Research

Insurance Marketplace Realities 2019 — Fidelity/Crime

November 6, 2018

Rate predictions

  Trend Range
Fidelity/Crime No change or slightly up Flat to +5%

Key takeaway

Despite recent court decisions favorable to policyholders regarding social engineering cases — a key focus in the fidelity/crime sector — buyers should not jump to the conclusions that they are protected without an affirmative grant of social engineering coverage.

The market is in transition as it evaluates the impact of recent policyholder-friendly court decisions that found coverage under the computer fraud insuring agreement of commercial crime policies for social engineering schemes.

  • While these rulings are favorable for policyholders, other courts have ruled otherwise, and it is important to continue to evaluate the affirmative social engineering language available in the marketplace.
  • Large losses are impacting markets in both the U.S. and London and the schemes being perpetrated continue to evolve and test the ability of the coverage to respond.

Recent court decisions in Medidata Solutions, Inc. v. Federal Insurance Company and Am. Tooling Center, Inc. v Travelers Cas. & Surety Co. have caused insurers to take a step back and reconsider their policy wording.

  • The Second Circuit, applying New York law, ruled that Medidata was entitled to crime insurance coverage and that the computer fraud section of the policy provided coverage for a social engineering scheme.
  • Similarly, the Sixth Circuit, applying Michigan law, reversed a prior ruling in favor of the insurance company and ruled that American Tooling was entitled to coverage for money lost in a social engineering scam.
  • In both cases, the computer fraud insuring agreement, previously viewed as limiting coverage for a hacking event, was broad enough to provide coverage for losses involving an insider being duped.

The market will react; we have seen carriers amending policy language to specify that the computer fraud insuring clause is not intended to cover social engineering schemes.

  • The market continues to offer affirmative grants of coverage for social engineering.
  • Insureds need to evidence strong internal controls and policies and procedures that limit their exposure to these losses.
  • Separate questionnaires are still being required and coverage language continues to vary by carrier.

Due to the potential overlap between fidelity/crime policies and other policies (e.g., cyber, kidnap and ransom [K&R]), organizations are evaluating their exposure and determining which policies are most likely to respond.

  • Carriers are starting to impose clarifying language to eliminate overlaps.
  • In general, for losses involving funds or tangible property, insureds should look to their fidelity/crime policy.
  • For losses involving theft or loss of intangible assets, such as data, insureds should look to their cyber policy first.
  • For ransomware attacks and the like, a K&R (special crime) policy may provide some coverage as well.

While flat rates are predicted for 2019, one U.S. lead market is pushing for increases of up to 10% across their book.

  • An increase in crime losses has started to affect the leading London syndicates.
  • M&A activity among carriers has not impacted this line of insurance.