Cyber Risks & Liabilities Newsletter
April 25, 2022
Navigating Tightened Underwriting Standards for Cyber Insurance
While the last few years have seen increased competition among cyber insurance carriers, higher capacity and expanded coverage terms, both 2020 and 2021 saw a rapidly hardening market for this line of coverage. Across industry lines, cyberattacks have skyrocketed, resulting in a rise in cyber claims and subsequent underwriting losses.
At a time when organizations are looking to purchase cyber insurance for the first time or to expand upon their existing policies, many carriers are taking a more cautious approach to this type of coverage. Specifically, some carriers have adjusted their underwriting measures to help mitigate the risk of costly claims. These measures include the following:
- Asking for more documentation—Rather than providing a simple coverage application or asking questions about existing cybersecurity measures, carriers are now requiring more substantial documentation from their insureds. This may include detailed documentation related to workplace cyber policies, incident response planning, employee training, data storage and recovery processes, email safeguards, user authentication protocols, and security software capabilities. Furthermore, carriers may require insureds to fill out additional applications or provide extra documentation of the specific prevention measures they have in place for growing cyber threats. Some carriers have even begun incorporating advanced scanning technology into their underwriting processes to better assess policyholders’ current cybersecurity practices.
- Minimizing coverage capabilities—In addition to asking for further documentation, some cyber insurance carriers have also decreased their risk appetite and reduced their coverage offerings—especially regarding protection for losses stemming from certain cyberattack methods. For instance, insureds are more likely to encounter policy exclusions or sub-limits of coverage for ransomware attacks, seeing as such attacks are rapidly increasing.
- Reducing policy ambiguity—To prevent insureds from leveraging their cyber coverage for unintended purposes, some carriers have changed their policy wording to be less ambiguous. This wording adjustment can help carriers more clearly outline the types of cyber events they cover as well as when and how coverage will be triggered amid these events.
Cybersecurity Trends to Watch for in 2022
The past year brought various cybersecurity developments across industry lines. Moving into 2022, these trends have continued to evolve—presenting new and expanding cyber threats for many organizations.
As such, it’s vital for organizations to stay informed on these developments and adjust their cybersecurity practices accordingly. Here are some key cyber trends to watch for in 2022:
- Elevated ransomware risks—Ransomware attacks have skyrocketed over the past few years. Such a rise is likely tied to cybercriminals becoming increasingly sophisticated and developing more avenues for launching these attacks (e.g., ransomware-as-a-service and remote desk protocol). According to NetDiligence’s annual cyber claims study, ransomware attacks were the largest driver of cyber insurance claims over the last five years; the average ransom demand rose to $247,000 and the median incident cost reached $352,000. Moving forward, organizations can’t afford to ignore ransomware risks. In particular, these types of attacks should be addressed during employee training and in workplace cybersecurity policies.
- Further foreign threats—In recent years, organizations have encountered a surge in state-sponsored attacks. Although such an attack could victimize any industry, the health care, energy and education sectors are more likely to be targeted due to the nature of their operations. Looking ahead, foreign attackers’ tactics are expected to become more aggressive. With this in mind, organizations need to be aware of the potential for future targeted attacks or other cyber-related losses stemming from political conflicts. Depending on their operations, organizations should evaluate their likelihood of being involved in incidents with state-sponsored threats and adjust their cybersecurity measures as needed.
- Greater emphasis on supply chain safeguards—Several large-scale supply chain cyberattacks took place throughout 2021, impacting major organizations, including Microsoft, Colonial Pipeline and Kaseya. The collective fallout from these incidents has motivated organizations to review their supply chain cybersecurity risks and take steps to minimize their exposures. These steps might include incorporating cybersecurity expectations into vendor contracts, minimizing third parties’ access to organizational data and monitoring suppliers’ compliance with supply chain risk management procedures.
- Increased cyber skills gap challenges—Widespread worker shortages are anticipated to contribute to the labor market’s already significant cyber skills gap. According to the Information Systems Security Association, there are nearly 4 million unfilled cybersecurity positions worldwide. This means that it may become more difficult for organizations to secure qualified IT professionals, potentially threatening their security capabilities. Additionally, employees of all positions may require further training to ensure proper protection against evolving cyberthreats.
Cybersecurity is an ongoing challenge, but organizations aren’t alone when it comes to safeguarding their digital assets.
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