Entries tagged with “Business Risk”.
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Friday, October 3, 2014
Posted by Claire under Business Risk, Specialty Coverage, Technology
A second annual survey from Experian and the Ponemon Institute appears to show that more companies are prepared for a data breach, and that cyber insurance policies are becoming a more important part of those preparedness plans.
The study, which surveyed 567 executives in the United States, found that 73 percent of companies now have data breach response plans in place, up from 61 percent in 2013. Similarly, 72 percent of companies now have a data breach response team, up from 67 percent last year.
In the last year the purchase of cyber insurance by those companies has more than doubled, with 26 percent now saying they have a data breach or cyber policy, up from just 10 percent in 2013.
However, this means that two-thirds of respondents – 68 percent – are still not buying cyber policies. (Six percent of respondents are also unsure whether their company has cyber insurance.)
Interestingly, the fact that more companies have data breach response plans in place does not appear to instill greater confidence that they are effective.
Despite the existence of plans, only 30 percent of respondents say their companies are effective or very effective in developing and executing a data breach plan, the survey found.
Why are the plans not effective?
The survey indicates that in many cases a breach response plan is largely ignored after being prepared.
Some 41 percent of respondents say there is no set time for reviewing and updating the plan, while 37 percent say they have not reviewed or updated the plan since it was put in place.
All of this comes as the frequency of data breaches is accelerating. Some 60 percent of respondents say their company experienced more than one data breach in the past two years, up from 52 percent in 2013. And 43 percent say their company had a data breach in the last year, up from 33 percent in 2013.
Check out the latest I.I.I. white paper on this topic Cyber Risks: The Growing Threat.
More on this story from the Wall Street Journal’s Risk & Compliance Report.
Growth in U.S. liability claims could accelerate to 5-6 percent in the near future, according to a just-released report by Swiss Re sigma.
The slowdown in U.S. liability claims paid after 2008, primarily due to economic drivers such as the recession and weak recovery, is expected to reverse.
Why the change?
Cyber risk and the liability from emerging technologies including hydrofracking and autonomous cars, combined with stronger economic growth will drive liability claims costs higher, sigma says.
Interestingly the report suggests that the effects of tort reform, which contributed to a slowdown in claims growth in the mid-2000s in the U.S., were a one-off benefit and will no longer suppress claims growth to the same degree.
Often these types of reform have only a temporary effect on claims growth, which fades as the rules eventually soften again or the legal profession learns how to optimize the pursuit of claims in the new framework.”
Tort reform in the U.S. has focused on medical malpractice and class action claims, the report says.
Many early studies concluded that medical malpractice reforms such as limits on lawyers’ fees and non-economic compensation were effective in reducing medical malpractice liability. However, some of these caps were later overturned by state supreme courts.
Despite passage of the Class Action Fairness Act in 2005, empirical evidence on the effects of federal class action reform in the U.S. remains inconclusive, sigma adds.
The report also warns that litigation funding, in which a third-party funding company pays the costs of litigation and is paid only if the litigation is successful, is still in its infancy in the U.S. but developing.
There are fears it will grow, driving up litigation and future claims costs for insurers.”
Check out this I.I.I. backgrounder on the U.S. liability system here.
Friday, September 26, 2014
Posted by Claire under Business Risk, Drought and Heat Waves
Drought continues to make the headlines, with the latest U.S. Drought Monitor showing moderate to exceptional drought covers 30.6 percent of the contiguous United States.
Its weekly update also shows that 82 percent of the state of California is in a state of extreme or exceptional drought. Reservoir levels in the state continued to decline, and groundwater wells continued to go dry, the U.S. Drought Monitor says.
The LA Times reports that California’s historic drought has 14 communities on the brink of waterlessness. It quotes Tim Quinn, executive director of the Association of California Water Agencies, saying that communities that have made the list are often small and isolated and have relied on a single source of water without backup sources.
However, Quinn also tells the LA Times that if the drought continues, larger communities could face their own significant problems.
