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CORRELATING CYBERSECURITY DETAILS WITH CYBER CLAIMS PROVIDES RISK INSIGHTS

Gallagher Re report details how analysis of external scanning data can help
insurers better predict claims and differentiate among cyber risks.
By: R&I Editorial Team | October 29, 2024
Topics: Cyber | News



Cyber insurers can significantly reduce their loss ratios by identifying cyber
data and company characteristics that are more predictive of claims, according
to a study by Gallagher Re.

The study found that the worst 20% of companies in terms of weak cybersecurity
controls were almost seven times more likely to suffer a claim than the best
20%, underscoring the importance of analyzing data that correlates with these
profiles in the evolving cyber risk landscape.



Since the early 2010s, cybersecurity firms have been developing technographic
data by remotely scanning and assessing companies’ resilience to hacking
attacks, amassing large databases of valuable information in the process.

Cyber insurers also have firmographic data on companies, which is company
information like revenues or number of employees. The challenge is identifying
which data points are most predictive of cyber risk, according to Gallagher Re.

In early 2024, Gallagher Re compared third-party assessments of cyber security
provided by Bitsight with the broker’s insurance claims data to identify risk
factors. One of the key findings is that the number of IP addresses a company
maintains, its so-called cyber footprint, is a strong predictor of claims.

“This is significant, as IP count is not a widely used metric even among cyber
insurers at present,” the report noted. “Despite being a strong indicator for
company attack surface size, it also has surprisingly little correlation to
company revenue, a metric that is commonly used.”



As the cyber threat landscape continues to evolve, the specific cyber risk
features driving claim frequency are also shifting. Factors related to hybrid
working and cloud identity management, such as mobile application security, have
grown in importance. Meanwhile, factors associated with traditional on-premises
security, like port security, have decreased in their predictive power, the
report noted.

Another promising area explored in the study is Single Point of Failure (SPoF)
data provided by Bitsight, which focuses on the dependencies a company has to
third party systems and services, such as cloud services, VPNs and email
security systems.

“SPoF data goes by many names in the world of cybersecurity. Some external
scanning vendors refer to it as ‘footprint data; others call it ‘fourth-party
data’ or ‘threat intelligence data’. Nonetheless, these terms all refer to the
same concept: identifying the external software and services that an
organization is dependent upon,” the report explained.

While still at an earlier stage of development compared to other scanning data,
SPoF data shows potential for proactively identifying companies susceptible to
emerging threats, such as the July 2024 CrowdStrike incident. Cyber risk
modeling firms like CyberCube, RMS, and Guidewire are already incorporating SPoF
data into their models, according to the report.

Gallagher Re’s analysis of six SPoF categories yielded some counterintuitive
results. For example, companies using a certain email security gateway provider
— which scans incoming and outgoing emails for cybersecurity threats — were
found to have an increased likelihood of insurance claims, possibly due to
misconfigurations or failing security controls, the report noted. The report did
not identify the provider.

While rapid advancements in scanning technology are enabling cybersecurity firms
to generate valuable new insights, the cybersecurity industry faces challenges
in fully leveraging this external scanning data. For example, there is a lack of
standardization in how different vendors capture and process data on companies’
SPoF risks, leading to inconsistencies in findings across providers. Some weight
a company’s reliance on an external service differently based on whether it is
on-premises or cloud-based, the report noted.

Despite these challenges, cyber insurance claims data is helping to fill
critical gaps left by the shortcomings in incident reporting.

“In cyber insurance, there is a common misconception that we ‘don’t have enough
data’. On the contrary, cyber is rich in data, but many of these datasets are
complex and will require long-term cross-industry initiatives and dialogue to
fully realize their potential,” the report concluded.

View the full report here. &


The R&I Editorial Team can be reached at mediacontact@theinstitutes.org.





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SPONSORED: AXA XL



MAKING THE CONNECTION: ARE YOU PREPARED FOR RISING PROPERTY AND EQUIPMENT
BREAKDOWN COSTS?

