“Silent” Echoes of 9/11
in Today’s Management
of Cyber-Related Risks

“The cyber landscape to me looks a lot like the counterterrorism landscape did before 9/11.”
Garrett Graff , historian and journalist

Before Sept. 11, 2001, terrorism coverage was included in most commercial property policies as a “silent” peril – not specifically excluded, therefore covered. Afterward, insurers began excluding terrorist acts from policies, and the U.S. government established the Terrorism Risk Insurance Act (TRIA) to stabilize the market.

TRIA requires insurers to make terrorism coverage available to commercial policyholders but doesn’t require policyholders to buy it. Originally created as three-year program allowing the federal government to share losses due to terrorist attacks with insurers, it has been renewed four times: in 200520072015, and 2019.  

An evolving risk

Terrorism risk has evolved in complexity and scope, and some in the national security world have compared U.S. cybersecurity preparedness today to its readiness for terrorist acts two decades ago.

“The cyber landscape to me looks a lot like the counterterrorism landscape did before 9/11,” historian and journalist Garrett Graff said during a recent Homeland Security Committee event at which scholars and former 9/11 Commission members urged lawmakers to increase funding for the Cybersecurity and Infrastructure Security Agency (CISA) and other federal agencies focused on preventing attacks.

Cyber is more complicated, said Amy Zegart, co-director of Stanford University’s Center for International Security and Cooperation, due to the private sector’s role “as both a victim and a threat vector. There are more people in the U.S. protecting our national parks than there are in CISA protecting our critical infrastructure.”  Cyberattacks like the one on the Colonial Pipeline underscore this reality.

When TRIA was reauthorized in 2019, a crucial component was the mandate for the Government Accountability Office (GAO) to make recommendations to Congress on amending the act to address cyberthreats. The trillion-dollar infrastructure bill now being considered in Congress proposes $1.9 billion for cybersecurity, with more than half set aside for state, local, and tribal governments. It would establish a Cyber Response and Recovery Fund for use by CISA.

“Silent cyber”

Like terrorism before 9/11, much cyber risk remains silent. Silent cyber – also called “non-affirmative cyber” – refers to potential losses stemming from policies not designed to cover cyber-related hazards. If silent cyber isn’t addressed, insurer solvency could be affected, ultimately hurting policyholders. 

The United Kingdom’s Prudential Regulation Authority in 2019 sent a letter to all U.K. insurers saying they must have “action plans to reduce the unintended exposure” to non-affirmative cyber. Later that year, Lloyd’s issued a bulletin mandating clarity on all policies as to whether cyber risk is covered. This led many insurers to exclude cyber or include it and price the risk accordingly. 

“Other regulators and the rating agencies have been less vocal about the issue” writes Willis Towers Watson,  “and, until recently, efforts to address silent cyber have been limited.” Some insurers – most notably in the specialty mutual sector – updated their policies in the mid-2010s to provide clarity on cyber. But, until recently, movement elsewhere has been sporadic, Willis writes.

Event-driven action

The recent proliferation of ransomware attacks leading to business interruption has led to cyber insurance – which began as a diversifying, secondary line – becoming a primary insurance-purchasing consideration. Unfortunately, while policies are available, many policyholders still incorrectly expect to be covered under their property and liability policies. Confusion around cyber coverage can lead to unexpected gaps.

“In a best-case scenario, a cyber incident may trigger coverage under multiple policies and increase the available total limit to respond to a covered event,” said Adam Lantrip, CAC Specialty’s cyber practice leader. “In a more common scenario, multiple policies may be triggered but not coordinate with one another, and the policyholder spends more on legal fees than the cost of having purchased standalone cyber insurance in the first place.”

Cyber risk will only grow in significance, complexity, and cost as the world becomes more wired and interdependent. The costs of cyberattacks are potentially massive and need to be mitigated in advance.