A recent article at CFO.com by Lauren Kelley Koopman, a director in PwC’s Sustainable Business Solutions practice, makes the point that when water-related disruptions affect operations, companies can suffer significant profit and losses and pay higher prices for goods in the supply chain.
Water management issues pose significant operational, regulatory and reputational risks to companies, the article noted.
And a recent report from the University of California found that farmers had spent an extra $500m in pumping extra water to cope with the state’s drought, while the total economic cost to the state’s agricultural industry reached $2.2bn.
For insurers, droughts can be costly. Drought, wildfires and heat waves caused 29 deaths and $385 million in insured losses in the U.S. in 2013, according to Munich Re.
In 2012, drought in various parts of the U.S. caused $15 billion to $17 billion in insured losses, making it the second costliest disaster after Hurricane Sandy.
Wednesday, September 17, 2014
Posted by Claire under Business Risk, Emerging Risks, Technology
The recent disclosure of a major data breach at retailer Home Depot has once again put the spotlight on the increasing vulnerability of businesses to cyber threats and the need for cyber insurance.
But companies are uncertain of how much insurance coverage to acquire and whether their current policies provide them with protection, according to a new report by Guy Carpenter.
It speculates that one of the roots of the uncertainty stems from the difficulty in quantifying potential losses because of the dearth of historical data for actuaries and underwriters to model cyber-related losses.
Furthermore, traditional general liability policies do not always cover cyber risk, Guy Carpenter says.
It notes that in the United States, ISO’s revisions to its general liability policy form consist primarily of a mandatory exclusion of coverage for personal and advertising injury claims arising from the access or disclosure of confidential information.
Though still in its infancy the cyber insurance market potential is vast, Guy Carpenter reports. It cites Marsh statistics estimating that the U.S. cyber insurance market was worth $1 billion in gross written premiums in 2013 and could reach as much as $2 billion this year.
The European market is currently a fraction of that, at approximately $150 million, but could reach as high as EUR900 million by 2018, according to some estimates.
Guy Carpenter also warns that cyber attacks are now top of mind for governments, utilities, individuals, medical and academic institutions and companies of all sizes, noting:
Because of increasing global interconnectedness and explosive use of mobile devices and social media, the risk of cyber attacks and data breaches have increased exponentially.”
Cyber attacks also present a set of aggregations/accumulations of risk that spread beyond the corporation to affiliates, counterparties and supply chains, it adds.
Check out the I.I.I. paper on this topic: Cyber Threats: The Growing Risk.
Monday, August 25, 2014
Posted by Claire under Business Risk, Earthquakes
One day after a magnitude 6.0 earthquake struck the San Francisco/Napa area of California, the Northern California Seismic System (NCSS) says there is a 29 percent probability of a strong and possibly damaging aftershock in the next seven days and a small chance (5 to 10 percent probability) of an earthquake of equal or larger magnitude.
The NCSS, operated by UC Berkeley and USGS, added that approximately 12 to 40 small aftershocks are expected in the same seven-day period and may be felt locally.
As a rule of thumb, a magnitude 6.0 quake may have aftershocks up to 10 to 20 miles away, the NCSS added.
According to Dr. Robert Hartwig, president of the Insurance Information Institute (I.I.I.), this earthquake is the strongest to impact the area since the 1989 Loma Prieta quake which resulted in $1.8 billion in insured claims (in 2013 dollars) being paid to policyholders.
Initial reports suggest the greatest damage has been to historic buildings in the city of Napa, with the downtown area cordoned off to fully assess damage. There have also been reports of non-structural damage such as items falling off shelves, including wine bottles and barrels, and substantial sprinkler leakage to many buildings.
The Napa region is most known for its wine industry, but tourism draws visitors to the area year-round.
A report by catastrophe modelers CoreLogic EQECAT gave an initial estimate of $500 million to $1 billion in insured losses. Residential losses would account for about one half to one quarter of this loss estimate.
