Cyber cover is here; crypto still to come

Great technology comes with great responsibility, and the insurance industry calls this “emerging risks”. 

While self-driving cars aren’t quite in New Zealand yet, RMA General Whangarei branch director Alvin Johnson said there was risk from online tech. This was making intangible threats feel very tangible. 

Products offered by AIG and NZI respond to the far-reaching consequences of a digital attack on a business. Their cyber products cover 

•    First and third-party liability

•    Business interruption protection

•    Public relations professionals to minimise reputational damage

•    Loss of personal or corporate information 

•    Defence costs

•    Cover for IT experts to fix computer systems

•    Fines and penalties incurred from a privacy breach

•    System damage, destroyed IT systems, records and data

•    Liability arising from hacker attacks or viruses.

Social media misuse is part of this. NZI’s Cyber Ultra, for example, covers “Loss caused by rogue employee or [rogue] third party.”

One of the most recent and costly cyber attacks was at Christchurch’s Cryptopia on January 14 2019, where $3.7 million of cryptocurrency appears to have been stolen. Delta Insurance chief executive Craig Kirk said while cryptocurrency was a “very tough” asset to cover, and an underwriter might have to be found overseas, malware was a real Kiwi problem with real New Zealand coverage. 

Sometimes that malware comes with extortion and is known as ransomware. That’s when cyber cover is needed.

Malware led Australian HR software company PageUp People to warn tens of thousands of job applicants about a possible breach of their private data after a May 23 2018 breach. 

“The insurer will often pay the ransom then try recover it,” Johnson said. This isn’t simply feeding the ransomers, however – coverage can only be approved if customers have backups and security up to date.”

It ties in to a greater trend whereby “people can have financial loss now due to something that’s happened online, it wasn’t tangible, no one physically had to do anything,” Johnson said. 

“A lot more products coming out these days have less to do with property damage or loss.” 

Whereas builders liability insurance used to be about protecting buildings, these days the risk is “you are more likely to be sued then a physical loss.” 

Intellectual property 

Delta Insurance chief executive Craig Kirk told CoverNote another very abstract asset - intellectual property - had recently become an essential part of New Zealand business insurance for many due to the massive legal expenses IP disputes can incur.

Kirk said Delta Insurance was the first to offer an IP product in New Zealand.

When launching its IP Legal Expenses product at the end of 2018, Delta said it was “filling a serious gap in New Zealand’s insurance market […] designed to make it easy for Kiwi companies to cover their legal costs in a battle over intangible assets such as trademarks or patents.” 

Delta cited Marmite, Whittaker’s, Wattie’s and Gallagher’s electric fence systems as examples of trademarked IP and said “Kiwi luxury consumables like manuka honey, chocolate, and wine are commonly devalued by knock-off products and trademark theft.”

Delta also said intangible assets such as patents and trademarks “made up almost 87% of the corporate value of Standard and Poor's 500 companies in 2015”. 

With research and development on the rise in New Zealand, “innovators in New Zealand’s knowledge-based economy routinely run into costly IP infringement issues, with most failing to recognise the risks until it’s too late”.

“Forty years ago the vast majority of business assets were in property, they were tangible, but now it’s data and tech,” Kirk told CoverNote. IP coverage provides “a war chest to enforce your rights” when someone infringes on, borrows or steals registered identifiable forms of IP such as trademarks and registered designs.

“The flipside is if you are sued, it gives you expenses to defend that.”

Food manufacturing liability 

Food manufacturing liability covers product recalls, pollution, and crisis management. There were 10 to 20 food and consumer product recalls each month in 2018 in NZ alone. This cover could be needed in an era in which:

•    Fonterra was ordered to pay 105 million euros in damages as a result of a whey protein contamination and botulism scare in 2013

•    Needles were found in strawberries in Queensland in September, leading to a government-ordered recall which hit not only growers but retailers

Crombie Lockwood offers Foodsure while Delta’s product is Food Manufacturing Liability Insurance with two subsets– food and beverage and non-food and beverage. Kirk said Delta’s product “is unique in that is bundles up a range of products. It’s covering product recall
when they’ve been tampered with; product defects when products don’t work; and pollution from the manufacturing process. Also crisis management – expenses incurred front-footing media and dealing with negative publicity.”

Personal household cyber insurance 

An October 2018 NetSafe report found cyberbullying costs $444m per year. Now personal cyber insurance for individuals in a household - offered widely around the world - has arrived in New Zealand. 

