By Archie Whitehead, Tech, Media and Cyber Broker at New Dawn Risk
Network scanning has become a powerful tool for assessing a cyber risk, as it can offer a comprehensive report of a company’s IT environment and highlight key vulnerabilities at the press of a button. Though these scans are highly useful for gathering information, some cyber markets are starting to use them as gospel when evaluating the risk of potential clients. Cyber carriers should be wary of basing their full rationale off network scans, as this method simply cannot account for all the potential exposures a cyber carrier may be vulnerable to while on-risk.
For example, one major blind spot for network scans is that they do not pick up on a company’s Operational Technology (OT) environment. While this may not be of concern for certain industries, OT does account for a significant portion of cyber exposure in many industries (for example, manufacturing). When OT exposures are not accounted for, the accompanying risk will not be priced accordingly. While this may seem like a great result for the policyholder, who receives comprehensive cover at a cheaper cost, the insurer is putting both themselves and the insured in a precarious situation should a claim arise.
Additionally, network scanning does not take into account a policyholder’s governance – whether that be around culture, the use of employee security training, phishing simulations, or any other tools that can be used to boost prospective clients’ cyber hygiene beyond the realm of IT systems. Once again, subsequent pricing will not accurately reflect the risk at hand when these factors are overlooked.
As prior experience has shown, when loss ratios increase for these carriers, there becomes a need to determine what is going wrong and what needs to be changed. The dependency on scans as an underwriting process poses a hard question: have we learned anything from the last market cycle? Will the same occur again, with insurance companies unexpectedly non-renewing accounts, or unjustly increasing premiums even though the insured has not done anything to warrant such an increase?
If the cyber claims environment deteriorates once more in frequency and/or severity, there is concern that these carriers that have gained a large market share by warranting cheap rates through their scan reports will leave a huge gap in the market, potentially leaving clients stuck without a solution. By extension, this can cause anxiety around having to move policies to alternative carriers and essentially leave both insureds and brokers out to dry. Brokers may be held liable and will have to explain to clients that their cyber policy was placed with a carrier that did not account for all potential exposures.
Ultimately, network scans themselves are not the concern, but the use of such as a substitute for traditional risk assessment could become a major issue. These reports should be used in addition to the other underwriting tools within a cyber insurer’s arsenal; the danger comes in thinking they can replace human rationale and insight. Those in the cyber market should brace themselves for when this scanning bubble may eventually burst…
6 March 2023
Several dynamic changes in today’s insurance environment have made risks unpredictable, rendering them difficult to model and tricky to determine accurate return periods. These changes have led to certain lapses in coverage, creating a growing need for innovative solutions. In response, parametric insurance has emerged as an effective risk-mitigating solution that offers certainty and protection for these gaps.
Our latest white paper, Parametric insurance: The scope of solutions for agriculture and natural catastrophe risks, walks through the trends, triggers and unique solutions associated with this non-traditional insurance product.
Aditya Singh, Head of Treaty at New Dawn Risk, commented: “Many global providers prefer parametric insurance, as it does not require them to understand the complexities of the inherent risks vis-à-vis the assets they invest in. This whitepaper discusses the fundamental ability of parametric insurance to cover products ranging from complex agricultural risks to property damage arising out of large natural catastrophe events.
Max Carter, CEO of New Dawn Risk, added: “Ultimately, parametric insurance can provide an affordable solution for large-scale insurance of catastrophic risks in exposed areas, and we expect this to become more widely adopted over the next several years.”
Notes to Editors
Established in 2008, New Dawn Risk is a dynamic, specialist insurance intermediary providing bespoke advisory solutions. We focus on complex, international liability and other specialty insurance and reinsurance. Clients large and small profit from our expertise, creativity and responsiveness – from risk assessment through to claims.
Can you describe what your current role involves?
I am a broker in the Professional Risks team. The team specialises in the placement of insurance for a variety of services, but I focus mainly on the Architects & Engineers space.
What is your favourite insurance fact?
There is an insurance policy designed for comedians called Death by Laughter Insurance. My own premium costs me £500K
What did you do before joining New Dawn Risk?
I joined New Dawn Risk just after graduating from the University of Bristol with a degree in Spanish and Italian.
Tell us one thing about your career we didn’t know:
I spend my weekends running a small business on the side, selling vintage clothing online – which I started in my second year of university.
What are your hobbies outside of work?
Outside of work, I enjoy playing all kinds of sports, particularly football and golf. During lockdown, I tried to learn how to play the piano – this has been a slow process, and my skill level falls somewhere between Twinkle Twinkle Little Star, and The Scientist by Coldplay…
By Aditya Singh, Senior Treaty Broker, New Dawn Risk Group
Agriculture is still the most important sector in many developing economies and is directly affected by climatic shocks, which have the potential to threaten global food security and stability, cripple livelihoods, disrupt value chains, and even undermine macroeconomic stability.
