During the last week in September, Universal Health Services Inc., one of the largest hospital chains in the United States, began taking some ambulances out of service because of disruptions caused by a ransomware attack. Universal said no patients were harmed, but systems that support medical records, laboratories and pharmacies were taken offline at approximately 250 facilities.
This incident is part of a disturbing trend of healthcare institutions being targeted by ransomware attacks as the software used by hackers becomes more sophisticated and their attacks broader.
While cyber insurance claims impacted businesses of all types and sizes certain industries, including consumer businesses (retail, hospitality and food), healthcare and financial services were more frequent targets of cyberattacks in the first half of 2020, according to a recent report by Coalition, a provider of cyber insurance.
Overall, ransomware (41 percent), funds transfer loss (27 percent), and business email compromise incidents (19 percent) were the most frequent types of loss—accounting for 87 percent of reported incidents and 84 percent of claims paid in the first half of 2020.
“We’ve seen a sharp increase in ransom demands over the past quarter as threat actors have exploited COVID-19 and changes in company operating procedures. Although the frequency of ransomware claims has decreased by 18 percent from 2019 into the first half of 2020, we’ve observed a dramatic increase in the severity of these attacks,” said the Coalition report.
Since email is the single most targeted point of entry for a hacker, taking a few basic email security measures and implementing an anti-phishing solution would go a long way toward securing your business from criminals.
Coalition reports that, for each claim processed, cyber insurance played a critical role in helping the insured recover operationally. For example, a nonprofit organization providing child and family services grants to other nonprofits was duped into transferring $1.3 million to criminals. Coalition worked with law enforcement and the financial institutions involved to recover the stolen funds.
The Financial Conduct Authority (FCA), which regulates insurers in the United Kingdom, has indicated that it doesn’t believe COVID-19-related losses trigger most business insurance policies because such policies typically require a direct connection between financial loss and physical damage to the insured property.
Think fire, flood, wind, or earthquake damage.
The FCA is now litigating a test case involving policies of eight insurers that don’t require property damage to trigger coverage (Hear a three-minute explainer from the Centers for Better Insurance).
Is this case relevant to U.S. property/casualty insurers? It depends on whom you ask.
The FCA is looking at 17 policy wordings from the eight insurers and asking whether COVID-19 triggers a payout. Based on other policies the regulator has studied, the Financial Times reports, the court’s ruling are “expected to apply to nearly 50 insurers, who sold coverage to 370,000 customers.”
Senior executives from specialist insurance and reinsurance underwriter Hiscox Group warned that the FCA’s eventual findings could drive additional COVID-19 losses to its reinsurance book, Artemis reports.
Tom Baker – an expert in insurance law and policy at the University of Pennsylvania – called the U.K. case a “one-way ratchet” for U.S. insurers.
“If the carriers lose or end up having a lot of coverage, that’s going to be bad for them here” in the United States, Baker said. “I think if the carriers win, the insurance policies [in the U.K.] are really different. They tend to be named-peril, rather than all-risks policies. I think it will be easy to distinguish them.”
Jason Schupp, founder and managing member of Centers for Better Insurance, disagrees that an adverse ruling for U.K. insurers will have much of an effect on their U.S. counterparts.
“In Europe, [FCA] authorization to provide miscellaneous financial loss insurance allows an insurance company to write business interruption insurance that does not require evidence of property damage” to pay a claim, Schupp says. Even though the United Kingdom is no longer part of the European Union, Schupp says, “U.K. law itself recognizes the miscellaneous financial loss class of insurance.”
What does this mean for pandemic business interruption coverage in the United States? Not much, according to Schupp.
“The outcome of the U.K. litigation is unlikely to be relevant to the dozens – or perhaps hundreds – of business interruption lawsuits making their way through U.S. courts, where the property damage question is front and center,” Schupp says.
He goes on to say that proposals coming out of Europe or the U.K. for pandemic insurance going forward – such as a Lloyd’s framework – contemplate non-property-damage business interruption insurance solutions…. These proposals do not appear compatible with the current U.S. insurance regulatory system.”
A ruling by the FCA is expected in mid-September. Last week, the regulatory body said that, while the case doesn’t address how any resulting claims payments would be calculated, “We may intervene and take further actions where firms do not appear to be meeting our expectations and treating their customers fairly.”
The proliferation of electric ride-sharing services throughout the U.S. is fueled by demand for affordable and green transportation options. Vehicles ranging from e-scooters, electric bicycles and mopeds are easily accessible via apps.
But regulators have to balance the popularity of the sharing programs with public safety, as injuries and even a few fatalities have occurred.
Riders also need to be aware of the insurance issues surrounding these programs.
A ride-share company’s insurance policy might not cover a user in the event of an accident. Many companies require users to assume all liability arising out of their vehicle’s use.
That means if you’re driving a one of these vehicles and get in an accident:
You may have to pay out of your own pocket to repair property damage.
You may have to pay your own medical bills if you’re injured. You may also be able to use your health insurance.
If you injure a pedestrian, you could be held liable for their injuries.
If you damage another person’s vehicle or other property, you could be held liable for repairs.
