NSA scandal set to spark developments in cyber cover says leading broker

Revelations by whistle-blower Edward Snowden that the NSA has collected a plethora of telecommunication and internet data has caused alarm across the business world. There is concern that secret information from companies' research and development departments has been spied upon, and could fall, or has already fallen, into the hands of competitors. Specialist cyber risks policies only partly cover damage from industrial espionage. "Generally only the actual costs connected with a loss of data are insured," Mr Heitmann explained. Insurers cover business interruption caused by hacking attacks and the costs of IT experts to analyse the extent and the source of the data loss. The costs of entering new data to replace that which is lost, and for public relations efforts to calm outraged clients, are also often covered.hide"What is not covered in most cases are future profits that a company might lose through industrial espionage, because data about an innovative product have been stolen," Mr Heitmann said. This could change as a reaction to the NSA affair, he added. The concept of insuring losses resulting from industrial espionage is not new. Several years ago AIG offered such a cover, but it was withdrawn because of lack of interest from clients. "Such policies could now be taken off the shelf again," Mr Heitmann predicted. Allianz Global Corporate Specialty (AGCS) announced a new cyber risk policy on Wednesday with a limit of €10m for standard contracts and up to €50m for tailor-made contracts. Although industrial espionage is not the main area of coverage, Allianz is prepared to cover such losses in tailor-made agreements. To date cyber risks policies have not proven best sellers. A Marsh survey of 85 UK risk managers in May found only 12% of respondents had taken out a cyber policy. "Here in Germany it is more like 1%," said Mr Heitmann. The range of policies being offered in the German market is relatively limited. Mr Heitmann believes there are eight to ten companies, mostly Anglo-Saxon, with solutions on the table. "But the big German industrial insurers are increasingly showing interest," said Mr Heitmann. However, only AGCS has actually introduced a product. In view of the lack of demand, Mr Heitmann believes insurance companies are still debating whether it is really worth entering this market. He does not believe that the lack of interest from buyers is caused by the products themselves. "It is not because of the price or the capacity," he said. It is just a very young branch of insurance that is still suffering teething problems, he added. "In Germany, the consciousness of the risk has not yet reached a level where the companies start to think about insurance protection regarding cyber risks," said Mr Heitmann. In particular, companies underestimate the costs that could arise from a hack or a loss of data. These can be considerable, in particular when industrial espionage is involved. Existing policies such as fidelity guarantees and liability and electronics insurance do not provide comprehensive protection against hacking attacks, Mr Heitmann explained. In the electronics policies, losses through cyber risks are mostly excluded. Liability insurers only pay if third persons have suffered a loss caused by the insured. For fidelity guarantees to kick in stolen data must have been taken in order to personally enrich the hacker. Some hackers simply want to damage the company without obtaining any benefit for themselves from the cyber attack. "The companies that are prepared to buy a cyber risks policy are mostly those that have already had a big loss," said Mr Heitmann. But for these firms it is more difficult to get cover because of the earlier loss. Companies must look to increase resilience against cyber risk, said Mr Heitmann. "Similar to a fire protection drill, a company should train for the possible event and get a crisis group together," he said. But he warned this is rare amongst business.

NSA scandal set to spark developments in cyber cover says leading broker

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