Applying lessons learned from cyber insurance to traditional lines of coverage
The insurance sector is currently in a hard market, which means insurance pricing is going up and coverage capacity is going down. These hard market conditions shouldn’t be a surprise as they have been visible for several years. For instance, in the past three years, we have seen the terms offered by insurers begin to fall well short of those previously offered in the soft insurance market. The hard market is impacting almost every line of insurance and the construction sector is being hit severely by these hard conditions. It is simple math — the dollars paid out by insurers for insured losses, and/or associated legal fees from claims, have far exceeded the dollars collected by insurers.
So, what are insurers doing to help return normalcy to the insurance market given these conditions? It would seem most of them are simply taking the path of reducing capacity and increasing rates. That is a very simplistic way to reverse the financial impact caused by these market conditions.
Perhaps it is time for insurers to take more of an active role in helping their clients better understand the root causes of their claims and, further help their insureds find better ways to manage these risks.
When it comes to a new risk on the scene, cyber risk, several of the insurers offering very little in the way of insured support under their traditional lines, are offering several valuable risk education and risk control services on their relatively new cyber insurance lines of cover. Almost all of the top global insurers have spent significant amounts of money on services associated with the cyber insurance coverages. The following are a sampling of some of the services offered in conjunction with cyber insurance covers:
- Enterprise risk management consulting and solutions for cyber risks
- Cyber education and training services for insureds
- Very detailed claims data on cyber claims
- Blacklist IP blocking
- Infrastructure vulnerability scans
- Cyber security audits and scoring services
- Cyber security software solutions
- Mobile apps that help clients educate, train, monitor and manage their cyber risks
What is most interesting here is that many of the above services sold in conjunction with the cyber insurance policies are free of charge. This means they are including the cost of these solutions in their premium from which they may be paying brokers. They are paying their underwriting costs, and they are, of course, paying losses. They have realized, as it respects this new cover, that losses are happening — cyber lines of cover have also been hit very hard. However, they are also realizing they need to help their clients navigate these claims by offering them a better way of managing this new and emerging risk.
This is great as it is a very real risk and this combination of risk control solutions and risk finance solutions is a highly valuable combination that not only helps their clients, but will lead to improved loss results with their clients becoming better positioned to manage the risk of a cyber attack. My question to insurers that are offering this great combination of risk management solutions is: why not do the same for your more traditional lines of cover and why not market these offerings with as much vigour as you are marketing the cyber solutions offering?
Within the construction insurance space, the main lines of insurance cover, though not as sexy as cyber insurance, are property, casualty, professional liability, environmental liability, sub default insurance and surety. Almost all of these lines are experience very hard market conditions, as is cyber insurance, however it seems a majority of insurers that offer these covers are not offering their clients the same level of risk education and risk controls solutions. They are simply increasing rates and/or reducing capacity/coverage.
Insurers should be providing their insureds deeper insights into where construction insurance claims are coming from, they should be hiring top experts in the field of construction risk to help clients deal with these risks, they should be paying for technologies that can prevent and mitigate these claims from happening, and they should be doing this as part of the increased premium they are collecting.
These same insurers have charted a path to profitability within their cyber insurance line of cover that could easily be replicated in their more traditional offerings. As mentioned, such a path would offer their clients a value beyond just the insurances and, further and perhaps more importantly, would offer the insurer greater profitability. Rate increase is good, but rate with risk controls is much better — and better for long-term branding for insurers.
David Bowcott is Global Director – Growth, Innovation & Insight, Global Construction and Infrastructure Group at Aon Risk Solutions, as well as a member of the Canadian Construction Association’s (CCA) board of directors.
This article first appeared in the April 2021 edition of On-Site. To read through the whole issue, click here.