That’s why it’s important to read the company’s user agreement, so you know your responsibility as a rider.
As for your own insurance, whether you’re covered depends on the specifics of your policies. You should speak to your insurer or agent. Expert opinion and wording are critical.
Medical costs to treat injuries sustained while operating an e-scooter or moped are addressed under the injured person’s health insurance. If the person was injured while using the vehicle for work-related purposes, the person could be eligible for workers compensation benefits.
Whether a user’s personal insurance would cover any third-party liability arising out of an accident they caused or contributed to varies by policy.
Homeowners: A standard homeowners policy will typically not cover liabilities arising out of the use of a motor vehicle, usually defined as any self-propelled vehicle. Homeowners policies also exclude any liability arising out of a motor vehicle rented to an insured. Renters insurance also will not cover vehicle-related liability.
Personal auto: The coverage on a personal car insurance policy generally does not extend to a rented electric vehicle. That means if you’re involved in an accident while driving such a vehicle, your car insurance policy will probably not pay for medical bills or property repairs (yours or another person’s). Similarly, if you have an insurance policy for your own moped, it likely will not cover you when you rent one.
Personal liability umbrella: Personal liability umbrella policies (PLUP) offer an extra layer of protection when an insured exhausts the limits of their underlying homeowners or auto policy. Such policies can also provide coverage for perils that are excluded from the underlying insurance policies. For example, unlike an auto policy, a standard PLUP doesn’t usually exclude vehicles with fewer than four wheels and therefore may provide some coverage for electric vehicle liabilities.
The bottom line is: check with your insurer or agent about your coverage.
“Social inflation” refers to rising litigation costs and their impact on insurers’ claim payouts, loss ratios, and, ultimately, how much policyholders pay for coverage. While there’s no universally agreed-upon definition, frequently mentioned aspects of social inflation are growing awards from sympathetic juries and a trend called “litigation funding”, in which investors pay plaintiffs to sue large companies – often insurers – in return for a share in the settlement.
If the idea of social inflation was controversial before the start of the coronavirus pandemic and subsequent economic lockdown, with some calling it a hoax, the subject must now be looked at through the additional lens of COVID-19’s long-term impact on liability questions, plaintiff expectations, and juror attitudes.
A.M. Best said early in the crisis that COVID-19 could produce a big increase in social inflation. The reason: expectations that businesses would sue their insurers in an attempt to access their business interruption coverage for losses relating to the coronavirus pandemic. Such lawsuits have been and continue to be brought.
Hiscox warns about rising Florida risk
Despite reports of rate increases across the property catastrophe reinsurance sector at the mid-year renewals, a Hiscox executive has warned that these improvements could be offset by rising costs of risk in Florida, Reinsurance News reported
After consecutive heavy loss years, some fairly significant loss creep and low interest rates, coupled with the impacts of the COVID-19 pandemic, reinsurance rates reportedly trended in a positive manner at the mid-year renewals, with rises of 20% – 30%, or more in some instances. While reinsurers will welcome rate increases after a prolonged soft market and subsequent pressured returns, the improvements might not be sufficient to account for the increased risk in the region’s market, according to Ross Nottingham, Chair of North America at Hiscox Re and ILS, a division of global insurer and reinsurer Hiscox.
“Why? Because these increases haven’t yet covered our own view of the increased risk in the Florida market, which suggests that the amount of risk going into these programmes is a lot higher than thought last year,” Nottingham said. “That means you might get a 30 percent increase on the programme, but if you’ve measured the risk to the layer and established that it’s potentially worth 40 percent more in premium than it was last year, the margin has in fact decreased.”
Nottingham said the increases being seen in the Florida market in 2020, while positive, are barely covering the additional risk that is out there as evidenced by the substantial levels of adverse loss development on prior year events.
“And what’s continuing to drive loss creep? The villain of the piece is social inflation – a factor not yet captured in the vendor cat models the industry benchmarks for measuring hurricane risk.”
Nottingham says that in Florida social inflation comes from a variety of sources, ranging from assignment of benefits (AOB) litigation to loss adjustment inflation.
AOB abuse has been mitigated somewhat by recent reform legislation. But Nottingham says this reform is expected to have a limited impact on catastrophic claims being litigated and related inflation of a claim once lawyers start to get involved through other avenues.
“Despite insurers’ best efforts to change their original policy forms or to de-risk in the worst performing areas, it is expected that AOB or equivalent abuse will continue after the next big loss event,” says Nottingham. “Two years ago, the market thought the physical attributes of Irma were akin to a one in 10-year event. The loss now – with the advent of social inflation-fueled loss creep – looks more like the cost of a one in 20-year event, but there is no new science to show the expected vulnerability or hazard has changed.”
Another important element impacting reinsurance rates this year is the ongoing COVID-19 pandemic, which, Nottingham says hasn’t been factored into pricing for the months ahead. Forecasters predict an above-average level of hurricane activity in the Atlantic in 2020, which, coupled with the unprecedented impacts of the virus outbreak, presents unique challenges for the industry.
