Insurance industry needs better cyber coverage: Marsh CEO

The insurance industry needs to come up with a better cyber coverage product, and some investment fund managers understand the insurance business much better than they used to, the head of a major commercial brokerage told an audience of insurance professionals Thursday at the CIP Society symposium.

Peter Zaffino, president and chief executive officer of New York City-based Marsh Inc., was the breakfast keynote speaker at the symposium, hosted by the Insurance Institute at the Toronto Board of Trade.

He noted there are different types of cyber insurance, covering losses such as out-of-pocket expenses in the event of a privacy breach, third-party harm and business interruption.

“We have to come up with a cyber product that responds to all the different types of losses in one form,” he said. “Traditional insurance is not as responsive as it needs to be. Is it an extension of property? Is it third party? Is it professional? What else is it?”

Not only can business interruption be “substantial,” he said, but cyber security incidents also create liability risk.

“They expose boards and management for not thinking through, what are the risk mitigation strategies?” he noted. “There is not one fully effective solution to combat cyber. Most corporations are increasing their budgets to enhance data security. Companies are being held increasingly responsible for taking the necessary steps to protect not only their own franchise, their own reputation but looking at these different risk mitigating strategies and coming up with a solution.”

In addition to cyber, Zaffino discussed the increasing use of alternate forms of capital in insurance.

“Capital flows into our business so quickly, and alternative capital understands our business better than ever,” he said. “It’s in the form of hedge funds, private equity and pension funds. The capital moves much quicker today than it has in the past. There is a lot of availability, well beyond what’s in the industry today.”

Zaffino included several statistics in his presentation, including an inflation-adjusted comparison of losses in 2012 versus 1970.

“In 1970, when looking at natural disasters and man-made disasters, the economic impact was $76 billion,” he noted. “Of the economic impact about $4 billion was insured. Fast forward to 2012 where the total economic loss from natural disasters and man-made was about $180 billion. The amount of insurable loss was almost $80 billion.”

Zaffino also suggested to the audience that whenever he comes to Canada, he has no trouble finding people who can talk about hockey.

“Two things I remember about 1967,” he said. “One, I was born. Two, the Maple Leafs won the Stanley Cup.”