The New York State Division of Monetary Companies just lately issued steerage for New York-regulated property and casualty insurers to successfully handle the cyber insurance coverage danger current of their insurance coverage portfolio. The DFS’ steerage alerts an effort to cut back total volatility within the cyber insurance coverage market, which has been compounded by the latest proliferation of cyberattacks and by insurers’ broadly various approaches to measuring every policyholder’s cyber danger profile.
Though the DFS’ Cyber Insurance coverage Threat 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 lately amongst insurance coverage regulators on cybersecurity points, the framework offers helpful steerage to insurers that function in states apart from New York.
The framework’s steerage 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 authorized by the insurer’s senior administration and board.
- Deal with potential cyber danger in “conventional coverages”. The framework cautions that insurers ought to handle and get rid of publicity to silent cyber insurance coverage danger. Though conventional insurance coverage insurance policies might 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 get rid of or mitigate this silent danger by revisiting the language of conventional coverage types in addition to probably buying satisfactory reinsurance protection to hedge towards this silent danger.
- Measure systemic cyber danger. The framework recommends that insurers often consider systemic danger and plan for potential losses. Systemic danger is current in interconnected programs, wherein an intrusion in a single a part of the system can create a domino impact to threaten all related programs. The framework explains that insurers’ better reliance on third-party establishments and distributors lately 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 often conduct inside cybersecurity stress checks 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 guage gaps within the policyholder’s cybersecurity measures, which might result in better-informed pricing and enhance information about methods to reinforce cybersecurity.
- Incentivize sturdy cybersecurity. The framework recommends that insurers educate their policyholders and insurance coverage producer companions concerning 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 beneath their insurance policies.
- Make the most of cybersecurity specialists to grasp danger. Insurers ought to rent cybersecurity specialists and, as mandatory, complement these workers with extra consultants or distributors. The objective is to enhance insurers’ means to forecast cyber exposures so they’re appearing proactively and never reactively.
- Regulation enforcement notification. The framework advises that cyber insurance coverage insurance policies embody a requirement that victims of a cyber incident notify regulation enforcement. Usually, cyberattacks towards a number of victims have a standard origin, and notifying regulation enforcement might help to make sure that all potential 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 might 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 probably result in extra claims, discount available in the market’s capability, insurer insolvency and a better urge for food to disclaim coated claims.
Accordingly, policyholders and insurers alike ought to rigorously look at their coverages in gentle of the DFS’ directive – and specifically – 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 now not a problem 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