Climate change and the increased prevalence of extreme weather events are causing increasing damage to crops and agricultural land. A study from Stanford researchers found that higher temperatures attributed to climate change caused payouts from the nation’s biggest farm support program to increase by a staggering $27 billion between 1991 and 2017. Costs are likely to rise even further with the growing intensity and frequency of heat waves and other natural catastrophes.
Last year, analysts at KBW warned that crop losses will likely weigh on insurers’ overall underwriting profits for 2021, despite being overshadowed by more high-profile catastrophe losses such as Hurricane Ida and the European floods.
However, there is a way forward that can benefit both farmers and insurers.
The rise of parametrics
The use of parametric structures will be familiar to participants in the insurance-linked securities market, as the mechanisms that trigger catastrophe bonds to make reinsurance pay-outs to carriers when losses from a natural catastrophe (nat cat) event exceed insured limits.
The use of parametric triggers is also finding favour in the insurance market as well, with a growing number of applications for parametric insurance promising to fill the gaps that traditional indemnity products have failed to address.
The need for risk financing solutions in countries with low insurance penetration has long been recognised as a critical area of focus for the industry, particularly for funding recovery efforts following a catastrophe.
To date, efforts have focused on government-backed risk pooling schemes, such as the Caribbean Catastrophe Risk Insurance Facility, which pays out to selected governments in the region following major nat cat loss events such as hurricanes and earthquakes.
However, there is also a growing case for the deployment of parametric insurance coverage in underdeveloped countries to facilitate payments to individual policyholders following loss events. With climate change driving incidents across a range of perils – flood, drought, wildfires, etc – farmers, small business owners, and householders around the world increasingly need workable insurance solutions that pay out quickly following a claim.
The technology now exists to enable real-time reporting of a number of perils, using accurate, reliable and often freely-available data. As such, it has been possible to place parametric insurance coverage across a wide spectrum of risk types, including earthquake, hurricane, drought and flooding.
The parametric triggers for this coverage can be structured using a variety of measurable factors, such as shake density for quake, wind speed for hurricane, water depth and rainfall for flood, and factors such as rainfall (or the lack of) and crop health for certain agricultural risks.
The case for parametric insurance
While regulations vary between countries on how quickly insurers should respond to insurance claims, anecdotal evidence suggests many claims take more than 30 days to be settled. This naturally leads to policyholders becoming frustrated with the process, and speed of claims acknowledgement and settlement is therefore a key factor for insureds when looking to buy any type of insurance.
In the case of traditional indemnity insurance, claims are handled by assessing damages after the fact, which means disputes can arise between the policyholder and carrier over the scope of coverage. In addition, the carrier, in many cases, may end up paying out less than the policyholder was expecting, leading to further disputes, or more than they had reserved for, pushing up the carrier’s loss ratio.
By using predetermined metrics that have been mutually agreed by insurer and insureds, carriers can leverage loss data to immediately verify claims against parametric coverage, quickly adjust them and then pay out a pre-agreed amount without the need for any disputes or further processing.
Speedier capital deployment following a loss event helps individuals and communities recover from natural disasters faster. And the predetermined triggers also give a specific pay-out guarantee, ensuring carriers don’t pay out more than necessary, while giving policyholders a settlement that is in line with their expectations.
The scope of parametric solutions
Parametric solutions also allow for the coverage of risks that have traditionally been excluded from traditional claims processes, but which have a measurable objective parameter – such as demand surge during reconstruction, food spoilage and crop yields.
One real-world example of where parametric insurance could introduce greater efficiency into the claims process, and ultimately deliver solutions in previously under-served markets, is in the Indian agricultural sector – specifically, insuring against fluctuations in crop yields.
India has had a government-sponsored agricultural insurance programme for over thirty-five years, giving pay-outs to small farmers whose crops have failed. The programme has been criticised in the past for both the timeliness of payments and the inefficiency of its administration.
The introduction of a range of new technologies, including a mobile portal for reporting loss data, the use of satellite and drone imaging technologies for remote sensing of crop damage, and analytics based on data from a variety of weather indices, are being used to drive claims automation and, ultimately, make the scheme more profitable and therefore attractive to re/insurers.
With weather-related catastrophes continuing to take a heavy toll on communities across the globe, the use of clearly-defined triggers for insurance coverage can help to deliver more precise, streamlined insurance pay-outs, enabling communities to start rebuilding sooner, and empowering carriers to offer more comprehensive coverage.
This is changing the game for insurance carriers around the world – and is transforming the way they interact with previously under-served markets.
