In the aftermath of the 2014 data breach that affected more than 50 million cardholders, Home Depot will set up a $13 million fund and spend up to $6.5 million to pay for 1.5 years of cardholder identity protection services.
But the costs of a data breach can be staggering for companies far smaller than Home Depot, including many of your small business clients.
As more and more businesses recognize the need for cyber liability insurance, how is the market changing in response? And how can you continue convincing your commercial clients that this coverage is worth the investment?
In a property-casualty market that’s stayed soft for several months in a row, pricing in cyber is following suit. “With the average cyber risk, you’re going to probably still be looking at more competitive pricing throughout the marketplace,” says Alex Wayne, president of A.J. Wayne & Associates, Inc.
But that won’t apply across the board. “I’m working on one right now where they have upwards of 40 million records—that’s a pretty sizeable amount of cyber exposure,” Wayne says. “Those are the accounts that I think are getting a very close look from the underwriters. A lot of markets are either shying away from accounts with greater cyber exposure or pricing them much higher than they may have in the past.”
In addition to account size, class of business will also correlate with premium hikes. “I would expect to see increases for health care accounts, as well as some retail accounts and really any that have a higher amount of personal health information or personally identifiable information,” says Brian Thornton, president of ProWriters.
Why? “Carriers have seen a lot of claims in 2015—a lot of big claims where there are a lot of insurance towers with a lot of markets all on the same claim,” Thornton says.
“It’s the result of those carriers getting burned and losing a lot of money on accounts with a humungous amount of records,” Wayne agrees.
How to Sell It
The first step? You’ve heard it before: Offer cyber insurance to every single commercial client. “If an agent’s ever up against another agent who is not offering any cyber coverage, this is something they can bring up to a new client and it will make them look like they’re basically covering all bases where the other agent might not,” Wayne says.
“When we talk to agents, usually what we remind them of is that if they don’t present it, one of their competitors might,” Thornton agrees. But more important, “we also urge them to present it from the standpoint of protecting their own E&O. If they don’t present it and the client then does have a breach, they’re going to come back and say, ‘Why didn’t you offer this to me?’”
“The reality is there’s so much press out there about it that to some degree, even if your effort is minimal, you’ll be able to sell some cyber,” Wayne adds. “It is really exploding—the coverage is selling quite a bit, whereas it may have been a slower sell cycle in years past. Most people are looking at this as a serious exposure and they want to cover themselves for it.”
Still having trouble convincing a reluctant client that they actually need this coverage? For most of your small commercial clients, the additional services that come with a cyber policy should be your main talking point: loss prevention, carrier hotlines and more. If you’re selecting between two different cyber programs, it’s important to consider which carriers offer those additional services and which do not—especially if the cost is comparable, Wayne explains.
“If they think they’ve had a breach of some sort, they want somebody to be available 24/7 to walk them through the next steps,” Wayne says. “It has become more popular for some insureds who want that support and the security of knowing somebody is there to do something for them if the unthinkable happens.”
For details on cyber coverage developments and what’s on the horizon for this type of insurance, keep an eye on IAmagazine.com and upcoming editions of the Markets Pulse e-newsletter.
Jacquelyn Connelly is IA senior editor.