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EMERGING RISKS/HOT TOPICS
RIMS 2015
March 26, 2015
Emerging Risks/Hot Topics
Recently, some of the “new” risks that grabbed headlines were:
Ebola
ISIS
Super Storms
As Managers of Risk, we try to see what risks are emerging so we can be prepared and warn our colleagues.
Our presentation today will identify some of 2015’s New Risks. This will be an interactive discussion and we look forward to your participation.
Your presenters:
Arya Yarpezeshkan – Group Chief Risk Officer at Navigators
Richard White – Senior Vice President at Willis
The World is filled with RISK. EMERGING RISKS are simply the ones that become PROMINENT today
Emerging Risks/Hot Topics | 2
Cyber Risk may not be New – but it is Hot
To help us understand the New Risks in Cyber, the following presenters have joined us:
Stu Kohn – Vice President, Professional Division at Navigators
Robert Barberi – Vice President, Willis FINEX Practice
Cyber Risk has been around for many years, but it continues to evolve and create new challenges
Emerging Risks/Hot Topics | 3
Insurance Solutions to Emerging Cyber Risks
The information presented herein is for informational purposes only and is not intended to be legal, accounting or other professional advice or opinions on specific facts or matters, used for trading or investment purposes or a complete description of certain aspects of the business of Navigators and its operating subsidiaries.
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Insurance Solutions to Emerging Cyber Risks
• INCREASED CAPACITY Limits and Dual Towers
• THIRD PARTY LIABILITY Privacy, Network Security, Media, Regulatory and PCI
• FIRST PARTY EXPENSES Notification/Call Centers, Monitoring/ID Theft Protection,
Crises Management/Public Relations, Forensics/Investigatory, Legal
• CYBER EXTORTION EXPENSE• DATA RESTORATION• BUSINESS INTERRUPTION• PRE-BREACH SERVICES
WHAT IS DIFFERENT TODAY?
Emerging Risks/Hot Topics | 6
In 2014, there were more than 1,868 privacy breaches reported in the US, roughly 5 per day
Preventable breaches continue to decrease, while breaches involving hackers and organized crime continue to increase
Point of sale vulnerabilities
Failing to protect personally identifiable information (PII – employee, customer, vendor) or Personal Health Information (customers or employees)
Reliance on Cloud Vendors (Cloud, IT, HR)
Regulatory changes and heightened regulatory enforcement
SEC Cyber Risk Disclosure for Public Companies
Aggressive enforcement of Payment Card Industry Fines & Penalties
Key coverage issues: cloud breaches, acts of rogue employees, portable device and encryption exclusions, credit monitoring, terrorism, limited 1st party coverage.
Risk Assessment & Benchmarking
| 7Cyber Risk Discussion Prepared for World Duty Free Group | 7
Type of Data
– PII was the most frequently exposed data (41% of breaches), followed closely by PHI (21% of breaches).
Cause of Loss
– Hackers were the most frequent cause of loss (30%), followed by staff mistakes (14%).
– Median number of records lost was 1,000. Average number of records lost was 2.3M.
Business Sector
– Healthcare was the sector most frequently breached (23%).
Breach Costs
– Average records lost: 2.4M / Median records lost: 3,500
– Forensics, legal counsel, notification and credit monitoring represent highest costs to Insureds
– The median cost for forensics, notification, credit monitoring and legal compliance was $366,000
– The average cost of defense was $698,000
– The average cost of a legal settlement was $558,000
2014 Ponemon Study of Per Record Data Breach Expenses :
– Average per record cost: $136
2014 Net Diligence: Key Findings After Analyzing Insurer Claim Payouts
CYBER MARKET ENVIRONMENT
Emerging Risks/Hot Topics | 8
Claims severity has spiked dramatically, especially in the retail sector with breaches at Target, Neiman Marcus, P.F. Changs, Goodwill Industries, Michaels Stores, Living Social, SuperValu , Home Depot and in the managed care sector with the recent Anthem breach.
Consequently, the markets have tightened their underwriting standards, pricing and retention guidelines (including separate class action retentions).
Some underwriters are requiring conference calls with legal and IT prior to issue quotes.
The marketplace is taking a closer look at Access Controls, Data Classification, Encryption, Fraud Prevention, Malware Controls, Vendor Management, Employee Training, Incident Response and Business Continuity Plans as underwriting criteria.
Overall capacity remains strong (around $400M) and over 50 carriers currently write cyber risks. However, overall capacity in the Managed Care E&O sector and Retail sector is more limited.
Other Interesting and Emerging Risks
The information presented herein is for informational purposes only and is not intended to be legal, accounting or other professional advice or opinions on specific facts or matters, used for trading or investment purposes or a complete description of certain aspects of the business of Navigators and its operating subsidiaries.