By James Bullock-Webster, Head of Tech, Media and Cyber, New Dawn Risk
In the face of a continuously difficult cyber insurance market, the coming year will see buyers looking for alternative risk transfer solutions, with captives topping the list.
The cyber market has continued to harden throughout 2021. Rates have been increasing substantially, anywhere between 40% and 200%. Meanwhile, carriers are routinely dropping their limits by as much as half and maintaining the same premiums – in effect doubling rates.
Whereas we used to see a lot of single carriers taking a primary limit of $10 million – as recently as 18 months ago – that is now a thing of the past. Today, $5 million is the absolute maximum an insured will get from any single carrier.
Meanwhile, limited capacity is creating significant disadvantages for first time cyber buyers or businesses wanting to move to London, as insurers are reaching their premium income allocation just by their renewal book.
As we kick off the new year, the outlook isn’t looking much brighter. The general consensus in the market is that the hardening is going to be here for two more years. 2022 is just going to get increasingly more difficult.
Although syndicates will have reloaded on January 1, providing an opportunity to write more business, they will probably be reluctant to come out the gate running; if they end up overshooting their allocation, they will have to put their pens down part-way through the year.
In the coming year, we will reach a point where some larger clients no longer see the value in transferring their exposure to the insurance market. They will decide the time has come to self-insure by setting up a new, or extending the use of an existing, captive – a wholly owned subsidiary created to provide insurance.
While setting up a captive has historically been a realistic option solely for large multinationals, due to the significant cost involved and collateral requirements, the increasing availability of cell companies is opening up captive solutions to a wider world. The lower barriers to entry involved with cell captives mean a simplified and more cost-effective alternative.
Companies of all sizes looking for cyber insurance will no longer be at the mercy of fluctuations in appetite and rate and will opt to figure out alternatives themselves.
By Aditya Singh, Senior Treaty Broker, New Dawn Risk
Addressing the insurance protection gap in lower-income countries was a key theme during the COP26 talks, and the announcement of a number of government initiatives to help bridge the gap and tackle climate change risks will further highlight the key role parametric solutions have to play in financing a greener future.
As a result, in the coming year take up of parametric insurance will accelerate, driven by a wider awareness that it is undoubtedly the future of claims and underwriting management, offering faster and more accurate pay-outs and more comprehensive coverage.
Once considered niche, parametric insurance now has the potential to deliver solutions where conventional indemnity products have failed.
With technology now available to enable real-time reporting – using accurate, reliable and often free data – more parametric covers will be placed across a wide spectrum of risk types and sizes, including cyber, health, earthquake, hurricane, drought and flooding.
Coverage can be triggered by a variety of measurable factors, including shake density, wind speed, water depth, rainfall and even crop health, for certain agricultural risks. Flight delays, footfall, and hotel occupancy rates are also being used as indices for parametric coverage.
Speed of claims acknowledgement and settlement is what people are looking for when they buy any type of insurance, and policyholders are often frustrated by lengthy claims processes.
By using predetermined and mutually agreed metrics, carriers can leverage data to immediately verify claims against parametric coverage, adjust them and then pay out a pre-agreed amount without disputes or processing.
Speedy capital deployment helps communities recover from natural disasters faster. And the predetermined triggers also result in a specific pay-out guarantee, ensuring carriers don’t pay out more than necessary, and giving policyholders a settlement in line with expectations.
Parametric solutions also allow for coverage of risks that have traditionally been excluded from claims, but which have a measurable objective parameter – such as demand surge during reconstruction, food spoilage, crop yields or stock market indices.
This is changing the game for carriers globally, and will continue to do so. With weather-related catastrophes continuing to leave communities broken in their wake, parametric insurance will increasingly be used help to streamline pay-outs and get help to those communities faster so they can start rebuilding sooner.
By Leo Tootell, Management Liability and Financial Institutions Broker at New Dawn Risk
Events of recent months have highlighted the fact that the D&O market is an ever-evolving and increasingly challenging space.
Among recent changes in the market was a wave of SPAC-related litigation, which followed a fourfold increase of SPAC IPOs from 2019 to 2020, according to SPAC Analytics.
However, no emerging D&O risk has more potential for litigation than Environmental, Social and Governance (ESG) risks – especially with respect to the social pillar.
The Black Lives Matter movement has focused attention on the diversity of company boards, particularly in relation to Nasdaq’s SEC-approved diversity targets for listed companies, and California’s new law mandating minimum requirements for board-level inclusion of women and under-represented groups.
We have already seen claims arise where requirements have not been met. In a suit filed against Qualcomm (and dismissed last month), the company was accused of a “materially false and misleading” statement in claims made about the diversity of its board. Similar lawsuits were also filed against NortonLifeLock and OPKO Health, which were also ultimately dismissed. While this is undoubtedly frustrating for those alleging a lack of diversity on company boards, in the near future we predict that the tide will turn in plaintiffs’ favour.
