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| The Underwriter's New Suit |
In the 3 June FT, Ian Smith had an article Cyber Premiums Jump in Face of Acute Threats.
Two quotes from the article and my reactions.
Surge
in attacks prompts vigilant insurers to question clients closely about culture, attitude to security and training.
And
Nor are insurers simply jacking up prices. They are also becoming more vigilant about controls at the companies to which they sell cover.
A big “shout out” for the use of “vigilant”.
The clear implication is that many, perhaps most, have been asleep at the switch.
If you’ve been following my “Big Boy” series of posts, you know I like to puncture the unwarranted myth of the imaginary “sophisticated” investor.
In that vein let’s reflect on Ian’s article using my own personal experience.
When I went to take out an insurance policy on Chez Arqala, my insurance company asked a raft of questions.
About smoke detectors, their locations, and presence of fire extinguishers and other such equipment.
I was also asked if we have a home security system, whether in addition to intrusion detection it also had a fire detection capability. Was it set to ring up the authorities? Who were the providers of the home security system?
Did it have a back-up battery in case of power disruption?
How far we were from the nearest fire station?
Whether we stored any flammable or dangerous materials in the house.
Other than the little people who live with Madame Arqala and me we were clean on that score.
No questions about culture, though.
I guess he could tell just by looking at me. Or perhaps at Madame Arqala.
The decision to “write” the policy and the premium depended on our answers to those questions as well as our post code.
It boggles the mind that insurance companies writing cover multiples of that provided our house wouldn’t be asking similar questions for cyber cover.
And come to think of it, quite a lot more.
Apparently, they were not doing this.
Now to be fair, the general “take” on insurance underwriting standards is that only life insurance consistently makes a profit.
With other “lines” irrational exuberance and shoddy standards lead to highly cyclical swings in profits.
So much for the “big boys” of insurance.
At least they are not an outlier among the "big boys"
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