Insurance governance consultancy Mactavish claims one business property insurance policy removed all tech-related losses, even those with a physical cause

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Fire and flood are two physical risks insurers are pulling, according to Mactavish (Credit: PixaBay)

Business property insurance firms are removing coverage for technology from their policies, even where losses are due to “traditional” risks such as fire and flooding.

This is according to British insurance governance consultancy Mactavish, which referred to the trend as “alarming” because it increases exposure for businesses.

It claims commercial insurance companies are removing coverage that’s “even loosely tech-related”, forcing business clients to take out a cyber-specific policy on top of their property cover.

Mactavish technical director Rob Smart said: “While we welcome attempts to bring greater transparency to the insurance market, the redrafting of many commercial property policies is leaving clients underinsured and exposed to a range of broadly ‘tech-related’ risks which they had believed would be covered.”

Changes to commercial property insurance policies have followed a July 2019 call from the Prudential Regulation Authority (PRU) and Lloyd’s Market Association (LMA) for providers to give more clarity on the elements of cyber coverage they include.

business property insurance
Rob Smart, technical director of Mactavish (Credit: Mactavish)

“Some of the new wording we are seeing goes far beyond the intent of the Lloyd’s mandate, and it means clients are no longer covered in areas such as loss of data from flooding or fire for example — even if it’s not related to a cyber-attack,” added Smart.

“Clients are being forced to take out separate cyber insurance to cover these excluded risks, but often this cannot meet their needs either without significant alterations.”

According to Mactavish, one policy it reviewed excluded all losses indirectly contributed to by IT or data failure, even “regardless of any other cause or event contributing” to a loss.

 

Commercial property insurance companies ignore important role technology plays  in business

Mactavish slammed what it referred to as the “black and white approach” taken by insurers removing tech-based coverage, arguing that it “fails to appreciate the integral role technology plays in almost every business today.”

The consultancy claimed these coverage gaps were “prompted” by the call for clarity from the PRU and LMA, and warned that the cyber market “lacks sufficient capacity” to fill them in the case of large-scale property risk.

An additional concern voiced by Mactavish is that the lack of clarity found in the cyber insurance market will mean businesses have to tailor a cyber-specific policy to fit their exposure — a topic Smart has addressed in the past.

“Clients are being forced to take out separate cyber insurance to cover these excluded risks, but often this cannot meet their needs either without significant alterations,” he added.