Since early 2021, it was expected that diversity could be the next big D&O risk, but recent developments suggest diversity-related suits could be a bigger exposure for companies than originally thought, since it will now be an expected standard for boards.
In the UK, the FCA has launched a new consultation on proposals “to boost disclosure of diversity on listed company boards and executive committees”, which will in effect mandate disclosure and publication of the composition of company boards.
Moving into 2022, if diversity isn’t placed at the top of the board agenda, alongside a commitment to consistency and transparency, then exposure to diversity-related suits could potentially be catastrophic.
By Elizabeth Grima, Senior Executive Manager of New Dawn Risk Europe
The dust from Brexit is at last beginning to settle, and it is now possible to see how this will impact the European insurance market in the long term. At first, following the leave vote, predictions were boldly made that little would change as a result of the UK’s withdrawal from the EU. But in fact this has not entirely been the case, as many London-based insurers have had to significantly reconsider their European business models at the point of Brexit, including whether to continue doing business in some countries at all.
Therefore, jurisdiction and country of domicile has become more and more of a recognised issue for service providers around the world. As a result, a number of intermediaries, whether managing general agents (MGAs) or intermediary facilities, have set up office in the EU to preserve or to grow their business in Europe. The choice of legal jurisdiction for these offices has varied in reason but generally is linked to a calculation based on proximity, relationship, regulatory constraints, fiscal and speed-to-market incentives.
Though this is a natural development, there is an undertow here that is not positive for London’s reputation as a hub. Much has been made of the growth of the MGA model over the last couple of years, and it is generally agreed that this is an area of the market where creativity and new ideas flourish with the innovation of pricing and customer service being particularly successful. It is much to the detriment of the London Market if we begin to see MGAs being established in Europe at the expense of London.
Though the London Market will always be a hub for insurance business, the recent regulatory changes have created a slow but inevitable shift away from the traditional market with more opportunities for innovation taking place in the MGA and delegated authority space. Watch out for this trend bringing increased critical mass to European markets, to the disappointment of London in 2022 and beyond.
By Max Carter, CEO of New Dawn Risk
If there is one thing that parties on all sides can agree, it is that COVID has stretched and challenged every aspect of our healthcare systems. This is the case not just in the crowded emergency and COVID wards, but also in related fields, such as physiotherapy and rehabilitation, where the requirement for face-to-face interaction has been altered beyond belief by a year of remote treatment.
GP surgeries now only treat 60% of their patients face to face and are working through never-before seen challenges in administering new vaccines, catching up on routine appointments and persuading the fearful back into treatment.
Meanwhile in hospitals, consultants are struggling with huge disruptions to their operating lists, from the last-minute withdrawals of patients due to COVID, a shortage of back-office staff to make and manage patient records and appointments and the continued physical barriers to treatment from operating through layers of PPE.
As an insurance broker specialising in medical malpractice cover, I look ahead and see something different – a flood of claims coming towards us. The ability of consultants, physios, midwives, nurses and doctors to deliver consistent and excellent care has been challenged in so many ways. Though the intentions and effort have been heroic, the results have inevitably included delayed procedures and deaths from diseases that might not previously have been fatal.
History tells us that angry grieving families litigate, and this is what I expect to see happen in 2022. While the health service struggles to catch up, failures not of its making will catch it up, leading to a crisis in claims, a rise in premiums, and quite possibly some challenging restrictions in medical malpractice cover.
In 2020 and 2021, health service professionals were national heroes. They remain heroic, but the results of their efforts may bring them real additional challenges in the year ahead.
Can you describe what your current role involves?
I’m a broker on the Technology, Media and Cyber Team. We find insurance solutions for a wide variety of risks spanning across a plethora of territories from the US to Africa. The classes of business we work with are always evolving so we need to be on our toes!
What is your favourite insurance fact?
In the filming of “A Space Odyssey (2001)”, Stanley Kubrick sought a policy in case a real-life alien invasion came before the movie was released. Lloyd’s of London declined.
What did you do before joining New Dawn Risk?
I joined New Dawn Risk a month after graduating from the University of Birmingham with a Bachelor of Science in Economics.
Tell us one thing about your career we didn’t know:
I originally wanted to go into the underwriting side of insurance but luckily found New Dawn and I haven’t looked back since.
What are your hobbies outside of work?
I am a big sport enthusiast; my main playing discipline is the traditional English game of cricket. I’m also an avid supporter of my childhood football club, Yeovil Town FC. Outside of sport, I love cooking up a storm in the kitchen.