From the Triple-I blog

Emerging Cyber Terrorism Threats and the Federal Terrorism Risk Insurance Act

A World Without TRIA:  Formation of a Federal Terrorism Insurance Backstop

Brokers, Policyholders Need Greater Clarity on Cyber Coverage

Cyber Risk Gets Real, Demands New Approaches

Businesses Large and Small Need to Be Cyber Resilient in a COVID-19 World

Victimized Twice? Firms Paying Cyber Ransom Could Face U.S. Penalties

From Risk & Insurance (an affiliate of The Institutes and sister organization to Triple-I)

Silent Cyber Will Sabotage Your Insurance Policy if You Don’t Watch Out. Here’s What Risk Managers Should Keep Top of Mind

After Ida: Stay Safe and Report Damage Quickly

“Stay informed, stay safe, and contact your insurance professional as soon as possible.”

The Insurance Information Institute is working with insurers in the aftermath of Hurricane Ida to monitor property damages and assist consumers as they recover. In this video, Triple-I CEO Sean Kevelighan provides guidance for homeowners to help them ensure a smooth claims experience and avoid being taken advantage of by unethical contractors and other scammers who tend to emerge after disasters.

“Right now, the most important thing those impacted by Ida can do is remain safe and stay out of the way out of recovery workers,” Kevelighan says. “The storm may have passed, but remember that new dangers may be lurking.”

In particular, he points to threats from downed electrical wires and washed-out roads and bridges. Kevelighan also emphasizes the importance of quickly reporting property damage to your insurer.  

Other resources:

Hurricanes: Insurance and recovery resources

After a hurricane, beware of the dangers that remain

When disaster strikes: Preparation, response and recovery

Health safety following a flood

Recovering from a flood

Catastrophe-related fraud

Mitigating Shipping Risk Benefits Everybody

(Photo by Mahmoud Khaled/Getty Images)

By Captain Andrew Kinsey, Senior Marine Risk Consultant at Allianz Global & Corporate Specialty

When an Amazon package arrives at our door, we scarcely give any thought to what it took to get here. It’s likely that your school supplies or article of clothing has traveled a great distance across the ocean by vessel.

International shipping accounts for 90 percent of world trade, and the old saying “there’s many a slip ‘twixt the cup and the lip” is appropriate. Much can go wrong between the point of origin and destination — and lately Marine insurers are keeping a close eye on developments in our climate, the economy, and public health that could influence the odds of a successful delivery.

The annual Safety and Shipping Review produced by Allianz details trends and developments in shipping losses and safety and is a valuable resource for Marine insurers. Here are some of the major highlights.

Losses at sea

First, let’s look at losses of vessels at sea, where the trend is stable. There were 49 total losses of 100 gross tons or more in 2020, compared to 48 a year earlier. Credit better safety measures, regulation, improved ship design and technology, and advances in risk management. Behind the numbers, however, are a host of volatile factors, such as extreme weather, machinery breakdown, fires, and even piracy. Ship operators can improve fire detection and firefighting on large vessels and ensure that machinery has been inspected and is in good working order. Also, weather impacts can be mitigated by improving forecasting and vessel routing.

Another big concern of insurers is shipping containers lost at sea. Last year, more than 1,000 fell overboard in the first few months due to rough weather and heavier loads. A surge in demand for consumer goods is another factor; in response, containers are being stacked aboard at unprecedented heights, leading to concerns that they aren’t being properly secured. In all, more than 3,000 containers were lost at sea in 2020, compared with a longer-term average of 1,382 per year.

Pandemic impact

Next is the global pandemic, which has had little effect on Marine insurance claims to date. It’s quite possible that claims could increase as more vessels are put back in service and we see the effects of delayed maintenance. Another big concern is crews confined to their ships in ports due to public health mandates, which delays crew changes and medical treatment. Crew fatigue leads to human error – a major cause of many losses.

These are factors that warrant immediate action by all stakeholders in the supply chain, including cargo owners. One solution is to designate merchant seaman as vital workers so they can receive vaccines and move about freely.

Bigger ships, bigger problems

Size does matter in global shipping. Remember the ship stuck in the Suez Canal for over three months? The Ever Given incident was a vivid illustration how hard it is to free large vessels. When it takes more equipment and more manpower, someone must pay. Not to mention the societal and economic cost of supply-chain disruption. There’s a real possibility we will see bare shelves and lots of “items unavailable” this holiday shopping season.

