Don’t let clients cheap out on cyber coverage

As high-profile ransomware attacks continue to grab headlines, insurers providing directors and officers (D&O) coverage are concerned private company boards might not be managing cyber risk.

“Are they allocating enough funds to cybersecurity? Are they going to have a lawsuit brought forward because of the failure to either purchase insurance as a mitigation factor or provide adequate funding to the business to lower [their] cyber exposure?” asked Michael O’Connor, assistant vice president of tech/cyber and professional lines at Sovereign Insurance.

“We’re concerned with the evolving [nature of] cyber activity; that if companies are not focused on those issues, they’re going to see a potential increase in claims activity.”

Since cyber issues tend to lead to D&O claims, Dane Hambrook, head of specialty products at Zurich said company boards need to understand their cyber resilience.

While many risks that leave companies open to ransomware or cyberattacks are well known, O’Connor said the contracted economy can make it hard to allocate resources to risk mitigation.

“When you look at the private company sector…[firms] don’t always allocate adequate resources to offset that because it’s not in their day-to-day thought process about running their business,” he said.

Some firms may think they’re not on cybercriminals’ radar.

“Smaller companies [may] say, ‘Well, I’m not at risk because I don’t hold hundreds of thousands, if not millions, of personal records.’ But our claims experience tells us small- and medium-sized companies are also vulnerable to these types of attacks,” he added.

“You can have a much easier entry point into a smaller company. You are at risk.”

Cost is also a factor. A private company looking to buy cyber insurance may weigh the expense against more pressing business costs. From there, it’s possible they’ll determine funds are better spent on things that produce direct return on investment.

“We go back to our inflationary pressure,” said O’Connor by way of example. “Buying raw materials has gone up 10%, so I have to find funds [for premiums] from somewhere. They only have so many dollars to allocate.”

This story is excerpted from one appearing in the April 2023 edition of Canadian Underwriter. Feature image by iStock.com/JuSun