Lack of Education

The biggest challenge in selling cyber insurance is educating businesses about the need for coverage but agents and insurers may be falling short in their role to deliver education when it comes to cyber coverages.

A new survey of insurance professionals found that among carriers offering cyber insurance, 40 percent say businesses don’t think they need cyber coverage and 29 percent believe they’re already covered under existing policies.

Only 12 percent say the biggest challenge is that premiums are too high.

The survey, conducted by Hanover Research and sponsored by Verisk’s ISO, comes at a time when the cyber insurance market continues to grow. Most insurers surveyed said they are expecting their cyber coverage sales to increase by 5 percent or more next year.

Part of the problem could be that many agents don’t understand the coverage, says Curtis Pearsall, president of Pearsall Associates Inc., a risk management consulting firm specializing agency errors and omissions liability issues.

“Cyber is an issue that I find a lot of agents not talking with customers about,” Pearsall says. “One of the issues is that a lot of agents don’t understand the coverage themselves so they have a hard time explaining it to customers.”

In a report released in April, insurance broker Marsh said demand for cyber insurance rose by 21 percent across all industries in 2013 compared to 2012, and early indications in 2014 were that the buying trend was accelerating.

“Even though data breaches are in the news every week, many companies still don’t recognize that cyber attacks are serious, and that the costs associated with responding to one can be significant and generally not covered under current commercial insurance policies,” said Shawn Dougherty, assistant vice president of Specialty Commercial Lines at ISO. “That’s why insurers and brokers are working hard to educate businesses and make it easy for them to add cyber coverage to their existing insurance portfolio.”

The average cost of a corporate data breach increased 15 percent in the last year to $3.5 million, according to a study by the Ponemon Institute out of Michigan that was released in May. The study also found that the cost incurred for each lost or stolen record containing sensitive and confidential information increased more than 9 percent to a consolidated average of $145.

After its massive breach last year, giant retailer Target said of the $61 million in expenses related to the breach during the fourth quarter, $44 million was covered by insurance.

Could agents and insurers help increase cyber insurance sales by delivering better education? What do you think?

Topics Cyber Agencies Training Development