With insurers racing to get ahead in the cyber insurance market, brokers have a lot of power to sell policies seemingly at will. But could the current cyber-flurry create risks down the track with E&O claims against agencies?
“New business is a bloodbath out there now,” said Reza Khan, executive vice president of ThinkRisk, a New York-based MGA that’s part of the
Ryan Specialty Group.
“These brokers get five or six new business quotes that are all over the place and there’s no commonality of the forms – it’s a big trap for the brokers. I think a lot of them are going to get E&O claims down the road, especially if there are big breaches.”
New contracts and renewals were happening at hyper speed, Khan said – and it was “impossible” for brokers to do their due diligence and say one form was better, “because they’re all written differently.”
“Their perils are scheduled differently, their exclusions are embedded in the forms differently, some are written in the Queen’s English and some are written more user-friendly … so that’s where the brokers are going to have problems,” Khan said. “They’re not going to have problems with the profitability, they’re going to have problems when they’ve written an account that doesn’t have proper coverage.
“These policies are so inconsistent, unlike auto or some of the more traditional policies … it’s hard to keep track of it if you’re a broker.”
The E&O danger could come down the track after major breaches affect a client, Khan said.
If a client had a data breach that wasn’t covered by a particular policy recommended by a broker over other policies available, after entrusting a broker to find the best policy, that could – in theory – open a broker up to an errors and omissions risk, he said.
“[If] I have an exclusion or a restriction I didn’t really understand and I do some digging and found out that the three other policies that they didn’t recommend, that I [also] got quotes on, would have covered those things – that’s a trap for these brokers.”
Khan has said the
cyber market bubble needs to be corrected through losses to sort itself out. Carriers and underwriters were also acting in “irrational” and “unhealthy” ways as they chased the cyber insurance dollar, he said.
The “acquisition costs are under tremendous pressure,” Khan said.
“Some markets are paying 25% commission to attract business, which is not sustainable. A brokerage commission of 25% – I mean, that’s unheard of.”
Related stories:
Agents selling cyber should revisit their own E&O coverage
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