Like EPLI, services part of cyber insurance contract could manage vast risk

Interestingly, Hank Watkins refers to the employment practices liability and workers compensation lines of insurance when referring to how the industry is approaching solutions for cyber risks.

Watkins, president of Lloyd’s America, admits cyber is far from these lines in terms of the industry’s eventual understanding of the risks. Like many have, he is not about to compare the cyber market to the evolution of EPLI. Cyber threats progress too rapidly for the insurance industry to ever fully catch up to it.

“Technology is changing so quickly,” said Watkins from his New York City office. “It’s unrealistic to think we can save you.”

The insurance industry wrapped their arms around EPLI and workers comp by including services to improve prevent and improve outcomes, thereby taming losses.

“These risks were not well-controlled, but over time the industry realized how to appropriately wrap insurance around these risks,” Watkins said. As examples, products providing up-front training were offered to employers to reduce EPLI exposure, and the industry also began a practice of assigning nurse case managers to workers comp cases to control losses and provide a simple personal approach to injuries.

“This thought leadership is what I love about this industry. Soon coverage was not being sold for the worst case scenario,” Watkins said. “In fact [EPLI] has become less expensive than private D&O.”

The insurance industry is attacking cyber risk in many of the same ways as it continues to get a grasp on the vast exposures. Pre and post risk management and loss mitigation services are well-established by many carriers.

Watkins said Lloyd’s syndicates are providing about 15 percent of cyber capacity, globally. About 30 of 94 syndicates deal in cyber risk. “They are embracing it, but not over the top,” he said.

Market oversight has become one of a core group of priorities formed in part by lessons learned from decades ago when asbestos and environmental claims sank Lloyd’s results, and 9/11 showed how the market could be hit with many, many types of claims from a single concentrated area, Watkins explained. Lloyd’s will support sustainable, profitable growth valued by all shareholders, according to this priority, and the 30 or so syndicates looking to provide capacity for cyber exposures are monitored on a quarterly basis, he continued.

As a market, Lloyd’s has the distinct advantage of “seeing risks from everywhere,” which cultivates its history of innovation.

“We get it all by line of business to be able to say, ‘There’s an opportunity here, a theme here—a chance for innovation.’”