Biba 2026: McLarens warns of cyber-physical BI gaps and data centre exposures

McLarens has warned attendees at this week’s Biba conference (13-14 May 2026) that gaps between traditional property damage and cyber policies are creating emerging business interruption (BI) exposures that could leave clients underinsured.

Louise Butcher, executive director and head of forensic accounting for the Europe, Middle East and Africa (EMEA) region at McLarens, told Insurance Times that the market was increasingly grappling with how cyber events that trigger physical damage should be handled from a coverage perspective.

“The thing that’s probably being talked about the most is cyber and AI risk,” she said.

“Historically, you would have your property damage business interruption cover, which requires just that. And now you’ve obviously got the evolving cyber risks and cyber policies. Property damage typically excludes cyber, while cyber policies historically exclude physical damage.

“So there lies the gap in between those scenarios.”

Butcher explained that these scenarios were exposing uncertainty around where losses should sit.

“If you had, for example, a ransomware attack that caused physical damage and it results in a loss of production, where would that cover fall? That’s really a hot topic at the moment,” she said.

While some insurers are beginning to develop hybrid products to bridge the divide, Butcher noted that these remain limited across the market.

“These are few and far between at the moment, but certainly something that we’ll see more in the future,” she added.

Systemic risks

Alongside cyber concerns, Butcher highlighted growing fears around systemic data centre exposures, warning that outages at hyperscale facilities could trigger widespread contingent BI losses across multiple sectors.

“Currently, limits are low, indemnity periods are short and it’s almost like a potentiall natural catastrophe scenario that we’d see with a hurricane,” she said.

“It’s those sorts of things that we’re starting to see.”

She noted that the risk extended far beyond the operators themselves, with businesses dependent on third-party data centre providers potentially facing major interruption losses following a significant outage.

“If there was, say, an outage at a very large hyper scale data centre, what are the ramifications of that for various different parties who they supply?,” she asked.

Collaboration and understanding

Butcher said the increasing interconnectedness of global supply chains, geopolitical instability and emerging risks were placing additional pressure on brokers arranging BI cover.

“Brokers have really complex, hard, difficult jobs these days due to the complexities and interconnectedness of supply chains,” she said.

She pointed to political violence and disruption in global shipping routes as examples of losses that may not trigger traditional BI coverage despite causing significant operational disruption.

“A boat can’t get down the Strait of Hormuz, delivering your grain or oil or gas or whatever it might be. That will cause an interruption to your business, which may not be covered under your traditional policy,” she said.

According to Butcher, the fallout from Covid-related BI disputes has also sharpened broker focus on stress testing policies against emerging risks and ensuring cover remains fit for purpose.

“We’re now moving on to more emerging risks and why, like wide scale events, which was like Covid, and be it cyber or Covid, the ramifications of that are huge and can be so global.”

Butcher repeatedly stressed that collaboration between brokers, claims teams, adjusters and underwriters was essential to avoid underinsurance and disputes following major losses.

“One thing we see time and time again is just the lack of understanding of how the BI policy works and therefore the broker goes and sets the sum insured, which then can end up being inadequate [in the event of a claim],” she said.

“If your cover is not adequate, it could lead to the business going under. It’s that serious.”

She added that brokers could add greater value by carrying out scenario planning and stress testing exercises with clients before losses occur.

“The scenario planning workshops I think are really beneficial and really looking at the business continuity plans in advance of any claim happening at placement stage,” she said.