The New York State Division of Monetary Companies lately issued steerage for New York-regulated property and casualty insurers to successfully handle the cyber insurance coverage threat current of their insurance coverage portfolio. The DFS’ steerage indicators an effort to scale back general volatility within the cyber insurance coverage market, which has been compounded by the current proliferation of cyberattacks and by insurers’ broadly various approaches to measuring every policyholder’s cyber threat profile.
Though the DFS’ Cyber Insurance coverage Threat Framework applies primarily to New York-regulated property and casualty insurers that write cyber insurance coverage, the framework cautions that insurers that don’t write cyber insurance coverage however ought to consider their potential publicity to “silent threat” of their non-cyber insurance coverage insurance policies. Additional, because the DFS has taken the lead in recent times amongst insurance coverage regulators on cybersecurity points, the framework offers useful steerage to insurers that function in states apart from New York.
The framework’s steerage is split into seven broad classes.
- Measuring mixture cyber threat. The framework advises that insurers set up a proper cyber insurance coverage threat technique for measuring this threat. This technique ought to embrace clear qualitative and quantitative targets for cyber insurance coverage threat, and such technique needs to be directed and accredited by the insurer’s senior administration and board.
- Tackle potential cyber threat in “conventional coverages”. The framework cautions that insurers ought to handle and remove publicity to silent cyber insurance coverage threat. Though conventional insurance coverage insurance policies will not be meant to cowl cyber threat and by no means even explicitly point out cyber, the wording of a coverage however could also be interpreted to cowl loss from a cyber incident. The framework advises insurers to remove or mitigate this silent threat by revisiting the language of conventional coverage types in addition to doubtlessly buying sufficient reinsurance protection to hedge towards this silent threat.
- Measure systemic cyber threat. The framework recommends that insurers frequently consider systemic threat and plan for potential losses. Systemic threat is current in interconnected techniques, through which an intrusion in a single a part of the system can create a domino impact to threaten all related techniques. The framework explains that insurers’ higher reliance on third-party establishments and distributors in recent times has elevated systemic threat. These entities are prime targets for cyberattacks, and diversifying these establishments and distributors used will assist mitigate the consequential impression of an assault on any single one. Additional, the framework advises that insurers ought to frequently conduct inner cybersecurity stress exams to measure the fallout from potential catastrophic cyber occasions.
- Information-driven cyber underwriting. The framework counsels that insurers ought to have a “data-driven, complete plan” that evaluates the cyber threat of every policyholder and potential policyholder. Such plan ought to embrace particulars that allow the insurer to guage gaps within the policyholder’s cybersecurity measures, which may result in better-informed pricing and enhance data about methods to boost cybersecurity.
- Incentivize robust cybersecurity. The framework recommends that insurers educate their policyholders and insurance coverage producer companions concerning the worth of robust cybersecurity measures and may incentivize the adoption of those measures by pricing insurance policies primarily based on their effectiveness. Insurers are uniquely positioned to assist incentivize robust cybersecurity practices by leveraging the price of the safety afforded underneath their insurance policies.
- Make the most of cybersecurity consultants to know threat. Insurers ought to rent cybersecurity consultants and, as obligatory, complement these workers with extra consultants or distributors. The purpose is to enhance insurers’ potential to forecast cyber exposures so they’re appearing proactively and never reactively.
- Legislation enforcement notification. The framework advises that cyber insurance coverage insurance policies embrace a requirement that victims of a cyber incident notify regulation enforcement. Usually, cyberattacks towards a number of victims have a typical origin, and notifying regulation enforcement may help to make sure that all doable victims are knowledgeable earlier than intensive harm is finished.
The DFS framework sends a transparent message that rising stability in an often-volatile cyber insurance coverage market requires a collective effort amongst all events. Selling extra knowledgeable underwriting, higher cybersecurity practices and diversification of third-party establishments and distributors may help mitigate the frequency and impression of cyber occasions. Certainly, uninformed assessments of policyholders’ cyber threat profiles or mispricing of cyber insurance coverage coverages can doubtlessly result in extra claims, discount available in the market’s capability, insurer insolvency and a higher urge for food to disclaim coated claims.
Accordingly, policyholders and insurers alike ought to rigorously study their coverages in gentle of the DFS’ directive – and specifically – assess the potential for provisions that cloud the meant protection or create ambiguities affording silent cyber protection. Counsel can help with evaluating these points and exploring inventive options to mitigate the impression of cyber occasions. As cyberattacks are now not a difficulty of if however when, mitigating cyber publicity needs to be top-of-mind for all stakeholders, giant and small.
Contributors: Paul Moura, David Navetta, Alexander Traum