Marsh to deliver German cyber wordings to drive standards

The German cyber insurance market is relatively young and insurance penetration small in comparison to countries such as the US and the UK. Consequently standards have yet to develop and there are noticeable differences between available policies. These differences make it difficult for companies to compare coverages on offer and the price of risk transfer. Therefore Marsh has decided to come up with its own wordings for cyber insurance in order to help buyers with this task. “We want to do away with uncontrolled growth in the market and to decrease complexity,” said Oliver Dobner, member of Marsh Germany’s executive board responsible for middle market business. The aim is to drive standardisation in the market place. “We will ask insurers to calculate their products accordingly, then it will be easier to compare them,” explained Mr Dobner.hideHe said that the cyber cover currently on offer is comprehensive with no significant gaps or the need for major innovation. Mr Dobner believes that the unnecessary complexity of cyber insurance policies in Germany and lack of standardisation is the major reason why a limited number of companies have taken out cover. The German risk managers’ association DVS agrees that a lack of standardisation and transparency in the cyber market is a problem. “We need a benchmark,” said DVS’ cyber expert Holger Tittko. “There should be minimum standards for cyber policies which are to be fulfilled by all products.” He said it remains to be seen if the planned Marsh wording will be fit for use as such a benchmark. Mr Tittko said standard policy conditions presently being developed by the association of German insurers (GDV) might be more promising. It is still unclear when the GDV will publish these standard conditions and a GDV spokesperson declined to give a specific date. “All we can say is that the development of standards is a complex task and that we are standing at the very beginning of it right now,” the spokesperson said. According to Mr Tittko, a lack of standardisation is not the only reason why German companies are reluctant to buy standalone cyber insurance. Many companies are aware that certain cyber risks are covered by existing policies and do not want to pay twice to transfer the same risk. He argues that the majority of buyers would prefer insurers to extend existing policies rather than attempt to wrap emerging cyber risks into a brand new and separate product. As such he is not a big fan of standalone cyber policies. “Cyber risks already covered [by policies such as IT liability and fidelity insurance] are not being sufficiently appreciated by insurers,” he criticised. “There is a lack of supplemental offers.” Mr Tittko said that many German companies are still in the process of assessing their specific cyber risks. As a result it is still too early for many to think about insurance, he argued. In the meantime identified risks are best tackled by IT security measures, he said. “If there are deficiencies in a company’s IT, insurance will not fix that,” he argued. Marsh believes that cyber insurance is not hype, but an answer to risks that cannot be fully controlled by IT measures alone, and never will. “I believe cyber insurance has the potential to reach the same significance for risk managers that fire insurance has today,” Mr Dobner said. Mr Dobner said that in the face of an increasing number of successful cyber attacks reported by the media, German companies’ interest in cyber insurance is on the rise. However, many firms are still unaware of their individual exposures, he said. “The subject is often reduced to hacker attacks and data theft,” he explained. Many companies still do not understand that employees are a major cyber risk and that there are many other exposures besides stolen customer data, Mr Dobner added. Despite this lack of understanding and standardisation of insurance cover, Mr Dobner remains surprised about the reluctance of many customers to take out policies. While insurers keep stressing that sales have increased they do not give concrete figures. In reality the number of sales ‘approach zero’, according to Mr Dobner. He reported one case in which Marsh offered cyber cover to a customer with an insured sum of €3m and a yearly premium just below €10,000. The potential client declined the offer. “It’s difficult to comprehend why he refused,” Mr Dobner said. In terms of demand, it remains to be seen whether Germany’s new IT-security law will result in increased sales of cyber insurance. Mr Dobner is among those who believe it will. “I think the law will cause the risk to be more apparent, because losses will more often become publicly known,” he said. The law is set to increase IT security in industries such as water supply, energy and financial services. Companies in these industries will have to adhere to security standards for hardware and software. They will have to report serious problems to the federal agency for IT-security Bundesamt für Sicherheit in der Informationstechnik (BSI). The agency is expected to use this information to prevent cyber threats from spreading to other companies and industrial sectors. Although the German parliament has already agreed on the law, it is not clear yet exactly which companies will be affected. The government plans to deliver this information via a separate statutory instrument but has not confirmed when.

Marsh to deliver German cyber wordings to drive standards

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