Understanding the Complexity of Cyber Business Interruption ClaimsBusiness interruption (BI) in the cyber insurance landscape is often seen as particularly challenging, and two primary factors contribute to this perception, according to Ben Hobby, a principal in forensics, litigation, and valuation services at Baker Tilly.Speaking at the 2025 Financial Lines Forum in Zurich, Hobby identified the first issue as the protracted time it takes to resolve and settle claims. The second is the frequent disagreements concerning the size of the claim. Despite the mix of truth and misconceptions, this perception persists and needs addressing.Root Causes and Market UnderstandingTo address these challenges, it’s crucial to understand their origins. Baker Tilly’s extensive experience, having managed over 200,000 cyber BI claims, reveals a significant number of cases where they must directly engage with the policyholder to clarify available coverage.”Building a relationship with the insured is crucial,” Hobby noted. “But having these discussions amid a cyber claim scenario is far from ideal. The reason for this timing issue is controversial: cyber business interruption is not as well understood by the cyber market as it should be.”The Underlying QuestionsThis lack of understanding leads to two questions: why is cyber BI misunderstood, and what can be done? During the ransomware crises of 2020 and 2021, insurers and risk managers focused intensely on cybersecurity controls to mitigate incidents. Underwriters today feel content with the cybersecurity information they receive, but BI data seems insufficient.”Essentially, the information on BI could fit on the back of a small envelope,” Hobby remarked. This isn’t a criticism. The risk management community faces a massive task gathering information from across the business to convey to brokers and insurers, which is time-consuming.The Impact on Underwriting and ClaimsIf underwriters lack comprehensive information to assess risk properly, they must rely on educated guesses for BI exposure. Competitive pressures may lead them to understate exposure to remain price-competitive in a soft market.”When a claim occurs, it’s often the first time an underwriter sees the true BI exposure,” Hobby explained. “This revelation often means higher premiums upon renewal for the insured due to both the claim and newfound exposure insights.”Addressing Market VolatilityHobby highlighted that these issues contribute to market volatility, detrimental to all parties. To address this, equal attention must be given to cyber BI as to cybersecurity controls. The belief that cyber BI is too complex to tackle is understandable, yet it’s essential to confront these difficulties.Traditional BI losses are concentrated, making it easier to assess supply chain impacts. In contrast, cyber incidents can affect multiple locations, complicating the assessment of broader supply chain impacts. However, quantifying cyber BI exposures is challenging but achievable.”Don’t shy away from it,” Hobby advised the cyber market. “Currently, cyber BI isn’t well understood, and the buy-side and sell-side aren’t collaborating effectively. This disconnect manifests during claims.”He urged, “We need better information flow from insured parties to underwriters, improving both underwriting and claims processes. Claims are the true test of this product, and disputes shouldn’t arise during this critical time.”
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