How Court Lockdowns May Turn Social Inflation Tide
COVID-19 may affect some aspects of social inflation in a different manner, Claims Journal reports.
Speaking at a recent Advisen event – Social Inflation: Truth or Fiction – defense attorney Ellen Greiper reported receiving more than the usual number of phone calls from plaintiffs’ attorneys.
“I have had a flurry of phone calls from plaintiffs who are now willing to take that [settlement] amount I had offered before,” said Greiper, a partner with Lewis Brisbois, Brisgaard & Smith. With courts having been closed as part of the general pandemic lockdown and now slowly reopening, “Those plaintiffs are realizing that they are not going to get a trial for at least two years, no matter what status their case may be and whether it’s discovery or past that. So now they are coming out of the woodwork.”
She added that the plaintiffs are “starting to realize that when we all come back and the jurors don’t have jobs or they’ve been furloughed, they’re not getting $10 million on a cervical fusion. They may realize that’s a ridiculous amount of money.”
The world’s 10 largest insurance markets are cumulatively expected to see gross domestic product (GDP) decrease by 4.9 percent in 2020 compared to 2019 because of COVID-19, according to a new Insurance Information Institute (Triple-I) report.
“Given the scope of the downturn so far in China, North America, and Western Europe, the virus’s continuing expansion in the Southern Hemisphere, and the possibility of further rebounds in the former this fall and winter, the likelihood of a V-Shaped recovery is extremely low,” writes Dr. Michel Léonard, Vice President & Senior Economist, Triple-I, in the Global Macro and Insurance Outlook: Q2 2020. “The most likely outcome for the rest of 2020 is a slow recovery, with multiple false starts and step backs, that does not stabilize until well into 2021.”
The coronavirus crisis is taking a toll on the U.S. legal system as courts are restricting access and altering procedures. Dentons, a global law firm, addressed the impact of COVID-19 on ongoing cases in a recent webinar led by Michael Duvall, Partner; David Quam, Counsel; and Kelly Graf, Managing Associate.
Litigators have ongoing responsibilities to their clients to keep up with key deadlines, during the “slowdown.” These responsibilities include keeping them informed of scheduling, continuing to meet filing deadlines, and advocating for the clients’ interests. Judges have significant discretion to keep their cases moving along.
The webinar covered some of the litigation risk facing businesses with “enterprising” plaintiff’s lawyers actively looking for clients. The risks include data breaches arising from remote workers using unsecured home computers to access confidential data; safety and compliance issues related to remote work; exposure to the virus by employees who are not working remotely; event cancellation; claims of false or misleading advertising against companies capitalizing on demand for products like hand sanitizer; and price gouging.
Dentons has put together a 50-state tracker
that it’s maintaining of coronavirus-related orders, directives, financial
assistance, health and business directives, and updates on court and
legislative sessions.
An article in Claims Journal: Anticipated
Coronavirus Claims Scenarios Across Major Coverage Lines discusses
the wide range of insurance lines in which claims could rise, whether as a direct result of the
pandemic or of social, institutional, and governmental reactions to it.
The Financial Times reports on two shareholder lawsuits
relating to coronavirus that have already been launched in the United States,
one against Norwegian Cruise Lines, the other against a pharmaceutical company
called Inovio.
An NBC6
(Miami) report highlights actions that some major
insurers are taking to provide relief to their customers who are facing
financial difficulties due to the coronavirus pandemic. Said Sean Kevelighan,
CEO of Triple-I, “In the insurance community, we refer to ourselves often as
financial first responders and you’re really starting to see that kick in right
now.” Some companies are allowing customers to delay payments without penalties
or initiate a personal payment plan. A few are offering relief in the form of
paybacks to customers.
Other recent articles related to coronavirus from a property and casualty insurance perspective:
Auto
A New York Daily News
article describes the rebates auto Insurers are offering to their customers due
to coronavirus-induced driving lull. Liberty Mutual, American Family and
Allstate are among the companies offering refunds.
A Winknews report
discusses the assistance available to customers during the coronavirus pandemic
and includes an anecdote from a policyholder who was told by his insurer that
he couldn’t get an extension. Triple-I’s Mark Friedlander says this customer’s experience
is not the norm.
Business Interruption
Triple-I CEO Sean Kevelighan was quoted in Washington
Examiner and Santa Rosa, Calif. Press
Democrat articles on business interruption coverage.
Artemis published this
interview with PCS’s Tom Johansmeyer on silent pandemic risk.
The Financial Times reported on the
growing controversy over how much companies can claim from their business
interruption insurance policies related to the coronavirus pandemic.
As local, state and federal agencies scramble to react to
the public health needs of COVID-19, cities and towns must also keep one eye on
the weather forecast and river levels, according to this
Chicago Tribune article.
Workers Compensation
The Minnesota Legislature passed a workers’ compensation
bill Tuesday to cover first responders, health care workers and daycare
workers. The legislation is effective April 8 and is in place until May 1. Minnesota to Ensure Workers Comp to Responders
With COVID-19
Triple-I’s Daily newsletter covered many of the preceding stories this morning. To subscribe to the Triple-I Daily contact daily@iii.org.
