help to make sure that all doable victims are knowledgeable earlier than in depth harm is finished.
The DFS framework sends a transparent message that rising stability in an often-volatile cyber insurance coverage market requires a collective effort amongst all events. Selling extra knowledgeable underwriting, higher cybersecurity practices and diversification of third-party establishments and distributors may also help mitigate the frequency and impression of cyber occasions. Certainly, uninformed assessments of policyholders’ cyber danger profiles or mispricing of cyber insurance coverage coverages can doubtlessly result in extra claims, discount available in the market’s capability, insurer insolvency and a larger urge for food to disclaim coated claims.
Accordingly, policyholders and insurers alike ought to rigorously study their coverages in mild of the DFS’ directive – and particularly – assess the potential for provisions that cloud the supposed protection or create ambiguities affording silent cyber protection. Counsel can help with evaluating these points and exploring artistic options to mitigate the impression of cyber occasions. As cyberattacks are not a difficulty of if however when, mitigating cyber publicity ought to be top-of-mind for all stakeholders, giant and small.
Contributors: Paul Moura, David Navetta, Alexander Traum