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Google-ization of the Insurance Industry
Description Internet giants like Amazon and Google may disintermediate personal and small commercial lines and then possibly large commercial lines, employee benefits.-huge customer lists-unparalleled data analytics-proven ability to offer a winning customer experience-massive capital needing deployment -insurance market - highly fragmented and resistant to change.
Timeframe Mid-term: 6m - 2 years
Likelihood High
Impact Significant disruption to the existing insurance model
Risks - May not be able to deliver “personal touch” services. - U.S. market is more difficult to enter.
Opportunities Competitive pricing and selection for insurance buyers
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The Internet of Things
Description The Internet of Things is a term used to describe a world where everyday objects—from parking meters to home heating systems—are connected to the Internet and can be controlled by computers and mobile devices.
Timeframe Near-term: < 6months
Likelihood High
Impact High
Risks Equipment failure or faulty commands could potentially lead to injury, property loss and loss of income. The scope of liability, due to systems failing to properly control an intended device, is still being established.
Opportunities Streamlining operations – both through cost reduction and operational efficiency.
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Medical Marijuana
Description Employers that are trying to grapple with whether—and, if so, how—their employment policies and practices should be modified to take into account the new statutes allowing for medical marijuana use.
Timeframe Near-term: < 6months
Likelihood High
Impact - Employers’ rights versus workers’ rights- Potential for litigation regarding employment policies- Workers’ comp systems may not be able to handle the
issue on a large scale basis
Risks - Workplace safety
Opportunities
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Autonomous Cars
Description A fully autonomous car can be defined as a car which is able to perceive its environment, decide what routeto take to its destination, and drive it.
Timeframe Longer-term: > 2 years
Likelihood High
Impact - Significant changes to travel- Less carbon emissions due to more efficient driving- Legal responsibilities / liability become less clear
Risks - Machine malfunction- Reliance on GPS- Hacker hijacking
Opportunities - Reduced risk of accidents- Reduced insurance rates
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3D Printing
Description. 3D printing or additive manufacturing is a process of making three dimensional solid objects from a digital file.
Timeframe Near-term: < 6months
Likelihood High
Impact High
Risks - The use of mass-market 3D printing technology will create an army of back bedroom manufacturers.
- As new techniques and ink technologies are introduced, latent defects will appear in products that were previously unimaginable and many will not emerge for years, if not decades, after this process has become mainstream.
- Intellectual property will also be an issue.
Opportunities End users will be able to do much of their own manufacturing.
GoogleZilla
It is amazing how little the insurance industry has changed:
Personal Lines and Small Commercial Agencies will most likely be the first targets. But it won’t stop there.
Analysts predict that Google, Amazon, Alibaba, Facebook, LinkedIn, and Twitter will enter the insurance market.
With capital, data, and analytics, Internet giants prepare to devour the insurance industry– Leader’s Edge Magazine
Emerging Risks/Hot Topics | 15
What are the Possibilities?
Med Mal sold on a per-surgery basis
Auto insurance premiums that change depending on where you drive
Product liability premium based on sales by product and region
Given the power of analytics, here are some of the possibilities:
Emerging Risks/Hot Topics | 16
Tech Giants Love to Disrupt Traditional Business
There are reasons to believe that our business with: Retail brokers Wholesale agents MGAs E&S Brokers General agents Direct agents Captive agents
… can be streamlined.
So what can we do?
Get a better handle on Risk Data
Make the Customer Experience as user-friendly as possible
Emerging Risks/Hot Topics | 17
Alternate Dispute Resolution (ADR)
Mediation – Arbitration – Ombudsman
Two NY projects, same Developer, one ADR, and another non-ADR. The non-ADR project had costs about 600% higher than the ADR project
The first two years of Electrical Workers ADR in NY found about 25% reduction in medical and indemnity costs
NY Studies have shown approximately 30% shorter open case duration; and indemnity/medical payments about 40% lower
ADR was authorized by New York State to foster:
Less Adversarial process
Improved delivery of medical benefits
Promotes administrative efficiency
For Construction Risks in New York State, ADR is a major development for Collective Bargaining Agreements
Emerging Risks/Hot Topics | 18
NARAB
What is it?
A nonprofit, private body whose members would be required to be state-licensed insurance producers
What is the benefit?
Members could operate across states without licenses from individual states
Who runs it?
A 13-person board, (eight commissioners/five insurance industry representatives)
Presidentially appointed and Senate-confirmed
What is its Purpose?
Increase efficiency and reduce cost
The National Association of Registered Agents and Brokers
Emerging Risks/Hot Topics | 19
Pandemic Disease
Work Place Risks
Specific to some occupations- Healthcare, Airlines, Humanitarian workers, Funerals and First Responders.
If your employees travel
Have a service that provides travel advisories
What if an employee is infected- EBOLA, Measles, etc.?
Have a written plan
Cleaning personnel should be trained for OSHA blood-borne pathogens standard
Title of Presentation – edit in master | 20