International demand for cyber cover increases

Lloyd’s underwriters are developing new specialist cyber insurance in Europe, Asia and Latin America.

Lloyd’s insurer Beazley has just launched an international version of its USA Beazley Breach Response insurance product, which provides a co-ordinated response to a data breach and expert services backed by insurance.

Two years in development, it has just been launched in the UK and France, although other countries are also being considered, says Paul Bantick, who heads the company’s cyber team. 

Beazley wants to roll-out its Breach Response product where demand is greatest and where there are good opportunities, says Bantick. Germany, Italy, Spain, Australia, Canada and Brazil all have potential right now, he says.

Increasing fines, the risk of reputational damage and developing data protection rules are expected to drive demand for such cover outside the US, says Bantick. For example, the European Union and Australia are expected to introduce rules that would soon require organisations to notify those affected by a data breach.

Explosive growth

Tougher penalties and notification requirements in the US mean that cyber insurance has become a common purchase for US organisations, particularly data-reliant sectors like healthcare, universities, financial services, retailers and hotel groups, says Ben Beeson of Lockton.

However, despite being subject to arguably more stringent laws on data protection and privacy than their US contemporaries, the take up by European companies has been slow as the potential financial losses ofa breach have been small. However, Beeson believes that the situation is changing.

European data rules

Fines have been increasing and countries like Germany, Austria and Norway have introduced stricter laws that require organisations to notify victims of a breach. In addition, plans are afoot to introduce stricter data protection rules in Europe.

In 2012, the European Commission proposed a root and branch reform of Europe’s data protection rules. Negotiations on the new rules are well advanced and proposals include fines as significant as 2% of global revenue for organisations that mishandle personal data, as well as US-style notification requirements.

Cybercrime and reputation

Over the next five years it appears that there is likely to be an increase in demand for cyber insurance across the world, not just Europe, says Graeme Newman, of CFC Underwriting, a Lloyd’s backed agency that has been selling cyber in Europe for over 12 years.

“We're seeing real demand for the product outside the US, but it is not privacy concerns that are driving the market, it is cybercrime,” says Newman.

“Increasing privacy regulation is not something that concerns most businesses across Europe right now. But they are concerned with cybercrime and loss of reputation,” says Newman. “We have built one of the few insurance policies that genuinely addresses this concern and actually pays for loss of future sales as a result of any damage to their reputation,” he says.

Different countries, different products

While growth in the cyber insurance market has been explosive, the direction of development in other countries will probably differ, says Rick Welsh, Head of Cyber Insurance at Aegis at Lloyd's. Aegis already offers such cover in the US, Canada and Australia and is working on a product for the UK.

Each country has its own approach to privacy and legal framework, as well as different buying practices, and this needs to be considered when developing cyber insurance, says Welsh. Cyber insurance is also not only about covering data breaches; companies need cover in many areas, including those related to intellectual property, media liability, and business interruption, he says.

Expertise and innovation

According to Graeme Newman, there is a huge amount of cyber expertise in the Lloyd’s market but this expertise needs to be used to build innovative products that customers really want and need. He believes that in addition to privacy liability and breach notification insurance, CFC’s policy offers innovative cover for the new world of cybercrime:  

“We are one of the few companies that provide cover for phishing scams and we also explicitly offer cover for telephone hacking, which is one of the fastest growing crimes in the world right now. We will also pay for the loss of future sales caused by a privacy breach or a network security event. This is what European customers really want to see in a product."

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