If the loss exceeds $1 billion it will be from uncertainty in commercial losses, CoreLogic EQECAT said, and losses to the wine industry could increase this estimate:
Business interruption (BI) losses are a major concern. As this is a very popular tourist area, many businesses – including wineries and restaurants – have sustained damage, both non-structural and structural.”
CoreLogic EQECAT noted that the Napa Valley wine harvest was already underway. Losses would have been less if this event had occurred pre-harvest.
According to the Napa Valley Vintners Association, while there have been reports of damage at some Napa Valley wineries and production and storage facilities, particularly those in the Napa and south Napa areas, vintners are still assessing their individual situations. More information is expected in the next 24 to 72 hours.
Standard homeowners, renters and business insurance policies do not cover damage from earthquakes. Coverage is available either in the form of an endorsement or as a separate policy.
I.I.I. earthquake facts and stats show California had the largest amount of earthquake premiums in 2013, at $1.6 billion, accounting for 61 percent of U.S. earthquake insurance premiums written.
This figure includes the state-run California Earthquake Authority, the largest provider of residential earthquake insurance in California. Only about 10 percent of California residents currently have earthquake coverage, down from about 30 percent in 1996, two years after the Northridge, California, earthquake.
The percentage of homeowners and renters who have earthquake insurance in the affected area is very low – in Napa less than 6 percent, and in Sonoma less than 10 percent, according to the California Earthquake Authority.
Check out key facts from the I.I.I. on the insurance industry’s contribution to the California economy here.
Wednesday, August 6, 2014
Posted by Claire under Business Risk, Specialty Coverage, Technology
Companies large and small appear to have been targeted in what is being described as the largest known data breach to date.
As first reported by The New York Times, a Russian crime ring amassed billions of stolen Internet credentials, including 1.2 billion user name and password combinations and more than 500 million email addresses.
The NYT said it had a security expert not affiliated with Hold Security analyze the database of stolen credentials and confirm its authenticity.
The records, discovered by security experts Hold Security, include confidential material gathered from 420,000 websites, ranging from household names to small Internet sites.
According to Hold Security’s own report, the hackers didn’t just target large companies. They targeted every site that their victims visited:
With hundreds of thousands of sites affected, the list includes many leaders in virtually all industries across the world, as well as a multitude of small or even personal websites.”
The NYT said so far the criminals have not sold many of the records online, but appear to be using it to send spam on social networks.
If ever there was a reason to research – and buy – cyber insurance, this would be it.
In its recently published paper Cyber Risks: The Growing Threat, the Insurance Information Institute (I.I.I.) notes that reliance on traditional insurance policies is not enough, as companies face growing liabilities in this fast-evolving area.
Following the Target data breach and other high profile breaches, the I.I.I. said the number of specialist cyber insurance policies is increasing, and that insurance has a key role to play as companies and individuals look to better manage and reduce their potential financial losses from cyber risks.
It cited data from broker Marsh showing a 21 percent increase in the number of clients purchasing cyber insurance from 2012 to 2013. That growth is accelerating in 2014.
Meanwhile, a new report from PwC US and the Investor Responsibility Research Center Institute (IRRCi) indicates that while companies must disclose significant cyber risks, those disclosures rarely provide differentiated or actionable information.
According to the report’s authors:
The consequences of poor security include lost revenue, compromised intellectual property, increases in costs, impact to customer retention, and can even contribute to C-level executives leaving companies.”
It suggests that investors focus on corporate preparedness for cyber attacks, and then engage with highly-likely targets to better understand corporate preparedness and to demand better and more actionable disclosures (though not at a level that would provide a cyber-attacker a roadmap to make those attacks).
Wednesday, July 23, 2014
Posted by Claire under Business Risk, Terrorism Risk
Global fatalities from acts of terrorism jumped by 30 percent in the last year even as the number of attacks decreased, according to a new interactive mapping platform from risk analytics firm Maplecroft.
Some 18,668 terrorism fatalities were recorded in the 12 months prior to July 1, up 29.3 percent from an annual average of 14,433 for the previous five years.