Property’s biggest risk factors can directly impact the price of equipment
repairs. Risk management and loss prevention start when insureds make the
connection with valuations and work with the right partner to mitigate their
potential impact.
By: AXA XL | October 1, 2024

The commercial property insurance market has had its ups and downs in recent
years. The good news is that property rates seem to have stabilized in the
second quarter of 2024, though businesses are still seeing single-digit
increases. It’s a reminder for businesses to keep an eye on their property
exposures, especially when it comes to the large equipment they use to keep
their operations running.

Equipment breakdown can lead to property damage, business interruption, and
additional expenses for repair or replacement. This can increase the overall
cost of property risks, as organizations need to account for the potential
consequences of equipment breakdown when assessing their property risk
management strategies.

Today’s business equipment is more high-tech and specialized than ever before,
making unforeseen breakdowns, malfunctions or damages a substantial risk, should
they occur. Even the most well-maintained piece of equipment can experience
mishaps and cause significant financial loss.

“The changing nature of property risks, especially with high-tech equipment in
distribution centers and electronic sorting equipment, is a significant factor
contributing to an increase in insured property losses,” said Michele Sansone,
CUO property, Americas, AXA XL.

“The equipment breakdown aspect is critical. If specialized machinery is the
only source and there is no backup, it creates significant exposures for the
business,” added Cheryl Geidel, vice president, equipment breakdown, AXA XL.

The value of complex equipment continues to climb alongside the cost of fixing
it, as more expensive replacement parts and specialized diagnostic technicians
contribute to an uptick in pricing. Coupled with the recent strain on property
insurance, this is one risk businesses can’t afford to overlook.

For those operating large machinery and other equipment that requires regular
maintenance, it is imperative to get ahead of potential breakdown and
disruption, and to make sure they have the right risk mitigation tools in place.


TWO KEY FACTORS IMPACTING PROPERTY RATES

Michele Sansone, CUO Property, Americas, AXA XL

The first piece of the equipment protection puzzle is the need to understand
exactly what is affecting property rates and, consequently, pricing.

Verisk’s 2024 Global Modeled Catastrophe Losses reported that the average annual
loss from global natural catastrophes has reached a new high of $151 billion. In
the past five years, the actual annual insured losses from natural catastrophes
averaged $106 billion, compared with less than $83 billion in the preceding
five-year period.

“The pricing in the catastrophe insurance market is highly dependent on the
specific peril being insured. With the increased frequency and severity of
catastrophic events, insurers are seeing a significant uptick in activity in
this segment,” said Sansone.

“As a result, pricing is being adjusted to account for the heightened risk
exposure. The specific rates will vary based on the particular catastrophe being
covered, such as hurricanes, wildfires or floods.”

That can place rates at the mercy of Mother Nature — a challenge that’s led some
insureds to take on their own risk.

“To control pricing, customers are increasingly retaining more risk through
captives or larger deductibles, removing exposure from the market,” Sansone
explained.

Supply chain disruption is another big factor: “Supply chain issues and long
lead times for components and equipment have created challenges, often extending
business interruption periods to 15 to 18 months while waiting for critical
parts to arrive,” Geidel said.

Supply chain delays aren’t the only things causing strife; the rising cost of
materials and labor do as well. These factors continue to impact property
insurance, driving up the frequency and cost of claims and drawing attention to
contingent business interruption risks.

“Insureds often don’t fully understand the origin of their equipment, products
or stock. We view this lack of information as a significant risk — one that must
be addressed,” Sansone said.


ACCURATE VALUATIONS ARE EVERYTHING

Cheryl Geidel, Vice President, Equipment Breakdown, AXA XL

Another element businesses have to understand is that accurate valuation of
property goes a long way in managing the cost of equipment breakdown. Even with
rates showing a slow decline, it’s essential to have accurate values for
property, including equipment value.

“Regardless of whether the rate is two cents or ten cents, the starting point —
the values — must be accurate. There seems to be a misplaced sense of relief in
the industry that as pricing declines, the valuation issue will resolve itself.
However, the fundamental importance of getting the values right remains
unchanged,” Sansone explained.

