Cyber Liability Heats Up after Target Breach

After years of tightening regulations and data security nightmares, both consumers and insurance professionals are finally beginning to grasp just how important cyber liability coverage really is. The result? More players are entering the arena—and for the most part, prices are heading south.

Pricing Trends

Brian Thornton, president of ProWriters, says carriers in the cyber liability market haven’t been able to ignore high-profile data breaches like Target, T.J. Maxx and White Lodging. “As people pay attention to what’s going on in the market, I think the carriers are making minor adjustments to ratings as well,” he explains.

But barring segments like large retail that might see increases, “pricing trends are definitely going down,” says Alex Wayne, executive vice president at A.J. Wayne & Associates, Inc. “The market is getting softer.”

Why are premiums declining? “There’s been a lot of competition heating up,” says John Immordino, vice president of professional liability and brokerage at Arlington Roe. “The carriers have a much better understanding of this emerging risk because they’ve had several years of experience under their belt, and I think they probably price accordingly now.”

On the Horizon

Wayne equates the current cyber liability landscape to employment practices liability two decades ago—a market that only took off after the Clarence Thomas scandal. “That was the Target breach of the 90s,” Wayne says. “Now, I think cyber liability will become more and more of a standard coverage. We’re seeing more and more contracts signed where clients are required to carry cyber liability, and more and more companies are entering into the space.”

As far as coverage developments, Immordino says to keep an eye on contractual notification of third-party contracts, especially in light of evolving cloud technology. Pay similar attention to reputational harm—Immordino expects it to be built into the business income extra expense component, where it wasn’t before. “Reputational harm is really one of the largest exposures associated with cyber security issues,” he says. “It can really take down an organization.”

And while Wayne notes most cyber liability customers have typically been in health care or retail, a broader base of prospects is now opening up.

“We’ve seen a lot more professional service companies buying the coverage this year, as well as a lot of really small businesses,” Thornton says. “But now that cyber liability coverage has become more common, people seem to be more prepared. As we’ve gone to a more service economy, intellectual property is just a bigger issue.”

That’s part of why the cyber liability industry is growing, says Thornton, who cites expansion from about $1 billion to $1.3 billion between 2012 and 2013—with even larger projections for the coming year. “That ties back to emerging classes,” he says. “They’re driving growth.”

Jacquelyn Connelly is IA senior editor.