So if bigger vessels cause bigger problems, why are there so many of them? It’s all about economies of scale and fuel efficiency, and shipping companies really can’t be blamed for trying to comply with increased environmental regulations and attempting to reduce their operating costs. However, large vessels pose problems for the supply chain, often overwhelming ports when so many containers are dropped off at once.

Vessel size also has a direct correlation to the potential size of loss, and this is an issue that keeps Marine insurers up at night. Too often, cargo is misdeclared or improperly declared, which can result in fires. For example, if self-igniting charcoal, chemicals or batteries are not properly stowed, the risk of ignition escalates dramatically. And if the item is improperly declared in the first place the crew doesn’t know what it’s dealing with in an emergency.

Compounding the problem is inadequate fire detection and firefighting capabilities on large vessels; for this reason, the International Union of Marine Insurers (IUMI) is rallying stakeholders to establish more stringent standards.

At first glance, it appears the risks associated with global shipping are a moving target. But more careful scrutiny reveals patterns and trends that, when carefully analyzed, can lead to improved loss mitigation, thus reducing the “slips” that can occur in transit.

Captain Andrew Kinsey is Senior Marine Risk Consultant at Allianz Global & Corporate Specialty and chairs the technical services committee of the American Institute of Marine Underwriters, which is a Triple-I Associate Member.

Bermuda and Insurance: Small Country,
Mighty Contribution

By John Novaria, Managing Director, Amplify

Bermuda is more than pink beaches and golden sunsets – it’s a major force in the re/insurance industry. The Association of Bermuda Insurers & Reinsurers (ABIR) works to raise the profile of Bermuda’s reinsurers and insurers and represents their public policy interests around the world.

ABIR CEO John Huff recently sat down with Triple-I CEO Sean Kevelighan to discuss the contribution of Bermuda companies to global resiliency. Some of those contributions include:

  • Bermuda insurers and reinsurers paid $2.7 billion in claims from last winter’s storms in Texas.
  • Some Bermuda companies are preparing to step up and help fund new U.S. infrastructure projects through their investment portfolios.
  • According to the Bermuda Monetary Authority, the island nation is home to 1,200 (re)insurers holding more than $980 billion total assets and writing gross premium of approximately $240 billion.

Huff is excited about the role the re/insurance industry is playing in securing a more resilient future for society.

“If you talk to your kids, this may be the first time our work is resonating with the next generation,” he says. “I do think it’s our opportunity to lead in the area of climate, resilience and adaptation.”

In discussing the Bermuda value proposition, Huff noted the concentration of exceptional talent within a square mile of Hamilton’s business district, which has captured the attention of investors who have plowed capital into the jurisdiction to form startup companies. Huff also said many established companies in Bermuda are scaling up by expanding their capabilities to take on more risk through analytics, underwriting and capital allocation.

Indeed, Bermuda is full of surprises. Huff said the general public doen’t realize that Bermuda companies underwrite half of the mortgage insurance sold in the US, creating opportunities for more young families to purchase their first home.

Learn more about ABIR.

2021 P/C Underwriting Profitability May Be Hampered By CAT Losses, Social Inflation,
Triple-I/Milliman Predict

By Loretta Worters, Vice President, Media Relations, Triple-I

Property/casualty insurers are projected to have less-than-stellar underwriting profits in 2021, according to a forecast released today by the Insurance Information Institute (Triple-I) and risk-management firm Milliman.

Sean Kevelighan, Triple-I

The forecast – presented in a members-only webinar, “Triple-I /Milliman Underwriting Projections: A Forward View,” moderated by Triple-I CEO Sean Kevelighan – projects a 2021 combined ratio of 99.6. Combined ratio is the percentage of each premium dollar an insurer spends on claims and expenses.

The industry ended 2020 profitably, with a combined ratio of 98.7.  Combined ratios for 2022 and 2023 are projected to be 98.9 and 99.3, respectively. 

