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ENR Sections Insurance Today I Mar 28 : Page 1

SPECIAL ADVERTISING SECTION A 2016 Insurance and Surety Look Ahead WHAT’S INSIDE Insurance Today I Industry experts highlight liability policy and performance bond trends and challenges By Vicki Speed Cyber Coverage Conundrum The Overseas Supply Chain Risk Professional Liability and Pollution Converge Multifaceted Workforce Challenge Strategies Beyond the Bond March 28, 2016 | I1

A 2016 Insurance And Surety Look Ahead

Vicki Speed

Industry experts highlight liability policy and performance bond trends and challenges

The Cyber Coverage Conundrum

The insurance and surety market outlooks for 2016 remain positive, with only a few potentially troublesome areas.

“We’re in a buyer’s market for most insurance products,” confirms William S. McIntyre IV, chairman of American Contractors Insurance Group Inc. (ACIG). “Workers’ compensation is one exception where net rates are still rising, particularly for middle and small contractors. Also, auto liability rates have been underpriced for a while, which has resulted in underwriting losses. Look for auto liability rates to increase in 2016. Cyber liability also continues to be a topic of conversation and unease.”

Technology Spotlight

Craig Graham, senior vice president of Alliant Insurance Services, says, “Historically, our contractor clients have not seen cyber risks as something they should cover. Most believe the risk is more associated with credit card theft. The Target case where a hacker breached the credit card network through a mechanical contractor’s system certainly raised some awareness and concerns. However, technology is so integral to the design and construction process that some contractors and insurers have begun to wonder about the associated risk if their documents and models about a secure facility were to be hacked. It’s difficult to qualify and quantify the exposure.”

Lawrence Lejfer, vice president and senior underwriter in XL Catlin’s Construction Professional Liability business, part of XL Catlin’s North America Construction insurance business, agrees, adding, “Contractors are obligated, like any other business, to protect sensitive data and information. It is crucial to recognize these exposures and understand where your organization might be vulnerable.”

Some might think that traditional commercial general liability (CGL) coverage will cover cyber breaches, but that’s often not the case. CGL policies typically cover property damage and bodily injury.

“With a cyber breach, a contractor will likely not realize any tangible property damage or bodily injury from an incident,” explains Lejfer. “More importantly, it is increasingly commonplace for CGL policies to specifically exclude ‘electronic data’ as tangible property.”

For the construction community, cyber risks most often involve liability for direct data theft of customer records, bid data and financial information—and the increased use of technology at the jobsite could be a growing exposure concern.

Robert A. Bregman, CPCU, RPLU, MLIS, a senior research analyst with IRMI, estimates, “Roughly one-third of paid losses today fall under the physical stealing or removing of these handheld devices. There’s so much data on these devices—and they’re very easy to steal.”

Inside Cyber Policies

Today’s cyber liability policies are complex and are almost always written with multiple insuring agreements.

Bregman continues, “I’m a great advocate of these policies. When you buy one, you’re not just getting indemnification of losses, you’re also getting a hands-on expert that helps walk you through the claims process and deal with regulators if necessary. That said, remember, cyber exposure is tricky, and the wording of the insuring agreements varies from insurer to insurer.”

In his Cyber and Privacy Insurance Coverage Risk Report, published in 2015, Bregman outlines the basics of cyber coverage agreements. In it, he notes the three fundamental or “core” cyber and privacy insuring agreements that virtually every cyber and privacy policy contains: 1) information security and privacy liability, 2) privacy notification and crisis management expense, and 3) regulatory defense and penalties.

“Some forms cover only third-party liability, others also offer first-party property coverage, such as business interruption, and each of the insuring agreements is written with a separate limit, deductible and premium,” explains Bregman. “Carefully examine your cyber loss exposures, compare policies, and look for an expert in current and emerging cyber liabilities with expertise in construction to draft the best coverage for your exposures. Remember too, there are numerous insuring agreements from which to choose.”

XL’s Lejfer concludes with a reminder that as case law evolves, so do interpretations of traditional insurance coverage, adding, “It is important to understand exactly how these policies would react to a claim situation.”

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