RIMS 2015
EMERGING RISKS/
HOT TOPICS
March 26, 2015
Emerging Risks/Hot Topics
The World is filled with RISK. EMERGING RISKS are simply the ones that become
PROMINENT today
Recently, some of the “new” risks that grabbed headlines were:
 Ebola
 ISIS
 Super Storms
As Managers of Risk, we try to see what risks are emerging so we can be
prepared and warn our colleagues.
 Our presentation today will identify some of 2015’s New Risks. This will be an interactive
discussion and we look forward to your participation.
Your presenters:
 Arya Yarpezeshkan – Group Chief Risk Officer at Navigators
 Richard White – Senior Vice President at Willis
Emerging Risks/Hot Topics | 1
Cyber Risk may not be New – but it is Hot
Cyber Risk has been around for many years, but it continues to evolve and create new
challenges
To help us understand the New Risks in Cyber, the following presenters have
joined us:
 Stu Kohn – Vice President, Professional Division at Navigators
 Robert Barberi – Vice President, Willis FINEX Practice
Emerging Risks/Hot Topics | 2
Insurance Solutions to Emerging
Cyber Risks
The information presented herein is for informational purposes only and is not intended to be legal, accounting or other professional
advice or opinions on specific facts or matters, used for trading or investment purposes or a complete description of certain aspects of
the business of Navigators and its operating subsidiaries.
Insurance Solutions to Emerging
Cyber Risks
•INCREASED CAPACITY
 Limits and Dual Towers
•THIRD PARTY LIABILITY
 Privacy, Network Security, Media, Regulatory and PCI
•FIRST PARTY EXPENSES
 Notification/Call Centers, Monitoring/ID Theft Protection,
Crises Management/Public Relations, Forensics/Investigatory,
Legal
•CYBER EXTORTION EXPENSE
•DATA RESTORATION
•BUSINESS INTERRUPTION
•PRE-BREACH SERVICES
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WHAT IS DIFFERENT TODAY?
 In 2014, there were more than 1,868 privacy breaches reported in the US, roughly 5 per
day
 Preventable breaches continue to decrease, while breaches involving hackers and
organized crime continue to increase
 Point of sale vulnerabilities
 Failing to protect personally identifiable information (PII – employee, customer,
vendor) or Personal Health Information (customers or employees)
 Reliance on Cloud Vendors (Cloud, IT, HR)
 Regulatory changes and heightened regulatory enforcement
 SEC Cyber Risk Disclosure for Public Companies
 Aggressive enforcement of Payment Card Industry Fines & Penalties
 Key coverage issues: cloud breaches, acts of rogue employees, portable device and
encryption exclusions, credit monitoring, terrorism, limited 1st party coverage.
Emerging Risks/Hot Topics | 5
Risk Assessment & Benchmarking
2014 Net Diligence: Key Findings After Analyzing Insurer Claim Payouts
 Type of Data
–
PII was the most frequently exposed data (41% of breaches), followed closely by PHI (21% of
breaches).
 Cause of Loss
–
Hackers were the most frequent cause of loss (30%), followed by staff mistakes (14%).
–
Median number of records lost was 1,000. Average number of records lost was 2.3M.
 Business Sector
–
Healthcare was the sector most frequently breached (23%).
 Breach Costs
–
Average records lost: 2.4M / Median records lost: 3,500
–
Forensics, legal counsel, notification and credit monitoring represent highest costs to Insureds
–
The median cost for forensics, notification, credit monitoring and legal compliance was $366,000
–
The average cost of defense was $698,000
–
The average cost of a legal settlement was $558,000
 2014 Ponemon Study of Per Record Data Breach Expenses :
–
Average per record cost: $136
Cyber Risk Discussion Prepared for World Duty Free Group | 6
CYBER MARKET ENVIRONMENT
 Claims severity has spiked dramatically, especially in the retail sector with breaches at
Target, Neiman Marcus, P.F. Changs, Goodwill Industries, Michaels Stores, Living
Social, SuperValu , Home Depot and in the managed care sector with the recent
Anthem breach.
 Consequently, the markets have tightened their underwriting standards, pricing and
retention guidelines (including separate class action retentions).
 Some underwriters are requiring conference calls with legal and IT prior to issue
quotes.
 The marketplace is taking a closer look at Access Controls, Data Classification,
Encryption, Fraud Prevention, Malware Controls, Vendor Management, Employee
Training, Incident Response and Business Continuity Plans as underwriting criteria.
 Overall capacity remains strong (around $400M) and over 50 carriers currently write
cyber risks. However, overall capacity in the Managed Care E&O sector and Retail
sector is more limited.
Emerging Risks/Hot Topics | 7
Other Interesting and
Emerging Risks
The information presented herein is for informational purposes only and is not intended to be legal, accounting or other professional
advice or opinions on specific facts or matters, used for trading or investment purposes or a complete description of certain aspects of
the business of Navigators and its operating subsidiaries.
Google-ization of the Insurance Industry
Description
Internet giants like Amazon and Google may
disintermediate personal and small commercial lines and
then possibly large commercial lines, employee benefits.
