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Power Grid Cyber Threats Spark Need for Customized Cyber Coverage

Cyber Insurance-SF-2
May 04, 2018

As cyber-security coverage continues to evolve, so does the security threat, a point underscored by the Federal Bureau of Investigation's recent announcement that Russian hackers targeted and penetrated some of the United States' most sensitive infrastructure. In a new briefing, A.M. Best states that there is no way to predict how these threats will manifest over the coming years, and, as a result, there is no way to determine how these adverse impacts might affect premium growth as it relates to rapidly developing cyber-specific products.

The Best's Briefing, "Power Grid Cyber Threats Underscore the Growing Need for Vigilance and Coverage," found that specialty insurance groups in the energy and utility sectors have been exploring avenues to leverage their industry knowledge into areas of profitable but conservative and controlled growth in cyber insurance. Several specialty insurers that A.M. Best rates have teamed up with insurance industry leaders to develop cyber products, providing customized and energy industry-specific cyber-security coverage ranging from $15 million to $50 million.

Specialty insurance covers high-hazard insurance, nonstandard general insurance, niche market segments, bespoke underwriting, and excess and surplus lines insurance. The report states that estimating the size of the specialty insurance market is complicated, as there is no standard definition for specialty insurance, although it has grown in recent years as the market increasingly has expanded globally.

Coverage for cyber exposures often has been included in traditional and liability re/insurance but has not always been clearly defined, and so the level and scope of coverage can be difficult to ascertain. Moreover, there is the potential for much larger-than-expected claims, especially in relation to property damage. For the utility sector, cyber attacks have always been a concern but have become an even greater threat, and, in the United States, a lack of adequate protection against cyber vulnerability can be attributed in part to the complexity of the power-grid system.

In the past, the variability of premium growth in the energy/utility market has been the result of the termination or addition of lines of business by specialty insurers, particularly among single-parent captive insurers—but past performance is not indicative of future performance. Nonetheless, from a credit rating perspective, past and current trends as they pertain to reserves and capitalization continue to factor heavily in A.M. Best's rating assessment of specialty insurers, and A.M. Best emphasizes prospective earnings and capital formation before considering upward rating movement for any insurer.

To access the full copy of this briefing, please visit A.M. Best to create new or use existing login credentials.

Copyright © 2018 A.M. Best Company, Inc. and/or its affiliates ALL RIGHTS RESERVED

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