Most businesses are increasingly dependent on IT. So why do insurers keep excluding it, asks Marie-Louise Rossi
Until just a few years ago the term e-risk would have meant little, if anything, to most insurers - now it is one of the main talking points in our industry. At the recent Monte Carlo Rendez-Vous, insurers and reinsurers acknowledged a growing inclination to avoid exposure to untested and unquantifiable risks, with e-risks being among the most difficult to model... and price.
"We now look more at risk than opportunity - we do not look at the opportunity in risk", said Swiss Re managing director and chief executive Walter Kielholz. This is a more common notion than many of us like to think and particularly pertinent to the emerging e-risk sector.
Technology (in particular, the internet) has changed the way we work. Virtually every type of business is now dependent on IT and therefore vulnerable to a potentially disastrous loss of data. In short, the distinction between e-business and conventional business is becoming blurred. But, just at a time when demand for digital risk insurance is increasing, most insurers are limiting or excluding it.
So why are insurers finding it so difficult to take on these new risks? As Insurance Times reported recently, the absence of the kind of data needed to price such a risk means underwriters are unable to understand the full range of exposures or, indeed, to set rates for policy coverages. As a result, finding the right type of policy can be nigh on impossible for the growing number of would-be buyers of digital cover, particularly small and medium-sized businesses.
The IUA set up a digital risk working party early last year in an effort to address this gap of knowledge in the market. So far, the group has hosted a market-wide debate on what actually constitutes an e-risk and more recently it ran a seminar at which speakers from technology, legal and loss-adjusting backgrounds shared their experiences of the risk. The group is now working on compiling a bibliography of resources and tools that will provide underwriters with practical information to help them as they come to terms with this type of risk.
The IUA is not the only association to acknowledge the industry's role in "demystifying" digital risk. Recognising the need to improve e-risk management in private sector companies, the ABI commissioned a study earlier this year into the type of e-commerce risks they face.
Of course, there are a number of insurers offering e-risk management solutions as well. E-commerce covers were launched in the
UK some years ago and several London Market insurers are now offering bespoke solutions to traditional companies stepping into the world of IT.
E-risks provide a clear opportunity for the more bold underwriters to steal ahead of competitors and take advantage of this emerging market. It is important, however, that these risks are properly understood by underwriters and brokers so that good products can be designed and made available at affordable rates, without risking a company's bottom line.
