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Cyber cover tougher, construction challenging: report

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Insurers have become significantly more cautious about cyber cover, local underwriters’ construction market appetite is still shrinking and policy wordings generally are being tightened, Gallagher Australia says in a first-half report.

The Business Insurance and Risk Market Update says overall there is some evidence of price increases levelling out following hard market gains, but challenges remain.

“Across the board insurers are assessing which areas of the market they want to participate in and overall there’s significantly less capacity than there has been previously," MD Placement Mark Oatway says. “Because of this placement is more difficult, but we can generally find cover.”

The impact of COVID-19 is being felt as business interruption test case outcomes are awaited, with insurers examining and tightening policy wordings.

Mr Oatway says insurers are looking across the board at policies and exclusions, not just in relation to the pandemic, to ensure they’re not leaving themselves open to unintended exposures.

Gallagher says cyber security threats are rapidly evolving, with the frequency and severity of claims increasing in the past 12-18 months and recent high-profile breaches in the US highlighting risks.

One insurer has added 30 questions to the renewal proposal form specifically to address ransomware risks and over the past six months insurers have put corporate cyber security systems and processes under close scrutiny.

“We’re quickly moving towards a situation where unless you can demonstrate you’re doing everything you can to defend your business, you’ll be asked to part-underwrite that exposure, or even be turned down flat by the insurer because the risk is assessed to be just too great,” cyber specialists Robyn Adcock and Alberto Piccenna say.

“After years of talking about the threat of cyber time has run out. Businesses need to act, and this is why insurers and underwriters have changed their approach so dramatically.”

US events include the attack on software vendor SolarWinds, which saw malware planted in an update that compromised more than 18,000 clients. Microsoft was also attacked, with ransomware installed on its Exchange servers.

In the construction market, Gallagher says Australian underwriters are continuing to withdraw, but there has been some new London market capacity.

Professional indemnity remains difficult due to cladding and building defect issues and with significant claims coming through on civil engineering and infrastructure.

“We are yet to see new capacity entering the market here, but believe at current higher pricing levels, this is only a matter of time,” Head of Construction Australia and Asia Roger Irvine says.

Only a few insurers are still active in the project-specific professional indemnity market, with underwriters able to charge high prices as a result.

“We are aware of some crazy pricing for these policies where the premium is nearly 60-70% of the policy limit,” Mr Irvine says. “This is not sustainable and Gallagher is actively working with government, contractors and consultants to find an optimum outcome for projects.”