Broker community remains “far behind” in cyber

Premium volume is rocketing – but it appears many brokers are not in the position to take advantage of it

Cyber

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Global businesses spent more than $2 billion on cyber insurance in 2014 - an already impressive figure that could multiply by three to five times through 2020, according to estimates from insurance broker Marsh & McLennan. But the broker community is not particularly poised to take advantage of this growth, says Christine Marciano, president of Cyber Data Risk Managers.

“The broker community is still so far behind in understanding what they’re selling that I get a lot of calls from brokers asking very basic questions about coverage,” said Marciano, who will be a speaker at Insurance Business’s Cyber Risk 2016 on November 2. “These projected volumes are impressive, but brokers won’t be able to get there unless they understand and feel comfortable with what are sometimes very complicated coverages.”

Marciano, who works with more than 50 carriers in her business, estimates there are roughly 50 to 60 insurance policies on the market currently, all of which differ greatly. Even for thoroughly experienced brokers, the changing and expanding coverages can be tricky to navigate. Differing appetites, regional data breach notification laws and partnerships with security companies cause products to vary.

But whether or not brokers are interested in the extra income, understanding the market is becoming a necessity. Contractual clauses requiring businesses to purchase cyber coverage are becoming more common, and the chances of a broker encountering a client with such a need are high.

“I’d say contractual obligations are driving business even more than proactive buyers,” Marciano said. “It’s about a 60/40 split.”

Required limits are high, too. For small to mid-size businesses, minimum requirements usually start at $10 million. Because the buyers have limited revenue, Marciano says many carriers are not willing to write the entire amount. In that case, brokers must find two or even three policies from different insurers to satisfy the requirement.

“A few years ago, carriers were more willing to take the risk, but now they are becoming much more conservative,” said Marciano. “Claims are starting to come in, and companies need to make sure they’re collecting enough in premium to survive.”

 And with larger firms, desired limits may not even exist on the market.

However, as insurance firms grow more confident and begin partnering with the security industry – see Aon’s acquisition of Stroz Friedberg – they will be able to fine-tune their risk management and underwriting and begin to offer even better coverage for a growing market.

Brokers just need to be there, willing to learn and understand, when it happens.

Learn more on the state of cyber risk and cyber insurance at Cyber Risk 2016, a global live virtual event on November 2.

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