London market issues cyber risk exclusion clauses to tackle silent cover

New model exclusion clauses have been issued by the London market to make it easier for insurers to exclude cyber risks from traditional lines of cover. The clauses are in response to growing concern from insurers over silent or non-affirmative cyber cover in other lines of business. They are also a response to regulatory pressure. Publishing two exclusion clauses, the International Underwriting Association (IUA) said the wordings are needed to remove “uncertainty” over insurance covering unintended cyber risks. It argues they will make things clearer for insurance buyers. The Cyber Loss Absolute Exclusion Clause will allow underwriters to broadly exclude any losses arising from a computer system, network or data. The second Cyber Loss Limited Exclusion Clause will exclude only losses directly caused by cyber events. Chris Jones, IUA director of legal and market services, said: “These two new model clauses provide broad policy exclusions, which may be utilised as a starting or reference point for underwriters offering cover for traditional business classes that may include an element of cyber risk. By developing class-specific writebacks, insurers can then explicitly state the extent of any cover provided for such losses.” UK regulator the Prudential Regulation Authority (PRA) first raised concerns about unintended cover for cyber risks in November 2016. In July 2017, it issued Supervisory Statement SS4/17, setting out its views on silent cyber cover. This considered how traditional insurance policies can respond to cyber losses even where this is not the intention of the insurer. The statement marked a gear-change in regulatory oversight from the PRA, which is now encouraging insurers to clarify where and to what extent cyber cover is provided in insurance policies. The PRA’s supervisory statement called on insurers to identify silent cyber exposures and to accordingly adjust premiums, limits and/or use “robust wordings”. The PRA also called on insurers to produce cyber risk appetite statements and increase their cyber technical expertise. Mr Jones said the insurance industry has been working on tightening wordings to better manage exposure to cyber risks. Several leading global insurers have announced individual plans to do just that. “Silent cyber cover creates uncertainty for both insurers and clients and has been a hot topic in the London company market for some time now. Increasing regulatory scrutiny has, of course, further highlighted the issue, but IUA members have been considering different approaches even before it was first raised by the PRA,” said Mr Jones. “Many traditional policies were designed when cyber wasn’t a major risk and often do not explicitly mention cyber. Some high-profile cyber events and losses have clearly demonstrated, however, how important it is to address,” he added. Speaking to CRE last year when model IUA cyber clauses were in the pipeline, Mr Jones said clarifying silent cyber exposures appeared to be the direction of travel for insurers. Underwriters of traditional lines are increasingly likely to exclude silent cyber exposures, but provide affirmative cover where appropriate, he said. Exclusions should also raise awareness of broader or more specialist cover being made available in the standalone cyber insurance market, such as cover for data breaches and contingent cyber business interruption, said Mr Jones.

London market issues cyber risk exclusion clauses to tackle silent cover

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