Over the same period there were some 9,471 global terrorism attacks at an average of 26 a day, down from a five-year average of 10,468. This indicates that terrorist methods have become increasingly deadly over the last year, Maplecroft said.
Nigeria recorded by far the highest number of fatalities per attack, with 146 reported attacks in the last year resulting in 3,477 fatalities – an average of 24 fatalities per attack (compared to 2 fatalities per attack in Iraq).
Iraq recorded the highest number of attacks, with 3,158 acts of terrorism resulting in 5,929 fatalities.
China, Egypt, Kenya and Libya are seeing the most significant increases in the risks of terrorist attacks, the Maplecroft Terrorism and Security Dashboard (MTSD) reveals.
The MTSD classifies 12 countries as ‘extreme risk,’ including: Iraq (most at risk), Afghanistan (2nd), Pakistan (3rd), Somalia (4th), Yemen (6th), Syria (7th), Lebanon (9th) and Libya (10th). Many of these countries are blighted by high levels of instability and weak governance, Maplecroft notes.
However, of particular concern for investors, the important growth economies of Nigeria (5th), the Philippines (8th), Colombia (11th) and Kenya (12th) also feature in the category.
Jordan Perry, a principal political risk analyst at Maplecroft says:
Libya, Kenya and Egypt are among a handful of countries to witness a significant increase in risk in the MTSD and investor confidence in key sectors, including tourism and oil and gas, has been hurt. When faced with rising security costs and decreasing safety for their personnel, companies can, and do, reconsider their country-level commitments.”
The MTSD logs, analyzes and plots all reported incidents of terrorism, piracy, political violence and human rights abuses by security forces down to 100m² worldwide. It also draws on Maplecroft’s seven years of global data to reveal terrorism and security trends across 197 countries.
Maplecroft CEO Alyson Warhurst makes the important point that the dynamic nature of terrorism means individual events are impossible to predict, but the information included in the MTSD can help organizations make informed decisions relating to market entry, security measures for in-country operations, duty of care obligations, supply chain continuity and risk pricing.
Check out I.I.I. facts and stats on terrorism risk.
Friday, July 18, 2014
Posted by Claire under Business Risk, Specialty Coverage, Technology
No industry sector is immune from cyber threats, and a round-up of recent headlines and reports underscores the increasing risk and cost businesses face.
Just this week, U.S. Treasury Secretary Jacob Lew urged financial institutions and firms to redouble their efforts against cyber threats and said information-sharing and collaboration among businesses and with government is key.
Speaking at a conference in New York, Secretary Lew noted that the consequences of cyber incidents are serious and our cyber defenses are not yet where they need to be:
Far too many hedge funds, asset managers, insurance providers, exchanges, financial market utilities, and banks should and could be doing more. In particular, it is imperative that firms collaborate with government agencies and with other firms. Disclosing security breaches is often perceived as something that could harm a firm’s reputation. This has made many businesses reluctant to reveal information about cyber incidents. But this reluctance has to be put aside.”
Secretary Lew noted that some banks are already spending as much as $250 million a year to strengthen their cyber security. (Note: this is a cost borne by businesses).
Meanwhile, a new report from the New York attorney general’s office revealed that the number of reported data security breaches in the state more than tripled between 2006 and 2013, with some 22.8 million personal records of New Yorkers exposed in nearly 5,000 data breaches.
The cost to the public and private sectors in New York? In 2013 alone, upward of $1.37 billion, according to the report’s findings.
The Insurance Information Institute’s (I.I.I.) newly updated report Cyber Risks: The Growing Threat (of which I am a co-author) sheds light on the specialist cyber insurance policies developed by insurers to help businesses and individuals protect themselves from the cyber threat.
Market intelligence suggests that the types of specialized cyber coverage being offered by insurers are expanding rapidly in response to this fast-growing market need.
I.I.I. facts and stats on identity theft and cyber security are available here.
