Allianz: Internal corporate failures drive cyber claims
As part of its research, the company analysed 1,736 cyber insurance claims at a total value of US$770m. Prominent among its findings were the following:
- The most expensive losses come from external cyber attacks. However, the vast majority of annual infractions originate from internal failures.
- From 2015 to 2020 the average cost of cyber crime has increased 72% to $13m.
- Over the same period, there has been a 67% rise in the number of cases.
The growing ubiquity of digital technology within modern business would explain this ascending trajectory of cyber crime.
Allianz has tracked the incremental increase in cyber risk and its implications on insurance: In 2016, 77 claims were made; in 2019, this figure grew over 1,000% to 809; and in 2020, the company states that it has already received 770 claims between Q1 and Q3.
The pandemic’s effect of moving workforces to remote working could also amplify this risk in the short-term. Ensuring companies are secure from the inside should be given high priority, Allianz argues.
“Losses from incidents such as distributed denial of service (DDoS) attacks or phishing and ransomware campaigns account for a significant majority of the value of cyber claims today,” says Catharina Richter, Global Head of the Allianz Cyber Center of Competence.
“But although cyber crime generates the headlines, everyday systems failures, IT outages and human error incidents can also cause problems for companies, even if their financial impact is not, on average, as severe. Employers and employees must work together to raise awareness and increase cyber resilience.”
Lloyds Bank fined by FCA for misleading insurance customers
In many ways a continuation of the Financial Conduct Authority’s (FCA) quest to eliminate ‘price walking’ from insurance, Lloyds Banking Group has been heavily penalised for seemingly misinforming their customers.
Specifically, nine million home insurance policyholders were contacted and encouraged to renew for the chance of getting ‘competitive prices’. Furthermore, approximately 500,000 customers were promised ‘loyalty discounts’. According to the FCA, both claims were unfounded and false.
The £90mn fine leveled at Lloyds is the largest since Standard Chartered Bank was ordered to pay £102mn in 2019 for breaching money laundering regulations.
It remains purely speculative about how volitional this error in communication was. Nevertheless Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, stated the institution would not tolerate any situation with the capacity to harm customers.
“Firms must ensure their communications with customers are clear, fair and not misleading. [Lloyds] failed to ensure that this was the case.”
The bank had largely started to remove phrases like ‘competitive prices’ from its official communications since 2009. However, the FCA found that renewal forms still included such wordings as late as 2017.
Since the renewal prices offered were likely to be higher than those offered to new customers, or even if the policyholder switched provider, Lloyds was in fact deceiving the recipients of these communications.
Battling against insurance price walking
According to reports, 87% of customers offered the aforementioned ‘deals’ renewed. Although the FCA will not be ordering Lloyds to reimburse them, the bank itself has paid out £13.6mn to 350,000 customers by way of compensation.
“We’re sorry that we got this wrong. We’ve written and made payment to those customers affected by the discount issue and they don’t need to take any further action,” said a spokesperson from Lloyds.
“We thank the FCA for bringing this matter to our attention and since then we’ve made significant improvements to our processes and how we communicate with customers.”
As the battle to end insurance price walking continues, companies must be careful to establish a new relationship with their customers.
With instances like California auto insurers overcharging $5.5bn during the pandemic still fresh, the public’s perception of the traditional industry could quickly sour and contribute towards its decline in favour of digital-first competitors.
To recover, incumbent insurers will need to price their policies more fairly, make cover management easier, incorporate tech-based solutions where appropriate, and consider customer loyalty as a prize and not a right