Farewell bricks and mortar, farewell retail insurance? Not quite. Our experts discuss the new business risks of the digital age.

In the not so distant past, the main risks facing a retail business were floods, fires, and robbery. However, with more and more businesses going online, business owners face a whole new range of potential disruptions.

Despite these shifts, many businesses fail to acknowledge that they themselves may be affected by IT failure and hacking. This is a cause for concern for Daniel Gialanze, General Manager Affinity and Commercial Manager – Victoria, Willis Towers Watson.

Gialanze says while an increasing number of businesses are becoming aware of their IT vulnerabilities, all too many are only mitigating their exposure using generic anti-virus software.

“Clients who deny they may suffer a breach despite the alarming facts reported in the media can be difficult to work with,” he notes.

In response to these new threats, insurance brokers need to be aware of the new products available to support retail clients – in particular, cyber liability insurance.

What exactly is retail and cyber liability insurance? 

Retail insurance is essentially the suite of insurance products designed to protect businesses and business owners from a wide range of risks. These include Business Interruption, Public/Products Liability, Professional Indemnity, Crime, and Property covers, all of which should be considered in the broader context of any insurance program.

Cyber liability insurance is a new form of retail insurance, which does not cross over or has limited cross over into coverage provided under other more typical policies. As such, it needs to be considered as a separate – and important – field of cover.

“Cyber is growing and evolving daily. This is a challenge for insurers to price, but in this space there are many opportunities,” says Luke Temperton, an Authorised Representative at Review Financial who specialises in online risks.

What risks does it cover?

Cyber liability insurance is designed for companies that have a digital presence. In this day and age, that includes most businesses. It offers protection against many exposures including First Party Costs and Business Interruption, Privacy Breaches, and Security & Media Liability.

According to Gialanze, one of the most important features of cyber liability insurance is the Crisis Management and Reputational Expenses benefit, which is designed to help an insured manage the immediate actions required following a breach.

Who needs it?

Craig Robson, Broker & Agency National Manager – State Operations for Allianz Australia, says that as all retail businesses are likely to have some risk exposure, they should all consider taking out retail insurance. However, the type and combination of products will depend on the business.

“Insurance for retail businesses can include cover for physical assets such as contents or stock, as well as business interruption, commercial motor, and public and products liability,” Robson says.

“Larger or more complex businesses may also require additional covers.”

Temperton adds that it’s important to understand that retail insurance is never a one size-fits-all solution.
“Each business is individual and it’s important to know the full cycle of any business to fully understand the insurance risk exposures,” Temperton says.

“Engaging with a broker helps manage the process of understanding the insurance exposures.”

Trends, challenges, and emerging risks 

A key concern for insurers is the reluctance of start-ups to access adequate protection. According to Robson, research shows that start-ups are more likely to operate without insurance or be underinsured, and many do not understand the exposures they face.

“An uninsured loss for a start-up may cause the business to fail. Getting the right advice on insurance needs is important for new businesses, which is where brokers come in.”

Many traditional businesses also don’t realise the extent of the risk they face, says Gialanze.

The 2017 Willis Towers Watson Cyber Risk Pulse Survey makes for sobering reading, including the revelation that over the past 12 months, 43 percent of employees received a suspicious email at work, and 34 percent of employees witnessed a co-worker behaving in ways inconsistent with data privacy policies.

However, according to Gialanze, there are signs that some businesses are getting the message and responding accordingly.

“Recent research highlights the top priorities for  business during the next two years include the obtaining or nhancement of cyber liability insurance,” Gialanze says.

“Indeed, the number of businesses committed to implementing a formal cyber risk management plan within their company culture is expected to increase from 8 per cent today, up to a staggering 85 per cent by 2020.”

However Temperton says the cost of the policy is still an issue for many businesses.

“Cyber at the moment is something that insurers probably have to work better on so that premium pull can start to work,” he says.

What brokers need to know

Despite regular horror stories in the media of client data being hacked, many businesses are still dragging their feet in the uptake of cyber liability insurance. Ironically, it is often small businesses and start-ups which exist entirely in the digital space who have been the most reluctant to engage.

This is a major issue which brokers need to be aware of, according to Robson.

“Start-up businesses can evolve quickly. As the business evolves, the insurance needs also change and it is important to get the right advice from insurance professionals,” he says.

Temperton says brokers need to know that, in the digital world, start-ups are evolving by the minute. It’s therefore important to constantly be on the ball when it comes to your client.

“This is a growing business space and as brokers we have to be aware of, and in front of, the changes to businesses so that we can be on top of insurance risk exposures,” he says.

At the end of the day, says Gialanze, cyber liability insurance is here to stay and should form part of any robust insurance program. A proactive broker should therefore be having discussions and educating their clients in respect of covers available to combat the increased trends in data and IT security breaches.

“If a broker isn’t alerting their clients to products available in the market, they are leaving themselves exposed,” he says.