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A difficult, but long-awaited decision by Lloyd last week to resolve the spread of government-sponsored cyberattacks reflects an insurance market that has been growing economically over the years. It also raises questions for U.S. companies about their preparedness and long-term exposure to the worst and worst threats.
“Cyber remains an important area for Lloyd’s,” a spokesperson said in an email. This month’s advisory, “following a dialogue with our market, is to ensure that we can be as vulnerable as the market as we approach this difficult phase with the expertise and diligence that is required.”
The company said it will continue to take a positive and innovative approach to support cyber growth.
Lloyd’s Law says the company’s mission is to support a competitive and sustainable cyber insurance market, but the bulletin did not make any regulatory decisions. Rather than using a one-size-fits-all approach, the new guidance encourages managers to apply caution to the specific challenges of state-sponsored attacks.
“These exceptions show the complexity and complexity of cyberattacks, and due to the evolution of cyber threats, they provide additional protection for insurers against threats from government actors,” said Sridhar Manyem, director, industry research and analytics. on AM Best.
The guidance comes at a time when the cyber insurance market is under severe pressure due to the rise of ransomware attacks in recent years. Pressure has also come on the back of Russia’s invasion of Ukraine in February, which has raised fears of an attack on critical infrastructure.
Data from S&P Global Ratings in July shows turmoil in the cyber insurance market. Cyber insurance premiums are expected to grow 25% annually to reach $22.5 billion in 2025, compared to about $9 billion in 2021.
There was a 232% increase in ransom claims from 2019 to 2021, the report shows, with 54% unpaid ransom claims in the first quarter of 2022, up from 15% in the first quarter of 2019.
“There are some challenges that the market must face in relation to cyber warfare, including who has the evidence to prove where it happened on the internet, the level of government involvement and the importance of conflict attacks. targets,” said Manuel Adam, assistant director, S&P Global Insurance Ratings.
A study released earlier this month from Blackberry and Corvus it shows the problems that spread among small to medium-sized organizations, which often do not have the financial resources of large enterprises.
Only 55% of respondents had cyber insurance, and 78% added cyber coverage to existing policies, indicating that cyber is not a priority.
Of those who have coverage, only 44% are insured for losses up to approximately $600,000, which is below the threshold for the need for a central redemption based on 2021 data. The study was based on a survey of 450 IT and security decision makers in the US and Canada by Team Lewis Research.
Change is at hand
Analysts say the changes at Lloyd’s are a logical step in response to the growing pressure on supply.
“It’s another step forward for the market by providing more information about what cyber insurance does and doesn’t include,” Heidi Shey, senior analyst at Forrester, said via email.
Insurers are being pressured to reduce their risk to make a profit, which is why they have imposed restrictions on underwriting and are asking additional questions to companies seeking new coverage or renewing existing policies, according to Shey.
The new exception is the continuation of cyber warfare and sentences to exclude internet services from Lloyd’s Market Associationwhich started working earlier this year, according to Andrea DeField, a partner at Hunton Andrews Kurth in Miami.
“The balance that was released in January was a big change for the industry, and [this month’s] announcements seem to clarify what may not happen in the future,” DeField said via email.
Evidence of change throughout the market
Lloyd’s is not alone in rethinking its policies. Munich Re, the German-based lender, unveiled plans in April to add an additional language to its anti-war computer systems.
“Munich Re is determined to eliminate exposure to cyber warfare,” a Munich Re spokesperson said via email.
The spokesman said that several decisions to remove models that are suitable for the current market have begun to appear. The spokesman mentioned LMA War, Cyber War and Cyber Operations as exceptions.
“Munich Re has begun and is committed to reporting on the immediate withdrawal of war or claims with a similar objective that address real cyber issues,” the spokesperson said.
Changes to the policy may make it difficult for companies to obtain cyber policies. The exclusion of Lloyd’s policies will make it difficult for companies to get coverage for many of their online claims, according to Cindy Jordano, a partner at Cohen Ziffer, Frenchman & McKenna, a law firm that specializes in insurance recovery.
The company received an $11 million settlement earlier this year after the company’s largest trading company, Virtu Financial, sued in federal court after Axis Insurance denied coverage of the social media scandal.
“In doing so, the imposition of the new exemptions creates difficulties,” Jordano said. “Insurers face the challenge of proving that the waivers do not include coverage, and with Lloyd’s waivers, insurers will face the challenge of proving that cyberattacks support the government because of the extensive coverage of these claims.”