- huge customer lists
- unparalleled data analytics
- proven ability to offer a winning customer experience
- massive capital needing deployment
- insurance market - highly fragmented and resistant to
change.
Timeframe
Mid-term: 6m - 2 years
Likelihood
High
Impact
Significant disruption to the existing insurance model
Risks
- May not be able to deliver “personal touch” services.
- U.S. market is more difficult to enter.
Opportunities
Competitive pricing and selection for insurance buyers
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The Internet of Things
Description
The Internet of Things is a term used to describe a world
where everyday objects—from parking meters to home
heating systems—are connected to the Internet and can be
controlled by computers and mobile devices.
Timeframe
Near-term: < 6months
Likelihood
High
Impact
High
Risks
Equipment failure or faulty commands could potentially
lead to injury, property loss and loss of income. The scope
of liability, due to systems failing to properly control an
intended device, is still being established.
Opportunities
Streamlining operations – both through cost reduction and
operational efficiency.
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Medical Marijuana
Description
Employers that are trying to grapple with whether—and, if
so, how—their employment policies and practices should be
modified to take into account the new statutes allowing for
medical marijuana use.
Timeframe
Near-term: < 6months
Likelihood
High
Impact
- Employers’ rights versus workers’ rights
- Potential for litigation regarding employment policies
- Workers’ comp systems may not be able to handle the
issue on a large scale basis
Risks
- Workplace safety
Opportunities
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Autonomous Cars
Description
A fully autonomous car can be defined as a car which is able
to perceive its environment, decide what route
to take to its destination, and drive it.
Timeframe
Longer-term: > 2 years
Likelihood
High
Impact
- Significant changes to travel
- Less carbon emissions due to more efficient driving
- Legal responsibilities / liability become less clear
Risks
- Machine malfunction
- Reliance on GPS
- Hacker hijacking
Opportunities
- Reduced risk of accidents
- Reduced insurance rates
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3D Printing
Description.
3D printing or additive manufacturing is a process of
making three dimensional solid objects from a digital file.
Timeframe
Near-term: < 6months
Likelihood
High
Impact
High
Risks
- The use of mass-market 3D printing technology will
create an army of back bedroom manufacturers.
- As new techniques and ink technologies are introduced,
latent defects will appear in products that were
previously unimaginable and many will not emerge for
years, if not decades, after this process has become
mainstream.
- Intellectual property will also be an issue.
Opportunities
End users will be able to do much of their own
manufacturing.
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GoogleZilla
With capital, data, and analytics, Internet giants prepare to devour the insurance industry
– Leader’s Edge Magazine
It is amazing how little the insurance industry has changed:
 Personal Lines and Small Commercial Agencies will most likely be the first targets. But it won’t
stop there.
 Analysts predict that Google, Amazon, Alibaba, Facebook, LinkedIn, and Twitter will enter the
insurance market.
Emerging Risks/Hot Topics | 14
What are the Possibilities?
Given the power of analytics, here are some of the possibilities:
 Med Mal sold on a per-surgery basis
 Auto insurance premiums that change depending on where you drive
 Product liability premium based on sales by product and region
Emerging Risks/Hot Topics | 15
Tech Giants Love to Disrupt Traditional Business
 There are reasons to believe that our business with:
 Retail brokers
 Wholesale agents
 MGAs
 E&S Brokers
 General agents
 Direct agents
 Captive agents
 … can be streamlined.
So what can we do?
 Get a better handle on Risk Data
 Make the Customer Experience as user-friendly as possible
Emerging Risks/Hot Topics | 16
Alternate Dispute Resolution (ADR)
For Construction Risks in New York State, ADR is a major development for Collective
Bargaining Agreements
Mediation – Arbitration – Ombudsman
 Two NY projects, same Developer, one ADR, and another non-ADR. The non-ADR project had
costs about 600% higher than the ADR project
 The first two years of Electrical Workers ADR in NY found about 25% reduction in medical and
indemnity costs
 NY Studies have shown approximately 30% shorter open case duration; and indemnity/medical
payments about 40% lower
ADR was authorized by New York State to foster:
 Less Adversarial process
 Improved delivery of medical benefits
 Promotes administrative efficiency
Emerging Risks/Hot Topics | 17
NARAB
The National Association of Registered Agents and Brokers
What is it?
 A nonprofit, private body whose members would be required to be state-licensed insurance
producers
What is the benefit?
 Members could operate across states without licenses from individual states
Who runs it?
 A 13-person board, (eight commissioners/five insurance industry representatives)
 Presidentially appointed and Senate-confirmed
What is its Purpose?
 Increase efficiency and reduce cost
Emerging Risks/Hot Topics | 18
Pandemic Disease
Work Place Risks
 Specific to some occupations- Healthcare, Airlines, Humanitarian workers, Funerals and First
Responders.
If your employees travel
 Have a service that provides travel advisories
What if an employee is infected- EBOLA, Measles, etc.?
 Have a written plan
 Cleaning personnel should be trained for OSHA blood-borne pathogens standard
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