The earliest iterations of cyber insurance covered liabilities associated with network failures or breaches of private data - if your system security failed for any reason, cyber insurance covered the cost of the response. Traditionally, the retail, healthcare and financial services sectors were the top buyers of cyber polices; as handlers of personally identifiable information, their exposure was greatest.

But it's not just about credit card or Social Security numbers any more.

Due to rapid advancements and increasing reliance on technology by businesses of all kinds, cyber risk has grown much bigger and much harder to define. Companies in every industry are waking up to the fact that, as long as they use technology to conduct business in any way, they are vulnerable to cyber risks.

"Especially in the past few years, there's been a growing demand from non-traditional cyber buyers like manufacturers and nonprofits, for example," said Evan Fenaroli, Cyber Product Manager, Philadelphia Insurance Companies (PHLY).

Though they recognize their exposure, newer and nontraditional buyers also need to stay attuned to the fact that cyber risks are constantly evolving. A cyber policy purchased five years ago may not suit today's risk profile.

"A cyber product is not a one-and-done solution," Fenaroli said.

These four emerging threats exemplify how rapidly cyber risk changes, and why evaluating coverage needs should be an ongoing conversation:

1. There Are More Opportunities and More Severe Consequences of System Failure

Business Interruption coverage has been a primary component of most stand-alone cyber insurance products for at least a decade now, with coverage traditionally triggered by distributed denial of service (DDoS) attacks, malware, or other malicious attacks directed at the insured's own computer system or website.

But exposure to network disruption extends well beyond the internal computer system, particularly as businesses become increasingly reliant on cloud-based platforms, third party applications and other outsourced services. An attack on a critical vendor or unplanned outage at a cloud provider could cause major downstream interruption.

"We're in an era where cloud computing is the norm rather than the exception," Fenaroli said. "If you've outsourced your IT services or any network components, and that third party suffers a service interruption, that directly impacts your business."

Errant updates and other internal operational errors can also be a source of network failure. To keep antivirus and firewall software up to date, companies are encouraged to run updates as regularly as possible. Often, organizations will install new software overnight or over a weekend to minimize disruption during working hours, but if a glitch takes everything offline, it could be anywhere from a few hours to a few days before the problem gets fixed.

Though denial-of-service attacks and data theft make headlines, these more unassuming sources of system failure can still cause substantial business interruption and contingent business interruption losses. Luckily, coverage triggers under many cyber policies have expanded to encompass these scenarios, although buyers should look out for sub-limits or other restrictions.

2. Ransomware Attacks Are Growing More Costly

"Ransomware used to be run-of-the-mill crypto lockers, where target companies would have to pay $300 or some small sum to get their data released and regain access to their systems," Fenaroli said.

"But today more cyber thieves are asking for payments in Bitcoin, and if they realize they've caught a company with deep pockets, they'll negotiate a higher payment rather than setting a ransom up front."

Paying ransoms in cryptocurrency requires access to a crypto-wallet - not something every organization has readily available. And increasingly, paying the ransom is no longer a guarantee that data and network access will be restored.

Amateur hackers can purchase ransomware "starter kits" on the dark web. These ready-to-use packages allow thieves of any skill level to launch their own attacks, Fenaroli said, and they may not include a key to unlock hostage data after a ransom is paid. Often, targeted companies find that their data is permanently corrupted or lost, and subsequently must pay to have it restored on top of paying a steep ransom.

"The best thing a company can do is update security patches to seal vulnerabilities in their systems and keep these viruses out," Fenaroli said. Moreover, incident response planning and well-practiced back-up recovery procedures can go a long way toward mitigating the business impact when incidents do occur.

3. More IoT-Connected Devices Amplify Exposure to Hacks or Malfunction

Smart devices connected to a corporate network via the Internet of Things exponentially increase the number of access points for hackers and represent more single points of failure.

Failures of IoT-connected devices can also result in damages that fall outside the scope of a cyber policy. If a temperature-monitoring device on a cargo truck fails, for example, liability for damaged inventory likely won't be picked up by cyber coverage even though the underlying cause was a system failure.

"It's important to recognize the additional risks created by IoT technology and ensure you have coverage for it somewhere, because a standalone cyber policy likely won't respond to every scenario," Fenaroli said.

"Even before you think about coverage, evaluate whether adopting IoT technology is actually a good business decision. Is it going to improve your operations, make you more efficient and make you money? Or are you just doing it because it seems cool?"

4. The Growing Threat of a Cyber CAT Imperils Market Stability

Increasing connectivity and technology dependence presents risk not just for businesses, but for the carriers who insure them.

In 2016, domain name provider Dyn was targeted in a DDoS attack that caused shutdowns of major Internet platforms and services across large portions of Europe and North America. The attack was launched in three waves over a single day, causing at least six hours of downtime for Dyn clients and, according to some estimates, about $110 million in total business interruption losses.

While this particular incident did not make a huge dent on insurers' balance sheets, it did bring attention to the catastrophic loss potential of aggregated cyber risk.

"On one hand, there's a lot of capacity in the cyber market leading to soft conditions where pricing is going down and coverage is expanding, but then there is this looming threat of a catastrophic cyber event that could flip the market on its head," Fenaroli said.

To best position themselves for success amid market disruption, companies should look for carriers that work with modelers on cyber CAT scenarios.

"Work with an underwriter who is aware of this threat and writing their coverage accordingly," Fenaroli said.

For Best Outcomes, Turn to Experienced and Adaptable Cyber Carriers

Philadelphia Insurance works with modelers to assess the impact to their portfolio business if a common operating system or cloud provider goes down.

"That knowledge allows us to come up with more accurate pricing and ensure we're not taking on too much exposure, so that we can pay these losses if they were to occur," Fenaroli said. "Our top priority is trying to be that stable backstop for the buyer."

Since launching a stand-alone cyber product in 2009, Philadelphia Insurance's broad form has served the needs of small- to medium-sized businesses in all sectors, including traditional cyber exposures in healthcare and financial services, as well as newer buyers in the nonprofit and manufacturing sectors.

"But our policyholders have come to know Philadelphia not just for our coverage, but for our pricing stability, our risk management resources, and our claims handling."

Along with a recommended panel of breach response vendors - including forensic investigation, public relations and law firms - Philadelphia also offers an online cyber risk management portal with tools like a breach cost calculator and sample policies and procedures.

"It helps to get the ball rolling on implementing some of the policies, procedures and incident response plans," Fenaroli said. "Being prepared is just as important as having the coverage."

To learn more, visit https://www.phly.com/mplDivision/managementLiability/CyberSecurity.aspx.

This article was produced by the R&I Brand Studio in collaboration with Philadelphia Insurance Companies.
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