Losses from atypical weather events in the first quarter – particularly, the Texas freeze – got the year off to a rough start, explained Dave Moore of Moore Actuarial Consulting.

Natural catastrophe losses at a decade high

Dave Moore, Moore Actuarial

“Insured losses from natural disasters worldwide hit a 10-year high of $42 billion in the first half of 2021, with the biggest loss related to extreme cold in the United States in February,” Moore said, citing Aon statistics. “Overall, catastrophe loss estimates are in the $15 billion to $20 billion range for the Texas freeze event, and the rest of the year doesn’t look promising for CAT losses overall. Extreme weather this spring brought multi-billion-dollar thunderstorm and hail losses, and the extreme drought in the West has helped fuel another severe wildfire season.”

Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman – an independent risk-management, benefits, and technology firm – said the current hard insurance market will persist, particularly in lines that have been hit hard by social inflation. A hard market is defined as a period of increasing premiums and decreasing insurance capacity.

Jason B. Kurtz, Milliman

Premium growth for the industry is projected to hit 7 percent in 2021. Growth is expected to slow in 2022 and 2023 but will remain above 5 percent both years.

“Lines like commercial auto, commercial multiperil, and general liability will still struggle to get their combined ratios under 100,” he said. “With ransomware attacks on the rise and tightening capacity, cyber bears watching, and homeowners insurers will have another tough year in 2021, but we predict improvement for 2022 and 2023.”

Michel Léonard, PhD, CBE, vice president, senior economist, and head of Triple-I’s Economics and Analytics Department, took a preliminary look at property/casualty industry results for 2021 and trends for the rest of the year. He noted that insurance outperformed the overall economy in 2019 and 2020 but was not likely to do as well in 2021.

Michel Léonard, Triple-I

“Right now, economists seem to be shifting growth from 2022 to 2021. That’s not good for insurance because of our industry’s business cycles. Shifting this growth means we are not expected to outperform the wider economy in 2021– but we are in 2022.  What’s best for our industry is growth increasing, not decreasing, from 2021 to 2022.”

Roy Wright, IBHS

Regarding wildfire season, Roy Wright, president and CEO of the Insurance Institute for Business & Home Safety (IBHS), noted that as the climate changes and the population expands into the wildland urban interface, wildfires are intersecting suburban life. Wildfire losses continue to mount year after year and make clear the need for communities to adapt, he said.

Runaway litigation

Commercial auto insurance has been hit harder by litigation trends than any other line of business, according to David Corum, vice president at the Insurance Research Council (IRC).

David Corum, IRC

“We estimate broadly that social inflation increased commercial auto liability claims by more than $8 billion between 2010 and 2019,” Corum said. “We are also seeing evidence that social inflation is becoming a factor in personal auto claims.” He noted that a soon-to-be-released paper by the Triple-I, Moore Actuarial Consulting, and the Casualty Actuarial Society will address this topic more broadly.

Pat Sullivan, senior editor and conference co-chair at Risk Information Inc., explained that commercial auto insurers spent the last few years trying to price themselves into profitability with little success.

Pat Sullivan, Risk Information

Sullivan noted that COVID-19 wasn’t great for growth:  “Commercial auto direct written premiums rose about one percent in 2020, compared to 12 percent in 2019, 13 percent in 2018, and 9 percent in 2017. Commercial auto’s underlying claims issues haven’t gone away.”

COVID-19 and business interruption

The past 15 months have been extraordinary from a legal perspective on COVID-19 business interruption claims, according to Michael Menapace, partner, Wiggin and Dana LLP and Triple-I Non-Resident Scholar.

Michael Menapace, Wiggin and Dana

“To date, 80 percent of the judicial decisions have dismissed policyholders’ claims without regard to whether the presence of SARS-CoV-2 or the government shutdown orders were the cause of their losses, Menapace said. That dismissal rate goes up to 95 percent when the policies also include a virus exclusion.”

