Liability market reacts to Mossack Fonseca data breach

The data breach at Mossack Fonseca and subsequent leaking of over 11 million files revealing the tax arrangements of its clients in April - the so-called Panama Papers - has led some to speculate that professional liability insurers could face a wave of insurance claims. Last month, governance firm Adsensa noted that insurers could be on the hook for civil or regulatory actions should they be brought against financial institutions and professional service firms if the data breach exposed illegal tax avoidance. Cyber risk is a hot topic for professional liability and raises a number of coverage questions for insurers and professional services companies, according to Steve Watson, head of professional indemnity in the EMEA region for Zurich Insurance.hideTraditional professional liability policies - which typically do not exclude cyber attacks and data breaches - could potentially respond to data breaches, according to Mr Watson. Professional liability insurance protects professional service companies against negligence claims by third parties, and this can include those associated with a data breach, he explained. However, a firm can only claim from its professional liability policy where it has a legal liability, and where it has been negligent or found to have failed in its duty of care, he said. Although some cyber liability is covered by professional liability insurance, professional services companies need to assess if this cover is adequate, or whether they need some additional cyber insurance. "Professional liability insurance is a third party cover that protects against claims for negligence," said Mr Watson. "But in the digital world cyber risks will be more pervasive and as companies depend more on digital they will see more first party cyber risks, as well as business interruption and reputation that will not be covered by third party cover like professional liability," he said. Law firms are among the biggest buyers of standalone cyber insurance in the UK, according to James Tuplin, cyber portfolio manager at QBE Europe, which is one of the biggest providers of solicitors' professional liability insurance in the country. "Solicitors have been one of the first movers into cyber insurance and are the single largest sector in our cyber portfolio. The reputational exposure, the high duty of care to their clients and the need to be seen as professional have seen this group buy cyber cover earlier than other sectors," he said. Professional services firms and financial institutions in Europe have been slower to buy cyber cover, but with the new data protection rules on the horizon insurers are seeing growing interest, according to Mr Tuplin. In the UK, there has been a sharp increase in fraud against solicitor firms of all sizes, according to Mr Tuplin. These have mostly involved social engineering to dupe individual employees into transferring large sums of client monies to the accounts of criminals, he explained. At the same time, as highlighted by the Mossack Fonseca breach, law firms are seen as potential targets for the theft of client data and intellectual property, as well as targets for extortion. For example, professional services firms have reportedly had market sensitive information, such as on mergers and acquisitions, stolen in cyber attacks. Such cases are, however, rare, said Mr Tuplin. The Panama Papers also highlight the risk that professional service companies, which hold sensitive information on corporates and individuals, could become the target of pressure groups and politically motivated hackers. Many law firms are now buying standalone cyber insurance alongside their professional liability cover, explained Mr Tuplin. Some firms opt to place related liability cover with their professional liability policy and first party costs with a cyber policy, while other clients place all their cyber-related liability with cyber insurers, he said. The perceived increase in cyber exposures under professional liability policies and the recent spate of fraud claims against UK solicitors could result in some action by insurers, although this is more likely to be through pricing than restrictions on coverage. Professional liability insurance is a compulsory cover in most countries for professions like law and accounting, and subject to minimum or standard terms and conditions. This would make it difficult for insurers to exclude cyber-related acts of professional negligence. However, the development of cyber exposures, as covered by professional liability policies, could have an impact on pricing over time, according to Mr Watson. "As cyber is an emerging risk there is a learning curve for insurers. The more we learn about the exposure the better we can price for it, so over time it is likely that we will see some correction in pricing the more we learn," he said.

Liability market reacts to Mossack Fonseca data breach

Want to read this article?

Read Next

Brokers must change mindset and tackle threat of underinsurance as market turns

BIBA hands out key awards at annual conference

BIBA wants time limit on key disclosure requirements

Dutch risk managers urged to embrace uncertainty and work collectively to seek solutions

Uncertain world demands sharp focus on the basics

Brokers must change mindset and tackle threat of underinsurance as market turns

BIBA hands out key awards at annual conference

BIBA wants time limit on key disclosure requirements

Dutch risk managers urged to embrace uncertainty and work collectively to seek solutions

Uncertain world demands sharp focus on the basics

Keep yourself informed

Sign up for Commercial Risk’s newsletters

Want to read this article?

Read Next

Brokers must change mindset and tackle threat of underinsurance as market turns

BIBA hands out key awards at annual conference

BIBA wants time limit on key disclosure requirements

Dutch risk managers urged to embrace uncertainty and work collectively to seek solutions

Uncertain world demands sharp focus on the basics

Related Articles

Keep yourself informed

Sign up for Commercial Risk’s newsletters