Delta Insurance is again leading the underwriting of what it calls PerCy, launching March 2019.  

“It includes a risk management solution – we can help you front-foot improving your risk position so your network is secure, configured correctly,” Kirk said. “We looked at it because we’ve been in commercial cyberspace – but these same issues affect people at home. Viruses, ransomware – Percy covers restoration and replacement of damaged items. It also covers identity theft and financial loss. It’s quite broad.” 

Drone insurance

For every industry using drones in business, insurance needs to follow. With drones a staple of sporting events, film and TV production, real estate photography, land and building surveying, oil and gas, agriculture and emergency services. An insurance product covering drones has been badly needed as more and more industries utilise drones.

 The difference between coverage for remotely piloted aircraft systems (RPAS) and unmanned aerial vehicles (UAVs) is worked out according to the weight of the drone. The insurer may require the customer to undertake a course such as the CAA’s 101 course (aka Drone 101) to obtain certification to fly a larger vehicle. 

Coverage is for: 

•    Aircraft hull liability 

•    Aviation risks presented need to be detailed in each policy

•    Complete operating system, including airframe, payload, launch station, UAV spare parts and ground control station are specified and covered

•    Drone insurance is packaged-up with related coverages including employer’s liability, cyber liability, professional indemnity

•    Drone insurance can provide extensions covering statutory liability and liability stemming from privacy issues regarding the use of UAVs – liability under laws regarding civil aviation, privacy, resource management and health and safety

E-bikes and e-scooters – unique policy product from mid-2019? 

NZ Brokers told CoverNote that, in September 2018, their analysis of home and contents policies found complexity and variation in policy wording, meaning many e-bike and drone owners can find themselves unexpectedly without cover for loss, damage or third-party liability if they make a claim around an e-bike incident. This is despite contents coverage for an e-bike up to $5000 and liability up to $2m.

Most insurers, including AA Insurance, currently treat electric bikes and electric scooters as regular bikes and scooters.

Technical manager for NZ Brokers John Davison has an update on this, saying drones, e-bikes and e-scooters will be re-examined with new wording mid-year. 

“NZI and Vero have come out and said they would cover them but that’s not yet covered in the wording,” Davison said. “We’re looking at getting wording to keep up to date.” 

Davison said he expected revised policy wording to come out at the same time as the Earthquake Commission Act which will be phased in beginning July 1, 2019. This act removes EQC contents cover while increasing building/dwelling cover. 

With any policy, Davison said “it’s quite a process to change wording. It’s not only a change of policy but also a change of systems.” Insurers
have to pass some costs back to EQC and some to consumers, Davison said. 

Land Transport User Rules currently define an e-scooter as having an engine under 300 watts and users are not required to wear a helmet when riding them. Due to their wheel diameter, they can be used on the road, footpath, cycleways and shared paths.

Wedding, outdoor events and hole-in-one insurance

Dream Wedding Insurance co-founder Stuart Catt estimated the average cost of a Kiwi wedding at around $30,000. So, after many an upset client asked brokers to find policies to cover rained-off events over the past few years, insurance products for weddings emerged in 2018, building upon pluvious insurance. 

Dream Wedding Insurance co-founder Graeme Dean added that since most couples planned a wedding for at least 12 months, wedding insurance was designed to compensate for irrecoverable deposit costs, damage to rings, gowns and catering, supplier failure, stolen items and transport costs. 

Related to this, prize indemnity can be written into an outdoor event policy where an event has a prize paid for. Prize indemnity means promoters pay a premium to an insurance company who then reimburse them should a prize be won. Hole-in-one insurance is a popular spinoff whereby a prize gets paid for by an insurer should a golfing hole-in-one prize be won. 

AirBnB coverage coming soon?

Changes to the mid-year EQC residential building cap will majorly affect the price of insurance products covering claims around AirBnB rentals, so we can anticipate an AirBnB-focused product. 

NZ Brokers’ John Davison said insurers of AirBnBs “want to know how long the rental is going to be rented out for. Short time: not a problem. Long time and not managed by the owner? Then there are repercussions.”

“Until now the EQC Act hasn’t covered them. That’ll be clearer when the new Act comes out.”

The four EQC Act changes are: 

•    An immediate extension of the timeframe for lodging a claim from three months to two years.

•    Provide EQC scope to share information as necessary to settle insurance claims;

•    Removal of the $20,000 EQCover for contents from July 2019

•    An increase in the cap on EQC residential building cover to $150,000 from July 2019.

March 2019

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