“There have been some outlier business interruption decisions in favor of policyholders and some less favorable jurisdictions for insurers that we are watching,” he said.  “Insurers must also remain vigilant by pushing back against proposals by state legislatures or executive agencies that would change the terms of insurance contracts to provide coverage where none was intended and for which no premium was paid.”

Looking forward, Menapace said the trend of dismissals in the trial courts should continue.

“There has been only one appellate court decision concerning business interruption coverage,” he said. “But, over the next 12-18 months, the focus will start shifting to state and federal appellate courts, which will have the final say on many of these issues.”

Atlantic hurricane season

Dr Phil Klotzbach, research scientist in the Department of Atmospheric Science at Colorado State University and Triple-I Non-Resident Scholar, gave his updated projections for the 2021 hurricane season.

Dr. Phil Klotzbach, Colorado State University

Klotzbach noted that 2021 is expected to have an above-normal Atlantic hurricane season, with 18 named storms, eight of which will become hurricanes. Of those eight, four will likely become major hurricanes (category 3, 4, or 5 with winds of a 111 mph or greater).  That compares with the long-term average of about 14 named storms, seven hurricanes and three major hurricanes.

Piracy Is Still a Risk; Pandemic Hasn’t Helped

August is International Pirate Month – mainly, I suppose, because it’s fun to say “Arrrg-ust” like a Caribbean swashbuckler from the movies.  But many people outside the maritime and insurance industries don’t realize that piracy remains a costly peril in the 21st century – and, like so many other risks, it may have gotten worse during the COVID-19 pandemic.

Global insurer Zurich estimates the annual cost of piracy to the global economy at $12 billion a year and, according to the International Maritime Bureau’s Piracy Reporting Centre (IMB PRC), global piracy and armed robbery numbers increased 20 percent in 2020. IMB PRC’s latest annual report lists 195 actual and attempted attacks in 2020, up from 162 in 2019. It attributes the rise to increasing incidents within the Gulf of Guinea in Africa, as well as increased armed robbery activity in the Singapore Strait.

In its Safety and Shipping Review 2021, global insurer Allianz says, the Gulf of Guinea accounted for over 95 percent of crew members kidnapped worldwide in 2020.

“Last year, 130 crew were kidnapped in 22 separate incidents in the region – the highest ever – and the problem has continued in 2021,” the report says. “Vessels are being targeted further away from the shore – over 200 nautical miles from land in some cases.”

The COVID-19 pandemic may have played a role in this rise in pirate activity, as it is tied to underlying social, political, and economic problems.

The economic effects of the pandemic have been especially devastating in parts of the world where piracy tends to be a problem: job losses, negative growth rates, and increased poverty. According to the International Monetary Fund (IMF), China is the only major economy projected to have a positive growth rate in 2020. The economies of most other countries have shrunk, some by more than 9 percent. Overall, the global economy likely shrank by at least 4 percent in 2020, and the World Bank expects an additional 150 million people have been pushed into poverty.

The economic costs of the pandemic have been particularly challenging for piracy-prone countries, and pre-COVID economic conditions in many of these places almost certainly means slower recoveries. 

“Pirates, criminals, and terrorists exploit poverty and desperation to seek recruits, gain support, and find shelter. To counter these threats, we need to raise awareness and educate people, especially youth, while providing alternative livelihoods and support for local businesses,” said Ghada Waly, Executive Director at the UN Office on Drugs and Crime.

Pandemic’s impact on crews

Crew relief is essential to ensuring the safety and health of seafarers. Fatigued crew members make mistakes, and there are serious concerns for the next generation of seafarers. COVID-19 is affecting training, and the sector may struggle to attract new talent due to working conditions.

Reduced availability of well-trained crews could leave vessels more vulnerable as the global economy and international trade rebounds.

In March, the International Chamber of Shipping warned that lack of access to vaccinations for seafarers is placing shipping in a “legal minefield” and could cause disruption to supply chains from cancelled sailings and port delays.

