Read the first part of this story here.
Emerging products
Insurers that are working to develop effective IoT coverage solutions spend a lot of time trying to imagine the seemingly outlandish loss scenarios that may well be at their doorsteps within a few short years.
For example, Kletzli says, “let’s say an organization decides to embed technology to improve the operation of its delivery trucks. For instance, they could install a speed governor, a camera and Bluetooth to alert the driver if they start to fall asleep, or a device that monitors the operating efficiency of the vehicle. What if the device becomes compromised and sends the information feed back to the main system with a little something extra, a virus that crashes the system? What if instead of crashing the system, it opens a back door into the system to get past the firewalls? What if the camera and Bluetooth feed ends up with embarrassing or personal information being monitored and disclosed?”
At this point, there are still a lot more questions than answers when it comes to IoT insurance concerns – such as who is liable when a device malfunctions because of defects in its software design, or when its network is hacked and the devices are manipulated, and what forms of insurance will respond.
“We want to be thoughtful about what we create, and innovative at same time, since technology is evolving and cyber and data breaches are evolving,” says John Coletti, senior vice president at
XL Catlin. “We are creating new product, but we are going about it very carefully.”
Over the past few years, a few companies have started introducing policies that would indemnify against claims for bodily injury and property damage related to cyber incidents. “And throughout, insureds have also sought to recover cyber losses under traditional liability insurance policies,” says attorney Vince Vitkowsky, a partner at Seiger Gfeller Laurie who represents insurance companies on cybersecurity and cyber insurance issues.
First-party property policies are often silent on whether they respond to cyber related damage, Vitkowsky says, whereas in the third-party context, losses involving bodily injury or physical damage to tangible property will lead to product liability claims.
“Unless the policy is tailored to the unique qualities of IoT devices, coverage questions will arise,” he says. Experts agree that aggregation will be a top area of focus throughout the cyber insurance market over the next couple of years, as insurance companies try to ready themselves for the most devastating events.
“Something will happen – a cyber terrorism attack or some sort of super virus – that impacts a large amount of policyholders,” Coletti says. “Risk modeling seeks to predict what is the maximum potential loss from certain scenarios. It’s tricky because we don’t even know all the potential things out there that could impact the Internet, computers and the Internet of Things.”
How to sell it
It may seem overwhelming, but the Internet of Things is here to stay. “You will have to learn this stuff. It is not a passing fad,” Coletti says. “Educate yourself, and know what you are talking about.” And, he adds, “don’t be afraid to ask underwriters questions. They are very educated, very smart and willing to answer any questions that you have.”
Producers should look for opportunities to cross-sell cyber and IoT coverage to existing books of business, Palotay advises. “A lot of insurance agents don’t understand the market well, and they don’t want to look like they don’t have all the answers,” he says. “But there are lots of interesting insurance opportunities in the sector.”
For example, he says, “business interruption insurance is very applicable to companies that don’t have private information but are controlling a lot of important things. Industrial applications are a very under-penetrated area with very big exposures.”
“I would advise anyone to get familiar with the sector,” Kletzli agrees. “Get comfortable and make sure you are offering it on all accounts. There are very few accounts that aren’t electronically connected somewhere.
