The current business landscape is marked by an unpredictable talent market due to changing work patterns, worker expectations, and expanding regulations. However, a more pressing concern for business owners is the rising threat of cyber attacks and data breaches. According to Ben Armbrust, a business insurance adviser specializing in the construction and real estate sector at Marsh McLennan Agency (MMA) in Fargo, cyber attacks are at the forefront of most business owners’ minds.
“Phishing emails, a lot of activity around ransomware, and the social engineering space — we see those weekly in our area,” Armbrust said. The good news is that since the COVID-19 pandemic, control requirements have become stricter, leading to a softening in the cyber insurance market and decreases in some areas. Implementing these controls has been costly for businesses but has positively impacted the insurance industry by helping to drop cyber insurance rates slightly.
Armbrust notes that larger, sophisticated companies typically have robust IT departments, making them less vulnerable to cyber attacks. In contrast, smaller businesses are often targeted due to their relative vulnerability. “Everyone’s got the exposure. The question is, how are you going to prevent it? Are you buying an insurance policy to mitigate that risk?” Armbrust asks.
Top Five Threats to Businesses
MMA’s 2024 Business Insurance Trends Survey identified the top five threats to businesses as cyber and data risks, regulatory risk, workforce risk, catastrophic weather risks and property limit capacity, and nuclear verdicts and social inflation. A monoline cyber policy, when correctly written, should include coverage for business interruption, first-party coverage for business loss, third-party coverage for negligence, and breach notification data privacy costs.
Regulatory Risk Areas
Four areas are gaining momentum under regulatory risk: worker classification, Biometric Information Privacy Act (BIPA) laws, climate disclosure, and workers’ compensation presumptions. Worker classification is particularly relevant as companies hiring independent contractors without their own insurance may need to provide coverage.
Recent catastrophic weather events have led to an unprecedented number of property claims, resulting in increased costs for coverage. The cost of reinsurance has also risen due to loss activity, and this cost is being passed down to consumers. Social inflation, characterized by increased litigation, wider definitions of liability, and larger jury awards, is another factor driving up insurers’ claims costs.
Mitigating Risks
To navigate these challenges, businesses are looking for more information to make informed decisions. Armbrust suggests that more competition in the insurance market would benefit both the industry and consumers. As large insurance companies reduce their coverage lines or leave certain states, a gap is created that could be filled by smarter carriers re-evaluating their rates.
Businesses are also exploring alternative risk strategies, different program structures, and deductible structures to offset costs. By taking on more exposure themselves and self-insuring, businesses can reduce premiums and potentially see returns over a five-year period if they have good controls in place.
In conclusion, while the outlook may seem grim with reduced capacity and higher rates, speaking with a trusted adviser and maintaining strong relationships with carriers can help businesses navigate the current insurance marketplace.