If a business and its equipment are underinsured due to an incorrect valuation,
the insurance payout may not cover the full cost of repair or replacement.

Further, because of today’s higher rebuilding, repair and replacement costs,
businesses must be particularly wary about their policy limits. A loss could end
up costing significantly more than anticipated, causing insureds to quickly
erode any sublimits in place.

“It’s a challenging discussion, especially as the market softens and the focus
on values diminishes,” said Sansone.

However, this is one area where all insureds can get ahead. Partnering with
insurance professionals will ensure the right questions are being asked and
accurate values are being reported. Risk managers, brokers, the account
executive and producer all have a role to play in helping the insured to
understand their exposures.

Valuating individual equipment can be tricky, noted Geidel, especially as more
technology is incorporated into the machinery being used.

Breakdowns or failures often involve individual pieces of equipment rather than
an entire building. Insurance partners that ask questions, review and compare
values year-over-year on equipment types and rely on risk engineering reports to
better understand the equipment being used are a boon to the underwriting
process.

“Values are the basis of everything an underwriter does, so focusing on values
should be the starting point of the process,” Geidel said.


AN EMPHASIS ON PROTECTING PROPERTY AND EQUIPMENT

Technology is enabling property owners to place a larger emphasis on protection.
The unpredictability of hurricanes, earthquakes, wildfires and other Nat CATs
can’t be controlled, but technology offers some control over their impact.

Advanced weather modeling, wildfire modeling, drone inspections and other
innovations help to predict and assess damages more quickly and accurately than
ever before.

Sansone also said that data-sharing can build resiliency into the market,
putting clients in an even better position should an incident arise.

“There’s an unfortunate perception that data is proprietary and sharing it could
undermine one’s competitive advantage. However,” she said, “this reluctance to
share data can hinder the industry as a whole.”

Collaboration and data-sharing among carriers could open the door for better
risk assessment and improved underwriting practices, in addition to resiliency.

“Transparency is a game changer in risk management. Sharing data can greatly
improve how organizations handle and reduce risks,” said Sansone.


PROPERTY RISK ENGINEERING AT ITS FINEST

Effective risk management makes clients better, which ultimately improves their
overall risk profile. At AXA XL, the team takes this philosophy and brings it
into everything it does. It’s not about a transaction; it’s about maintaining
relationships with customers in order to best protect them.

“When we commit to a piece of business, we aim to maintain that relationship.
Our focus is on risk improvement rather than just transactions so that we may
build lasting partnerships with our clients,” Sansone said.

AXA XL has done this by building a team of more than 400 risk engineers who work
closely with underwriting in order to provide the most accurate and detailed
insights about each client’s needs.

“Our underwriters rely on the data and insights that our property risk engineers
collect on site to price the risk we assume. But we also share the data they
collect with our clients to help them in their loss control efforts as well as
our own,” Geidel said.

“Our approach to underwriting and risk evaluation streamlines the claims process
in several ways. By engaging in bespoke underwriting and thoroughly assessing
each risk, we gain a deep understanding of the potential claims scenarios from
the outset,” Sansone added.

This comprehensive risk evaluation allows AXA XL to anticipate and prepare for
potential claims more effectively. As a result, when a claim does occur, the
team is well-equipped to handle it efficiently, because its process has
established a clear understanding of the underlying risk factors and policy
details.

 To learn more, visit:
https://axaxl.com/insurance/products/machinery-breakdown-insurance.




This article was produced by the R&I Brand Studio, a unit of the advertising
department of Risk & Insurance, in collaboration with AXA XL. The editorial
staff of Risk & Insurance had no role in its preparation.

AXA XL, the property & casualty and specialty risk division of AXA, provides
insurance and risk management products and services for mid-sized companies
through to large multinationals, and reinsurance solutions to insurance
companies globally. We partner with those who move the world forward. To learn
more, visit www.axaxl.com.







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