German risk managers seek dedicated cyber cover as demand continues to rise

Cyber risk has shot up the risk management and wider corporate agenda in Germany and demand for cyber risk insurance appears to be picking up fast, based on a survey of members carried out by German risk and insurance management association GVNW and presented at its conference in Cologne yesterday. Insurers will be pleased to hear that German risk managers appear to prefer standalone coverage rather than trying to add the cover to existing lines. It is felt that the risk is simply too complex and dynamic to be hoisted onto existing property or liability lines. But, despite this generally positive picture for cyber insurers and brokers, almost half of the survey participants also said they are not happy with the sophistication of the cover, level of service and limits on offer. If insurers and brokers really want this line of business to fly then, based on this survey of leading risk managers at least, they really do need to step up their game. The survey took place between 25 January and 14 February. It was carried out on an anonymous basis through an internet service provider. More than 100 risk and insurance managers took part. Holger Tittko of the GVNW staff presented the findings to 300-plus delegates at this year’s annual event in Cologne this week, which focused on cyber and financial lines and was introduced by GVNW president Alexander Mahnke. The majority (63.6%) of participants work for larger companies with gross turnover of more than €1bn. It will have come as no surprise to anyone that cyber risk has shot up the risk and broader business agenda in recent times. Mr Tittko reported that 79.5% of respondents to the GVNW survey ranked cyber risk as high or very high when compared to other risks measured as a threat to business success. Unfortunately, however, while the risk may be ranked very high by risk and insurance managers, that does not mean they are embedded in the cyber risk decision-making process. Only 37% of those who took part in the survey said that they are involved in the decision-making process about IT security. “The subject is too complex. Communication takes place through regular workshops,” stated one GVNW member. “We are not involved. But we are trying to intensively engage,” stated another. “This is a very technical topic and so in the hands of IT,” came the response of a third participant. These comments echo a common theme across Europe. This critical risk is not yet generally being managed on an enterprise-wide basis. Risk managers across Europe often complain that cyber insurance is sold as a standalone policy and not included within existing coverages. Insurers and brokers are often accused of using the fast-rising awareness of the risk at c-suite level as an excuse for creating a line of business to simply create a new revenue stream for them and, naturally, an extra and unwelcome cost for customers. Interestingly, however, when asked by GVNW whether cyber should be sold as a standalone policy or within or as an extension to existing coverage, the majority of respondents (62%) said they would prefer a separate policy. Only 26% said the cover should be included within existing policies and the remaining 12% were not bothered either way. Comments later in the survey about the relative inability of the insurers to deliver proper cyber risk analysis, pricing and customised cover suggests that there is a rising realisation among larger companies in particular that this risk demands a standalone policy because it is so complex and should not be commoditised as a result. This was supported by comments made in response to this question. “Separate policies give the potential for higher flexibility and level of detail,” commented one risk manager. The GVNW members were asked if they were satisfied with the coverage options on offer from cyber insurers currently and the response was mixed. Some 52.3% said they were either very satisfied (1.9%) or satisfied on the whole (50.4%). The other 47.7% were less satisfied, with 44.6% saying they were not so happy and 3.1% saying they were not happy at all with what is on offer currently. Typical comments in response to this question included: “The insurance offer is attractive but the implementation process is more difficult.” Others said the offer was too product-orientated and service-led, the flat rate on offer did not make sense for such a complex risk, the cover was confusing and insufficiently transparent, and the absence of compensation for business interruption and shutdowns within customers is a disappointment. One GVNW member commented that the lack of cover against EU or national penalties was lacking and another pointed to the lack of environmental cover. Despite the apparent interest in standalone cyber cover, only 39.8% of those who took part in the survey currently have a specific cyber policy. Some 18.5% said they had expanded existing policies to deliver the cover and a surprisingly high 41.7% said they are not covered at all. A typical reason for not having any cover included: “We have not expanded existing cover because we are already covered.” Another said: “The risk analysis process is too opaque.” Respondents were pushed to give more detail about why they have not previously considered, and are currently not considering, buying dedicated cyber cover. By far the highest proportion (65.5%) said the reason was that the risk analysis and calculations had not yet been concluded. This suggests that if the GVNW carries out the same survey next year, a far higher proportion of members will have taken out specific cyber cover because the analysis is underway. A typical comment received that supports this prognosis was: “We have not, up till now, intensively analysed the risks and potential coverage that is available.” And there are still clearly some business leaders in Germany who have not taken all the cyber horror stories that are published on a daily basis too seriously and made the connection with their own businesses. “Risk awareness at the decision-making level is not that high,” commented one GVNW member. A full conference report from the GVNW’s Cologne event, including a more detailed analysis of this survey, will be published in the coming April issue of Commercial Risk Europe.

German risk managers seek dedicated cyber cover as demand continues to rise

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