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An informative read on cyber insurance exclusion clauses, and the further clarity needed by insurers, for the insured to understand what will be covered by cyber insurance? The challenges with the Lloyds exclusions is identifying the root cause of cyber attacks and what is or is not a nation-state backed attack. That invariably is identified by government agencies, who have the skills and knowledge to attribute threat sources, and one cannot see government agencies wanting to get in to the insurance debate.
What is clear is both the insured and insurers have got themselves into a difficult and challenging debate. Insurers are realizing the significant effect of insuring cyber on profitability and regulatory capital. On the other the insured has relied on insurance as a risk transfer tool to mitigate the effects of cyber attacks, in many cases avoiding the cost of implementing cybersecurity.
Cyber insurers and the insured are heading towards uncertain times. U.S and EU cyber regulation is pending. Regulation that will affect insurers directly (EU DORA and EU NIS 2.0 and U.S SEC proposal, if U.S listed). Cyber regulation maybe a savior for cyber insurers. As we wrote back in 2022 and earlier 2023, cyber regulation shifts cyber compliance ‘Left of Bang’, on to the financial statement of covered entities. Making cyber a regulatory compliance risk that insurers will have to decide how to cover. Cyber regulatory compliance is a complex, costly and resource intensive risk to manage, creating legal risk and liability for boards. Cybersecurity risk management compliance is complex, costly and resource intensive.
One wonders the impact on another insurance category D&O. As an effect of cyber regulation is to require board members of covered entities take accountability and responsibility for cybersecurity risk management compliance of their organizations.
One thing is clear is the alternative of requiring courts to mediate insurance disputes, is to little to late (way right of bang) and so far the results have not been to favorable. Kicking the can down the road won’t change the outcome, regulatory compliance and legal risk might?
Ted Dziekanowski Rachel V. Rose, JD, MBA Stephen Pitt-Walker, JD, FGIA Jamie Foster Celso De Azevedo FCIArb
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