Cyber Coverage: Higher Limits in High Demand
I know from many phone conversations that many of our insureds are becoming more aware of cyber coverage. We also certainly see more interest in increasing the limits from the $100,000 aggregate we include by endorsement to all our lawyers professional liability (LPL) policies. It is correct to ask, and to examine the cost involved.
We all continue to read about cyber losses, primarily coming from cyber extortion. We are all also acutely aware of the geopolitical disputes where cyber-attacks are weaponized. In addition, the dramatic increase in remote work increases exposure if not handled correctly.
Cyber coverage is hardening, meaning it is becoming more costly and more difficult to find higher limits. In fact, you might ask how anyone can insure the exposures involved. Fact is, many commercial lines of coverage are seeing hardening conditions; but with cyber, it is the first real hurdle to jump. Frequency (the number of claims) and severity (the cost of claims) of cyber claims, especially of ransomware, have both gone up at the same time. This is never a good thing.
When the severity of claims jumps decently, reinsurers attempt to “manage limits.” If reinsurers and insurers do not have limits above “X” they cannot have losses paid above “X.” Worldwide, 50% of coverage is reinsured and if reinsurers are tightening the capacity of limits, then it is difficult for insurance companies to satisfy the new demand from insureds for higher limits.
For the first time we are beginning to see a more active government role in cyberattacks. I also think we will see stricter underwriting standards, especially for higher limits. Both of these things will eventually help pricing in the future, but pricing is difficult because of the lack of significant claims data. It helps that cyber is a relatively short tail line of coverage, making results known more quickly. Actuaries will become more confident in setting rates to the exposures as the data becomes more credible.
We are fortunate to have a partnership with a very good reinsurer who has been committed to cyber coverage for years. Our experience since we began writing the coverage as an add-on to the LPL policy has been very good to this point. We will continue providing cyber insurance, as we feel it is a critical coverage for law firms. Feel free to call us with questions regarding your coverage.