The emergence of these enormous risks has had a tangential effect: increased risks to insurance agents and brokers. In a challenging and competitive environment in which agents/brokers are compelled to promise to “tailor the right solutions to protect your company” and help their clients “navigate smoothly through a myriad of complex issues,” they are going to be the ones their customers look to when disasters bring about unexpectedly large losses, extensive damage to multiple structures on their properties, and business income losses stretching years in length. They will also find themselves at risk when multiple coverages leave gaps. The emerging disaster risk Starting with a look at natural disasters, insurance claims from the wildfires that hit northern California in the latter part of 2017 have thus far topped $11.4 billion. More than $8 billion of this is from the fires that destroyed the town of Paradise. This is below the $12.4 billion in insurance claims from the 2017 California wildfires, but the total may continue to rise. In fact, Munich Re has estimated the total losses will reach $16.5 billion, of which only $12.5 billion will be insured. Worldwide, Munich Re estimates an overall economic impact from natural disasters in 2018 totaling $160 billion, of which only $80 billion is insured. In economic terms, the losses from the California wildfires were staggering in and of themselves, but they have led to criminal exposures as well, the bankruptcy of one of the largest utility companies in the world in Pacific Gas & Electric, and the potential for shareholder derivative suits arising from the failure to be properly prepared to face the fire risk, given the experience with the 2017 wildfires. While it is uncertain if there will be lawsuits against
any insurance brokers or consultants, one has to wonder how such lawsuits can possibly be avoided with such a substantial uninsured loss presented. Moving past natural disasters to look at cyber risks, in 2017 nearly 700 million people in 21 countries experienced some form of cyber crime, per Symantec. Per ThreatMatrix, the threat is growing, with mobile fraud rising 24 percent year-overyear in the beginning of 2018 and over 150 million global attacks in the first half of the year alone. A McAfee report estimates that worldwide cybercrime costs an estimated $600 billion per year, and Juniper Research expects the total cost of all data breaches will reach $2.1 trillion this year. Accenture puts the figure at $5.2 trillion over five years. The consequences are enormous: as a result of the Yahoo data breach, which involved over 3 billion user accounts being compromised, it has been estimated that the value of the Verizon purchase of the company was reduced by $350 million. According to Lloyd’s of London’s Cyber Risk Management Report issued in January, a hypothetical coordinated global cyber-attack spread through malicious email could cause economic damages from $85 billion to $193 billion and affect more than 600,000 businesses worldwide. Insurance claims under this scenario would range from business interruption and cyber extortion to incident response costs. But, total claims paid by the insurance sector in this scenario were estimated to be between $10 billion and $27 billion, meaning 86 percent of the losses would be uninsured. And even if this nightmare scenario could be put to the side, an IBM study has estimated the average cost of a data breach to a company right now at $3.86 million. Yet, despite widespread efforts to warn employees of the dangers of clicking
on suspicious links, in a 2018 Data Breach Investigations Report, Verizon reported 30 % of phishing emails in the U.S. are opened, with 12 percent of those targeted by these emails clicking on the infected links or attachments. And there are still substantial portions of the business community with little to no cyber coverage or coverage with a variety of limitations and exclusions. Looking at manmade disasters, the collapse of the Florida International University pedestrian bridge has led to millions of dollars in liability and wrongful death claims, and the builder’s filing for bankruptcy protection. According to data reported in the Insurance Information Institute, there were 118 man-made disasters in 2017, causing $6.2 billion in losses. And, this is without a disaster of the magnitude of the September 11, 2001 terrorist attacks in the U.S., which caused $26 billion in insured losses that year alone. While all of this is scary enough, the fact is that emerging risks are developing all the time - like the D&O risk presented by what had previously been seen as only an employment practices liability risk in sexual harassment and gender discrimination. Just hours after Sports Illustrated swimsuit model Kate Upton accused Guess co-founder Paul Marciano of using his power to “sexually and emotionally harass women,” the company’s shares dropped almost 18 percent, resulting in a loss of $250 million in market value in a single day. Following a Wall Street Journal report that Steve Wynn, the casino mogul and founder and CEO of Wynn Resorts, had been accused of sexual harassment and assault by a number of employees, shares of the company fell by 10 percent on the day the story was published, and another 9 percent three days later, resulting in a loss in shareholder value of about
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