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For a clue to how litigation is impacting commercial lines of insurance, consider these numbers:

•    One-third of verdicts in cyber litigation cases against individuals reach awards of $1 million or more.
•    The largest settlement reached in such a case was $28.2 million.
•    Many insurers charge only $20 for endorsements that ultimately must cover this litigation.

“When you sold the endorsement for $20, did you expect those kinds of losses,” Charlie Kingdollar, vice president and emerging issues officer at Gen Re, asked delegates the Privacy XChange Forum. “Historically there was no need for [cyber liability insurance]. Now, it seems there is a need.”

Indeed, the insurance industry is waking up to the large pool of risk that has not been sufficiently underwritten, Kingdollar argued in his presentation “Privacy Under Siege: Emerging Issues and Trends.” Carriers often don’t understand the scope of the risk or the volume of the incidents that could place them at risk.

The challenge carriers face is to identify emerging risks at a time when so many new forms of behavior are emerging. The list is long, particularly in the realm of Internet communications and cyber attacks.

Carriers must evaluate this potential pool of risk and begin to accurately charge for it, which is challenging because insurers have different books of business, so there is no one-size-fits-all approach to underwriting these risks, he said.

“As insurer and reinsurers, we like to think we’re paying losses when we underwrote the exposures and charged an adequate premium for those exposures,” he closed. “But if you know you didn’t underwrite the exposure or charge enough, why wait until you get spanked to learn that lesson?

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