Wednesday, June 25, 2014
Posted by Claire under Business Risk, Disaster Preparedness
Why are some countries more resistant to supply chain disruption or better able to bounce back?
According to Margareta Wahlström, United Nations Special Representative of the Secretary-General (SRSG) for Disaster Risk Reduction, this is a puzzle that world leaders are perpetually trying to solve.
Hence the inherent value in a new online interactive tool from FM Global that ranks countries by supply chain resilience.
The 2014 FM Global Resilience Index ranks the business resilience of 130 countries around the world.
Nine key drivers of supply chain risk are grouped into three categories: economic, risk quality and supply chain factors. These combine to form the composite index. Scores are bound on a scale of 0 to 100, with 0 representing the lowest resilience and 100 the highest resilience.
Jonathan Hall, executive vice president, FM Global, explains:
Natural disasters, political unrest and a lack of global uniformity in safety codes and standards all can have an impact on business continuity, competitiveness and reputation. As supply chains become more global, complex and interdependent, it is essential for decision makers to have concrete facts and intelligence about where their facilities and their suppliers’ facilities are located.”
So which countries rank at the top of the index?
According to FM Global, Norway (score: 100), Switzerland (score: 98.9) and Canada (score: 93.2) are the top three countries most resilient to supply chain disruption.
At the other end of the scale, the index finds Kyrgyzstan (score: 6), Venezuela (score: 2.5) and the Dominican Republic (score: 0) as the countries least resilient to supply chain disruption.
Where did the United States fall?
Because of its geographic spread and disparate exposures to natural hazards, the U.S. is divided into three separate regions. All three rank in the top 25.
You might also be interested to know that China (also divided into three separate regions) ranks in the top 75. China’s weakest region includes Shanghai and ranks particularly low as a result of poor risk quality due to acute natural hazards.
Another key takeaway is the biggest riser: Bosnia and Herzegovina. The country climbed 19 places from last year, due to improvements in its political risk and in the quality of local suppliers.
And one of the top fallers in the 2014 Index is Bangladesh, with FM Global citing declining quality of both natural hazard risk management and fire risk management.
FM Global commissioned analytics and advisory firm Oxford Metrica to develop the rankings. The index allows you to browse country rankings and scores from 2011 to 2014.
Monday, May 5, 2014
Posted by Claire under Business Risk, Technology
U.S. businesses are losing more financially from cybercrime, compared to their global peers, but are generally less aware of the cost, according to PWCâ€™s 2014 Global Economic Crime Survey.
As cybercrime continues to increase in volume, frequency and sophistication, PWCâ€™s findings suggest that U.S. organizations are more at risk of suffering financial losses in excess of $1 million due to cybercrime.
According to the study, some 7 percent of U.S. companies lost $1 million or more, compared to just 3 percent of global organizations.
In addition, 19 percent of U.S. organizations lost $50,000 to $1 million, compared to 8 percent of global respondents.
PWC doesnâ€™t elaborate on the reasons for this discrepancy, but other studies have noted that the types and frequencies of attacks vary from country to country.
U.S. companies are also more likely to experience the most expensive types of cyber attacks, such as malicious insiders, malicious code, and web-based incidents, the research suggests.
Despite having more to lose, some 42 percent of U.S. companies were unaware of cybercrimeâ€™s cost to their organizations, compared to 33 percent of global respondents, according to PWC.
Yet, overall U.S. companies appear to have a greater understanding of the risk of cybercrime than their global peers.
PWC notes that U.S. organizationsâ€™ perception of the risks of cybercrime exceeded the global average by 23 percent.
Also, 71 percent of U.S. respondents indicated their perception of the risks of cybercrime increased over the past 24 months, rising 10 percent since 2011.
Hat tip to CNBC.com which reports on this story here.
Some 5,128 executives from 99 countries responded to the survey, of which 50 percent were senior executives of their respective companies. Some 35 percent represented listed companies and 54 percent represented organizations with more than 1,000 employees.