Emerging Cyber Issues

According to a recent report by Fitch, the insurance industry is underreserved by about $2 to $5 billion for latent exposures. According to the report, Fitch’s estimate is “based on the belief that the industry does not fare well in its ability to predict new major latent loss exposures—making it likely that prior underwriting years will develop unfavorably.”

Charlie Kingdollar, vice president and Emerging Issues officer for GenRe, who presented on the subject earlier this month at the Privacy XChange Forum in Paradise Valley, Ariz., said that there are many emerging issues to watch. With respect to privacy, insurers will likely see issues involving cyber attacks, nanotechnology and self-driving cars. Other areas to watch include sexting, cyber bullying and cyber security breaches.

A commercial general liability (CGL) or commercial umbrella policy could add cyber coverage for little to no underwriting and for little to no premium, Kingdollar said. On a homeowners’ policy, cyber coverage may cost a couple of hundred dollars, he said.

And though the internet has exploded with gripe sites, weblogs and chat rooms, Kingdollar said there hasn’t been much change in underwriting guidelines. The GenRe executive outlined these growing exposures:

• Gripe sites – Created to criticize a product, service or company.
• Weblogs – In 2003 there were approximately 100,000 blogs. In 2012, there were an estimated 152 million to 1 billion blogs.
• Chat rooms also known as message boards.
• Texts and tweets.

Social media liability exposure has generated new questions: Do updates equal number of occurrences? Is each text and tweet a separate occurrence? Another concern is whether the risk grows when posting on someone else’s blog or site, like Angie’s List.

The basic homeowners’ policy provides no personal injury coverage, though it can be endorsed. It is triggered “per offense” though he noted that offense is not defined.

A personal umbrella policy will provide personal injury coverage. The definition of personal injury includes libel, product disparagement and written publication.

Regardless of the line of coverage, litigating these types of claims can be expensive. Allegations can include allegations of trademark infringement, libel, trade secrets and defamation. He said the average award on the personal lines is $1.75M, while on the commercial side the average award is around $3.5M.

“For an exposure that we really don’t write,” Kingdollar said.

Kingdollar said the majority of insurers are ignoring this potentially costly exposure. In addition, these cases are so new that the average defense cost per case is still unknown.