“Vaccinations could soon become a compulsory requirement for work at sea because of reports that some states are insisting all crew be vaccinated as a precondition of entering their ports,” Allianz writes. “However, over half the global maritime workforce is currently sourced from developing nations, which could take many years to vaccinate. In addition, the vaccination of seafarers by shipping companies could also raise liability and insurance issues, including around mandatory vaccination and privacy issues.”

COVID-19’s confounding implications for international piracy were illustrated last month, when more than 80 percent of a South Korean anti-piracy unit serving a mission off the coast of Somalia were found to have tested positive and were airlifted out. South Korea’s defense ministry has said the unit left the country in February unvaccinated. The government has defended the decision, citing lack of vaccine availability at the time.

Learn More:

Insuring marine businesses and cargo

From the Triple-I Blog:

COVID-19 and shipping risk

Insurance, Evac Plans
Are Key for Wildfire Safety, Resilience

The formation of nine large wildfires this week—three in Washington, two in California and Oregon, and one each in Idaho and Montana—highlight the importance of having an evacuation plan and the right coverage.

“Insurers are fulfilling their traditional role as the nation’s financial first responders as thousands of Americans evacuate in the West,” said Triple-I CEO Sean Kevelighan.  “Wildfires are actively burning millions of acres, and as we are seeing these regions becoming more populated, it will be critical to focus on rebuilding communities in a more resilient manner, as well as make changes to public policies that are hindering the ability to clean and remove tinder which are fueling the devastation.”

Triple-I’s Resilience Accelerator demonstrates the power of insurance as a force for resilience.  It does so by telling the story of how insurance coverage helps governments, businesses, and individuals recover faster and more completely after catastrophes.  The Resilience Accelerator also links to HazardHub, an organization that assesses the wildfire risks individual properties face nationwide.

The National Interagency Fire Center (NIFC) reported yesterday that 1.95 million acres have burned in the U.S. during 2021. California’s Antelope, Dixie, McFarland, and Monument Fires grew by thousands of acres over the past few days, the NIFC added. 

Oregon’s Bootleg fire, which has been burning along the Oregon and California border since July 6, continues to challenge firefighters while new blazes emerge.

“We are running firefighting operations through the day and all through the night,” said Joe Hessel, incident commander. “We are looking at sustained battle for the foreseeable future.”

A standard homeowners insurance policy covers wildfire-caused property damage to a home’s structure and its outbuildings (e.g., garage), as well as the personal belongings housed on the premises.  A renter’s insurance policy covers the renter’s personal belongings. If a residence has been rendered temporarily uninhabitable by a wildfire, standard homeowners and renters insurance policies provide additional living expenses (ALE).

Triple-I offers the following tips to those who live in a wildfire-prone community.

  • Have an evacuation plan
  • Check with your insurer to see if you’re eligible to collect ALE. Some states allow ALE claims to be filed in the event of mandatory evacuations. Be sure to save hotel and restaurant receipts
  • File a claim with your insurer as soon as you are aware of damages to your property
  • Take photos of damage prior to making repairs
  • When making either temporary or permanent repairs, save receipts to give to your insurance claim adjuster
  • Only use licensed contractors to make repairs and beware of contractor fraud
  • Fire-damaged autos are covered under the optional comprehensive coverage on your auto policy

RELATED LINKS:

Article: Wildfires: Insurance and Recovery Resources

Video:  Triple-I Tips During Evacuation Orders

Atlantic Hurricane Season Forecast
Reduced Slightly

Colorado State University (CSU) hurricane researchers have slightly reduced their forecast for 2021 Atlantic hurricane activity in an August 5 update.

The CSU Tropical Meteorology Project team, led by Triple-I non-resident scholar Dr. Phil Klotzbach,  predicts 18 named storms this year (down from 20 in the previous forecast), eight of which are expected to become hurricanes (down from nine). Four of the hurricanes are expected to be “major” (Category 3, 4, or 5).

Despite the slight drop in the number of storms, the 2021 hurricane season – which runs from June 1 to November 30 — is forecast to be above average and follows a record-breaking 2020 season. An average season has 14 named storms, seven hurricanes and three major hurricanes.

Latest research and analysis