When Ryan Onken flew to Arizona this spring, it was the first time he’d been on an airplane in more than a year.

Besides the mask-wearing on the plane, it didn’t seem like there was a pandemic at all. The airplane was packed with air travelers. He took it as a sign of good things to come. Maybe life is creeping back to a sense of normalcy.

But in his line of work – insurance – he continues to see the pandmeic’s effect on some businesses.

Onken is a commercial insurance adviser with Bell Insurance in Fargo, N.D., and the office in Arizona is one of its new footprints.

He recently spoke with Prairie Business and said he is noticing two trends: An overall hardening of the market and an increased interest in cyber liability coverage for businesses. The latter is due, at least in part, to more employees working remotely.

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A snapshot of the market today

“It is very cyclical,” Onken said of the insurance market. “We're probably at the peak of a hard market right now.”

That means a firming of the rates.

For about the past 14 consecutive quarters the industry has seen rate increases pretty much across the board, he said -- from property and general management liabilities to cyber security liabilities. The twist is that short-term impacts of the pandemic caused businesses to be risk-averse. Owners were not taking a lot of risks because they were not sure how the pandemic would affect their company.

“But as the pandemic plays out and things open up … a lot of those write-downs that carriers had taken out are being put back; they're taking them out of liability and back into profitability,” he said.

Dawson Insurance’s Ryan Hoffman, managing director of its Fargo operations, explained it this way: “We're in a hardening market where pricing and capacity of coverage have become challenging.”

Natural disasters, including hurricanes in Texas and wildfires in California as well as other events that cause property damage, have certainly “put pressure on the property and casualty market, causing an increase in premiums and reduction in terms.”

Marilyn Ternes, vice president of the Bismarck, N.D., branch of EMC Insurance, shared a similar perspective.

“It's challenging,” she said. “The market is firming up with all of the natural disasters that have happened, and then the riots didn't help matters. All of those things affect the bottom line. They affect the reinsurance companies, and when reinsurance companies are impacted that trickles down to the insurance companies as well.”

EMC sells its products solely through independent insurance agencies and not directly to individuals or businesses.

A hard market is “the upswing in a market cycle, when premiums increase and capacity for most types of insurance decreases,” according to Insurance Business. A hardening market can be caused by a number of factors, whereas a soft market “is characterized by low rates, high limits, flexible contracts, and high availability of coverage.”

“It ebbs and flows,” Hoffman said. “It is somewhat cyclical. We have soft market periods and hard market periods. Right now we're in a hardening market, and that's in addition to potential COVID impacts to certain businesses. The increase of cost to insure a business, in addition to the cost of labor, is all having an impact on some businesses, which makes it challenging for them to keep the doors open.”

The increasing interest of cyber insurance

Besides a hard market, it is hard for any business to have its systems compromised by devious means.

If a hacker infiltrates a system, it can wreak havoc on the company and cost a great deal of money to get back online in a secure environment. For those with proprietary brands, it can be devastating.

“There are a lot of stories out there right now with regard to hacks and security breaches and ransomware that has a lot of our businesses very concerned,” small business and big companies alike, Hoffman said. “Everyone has a stake in it.”

Once a system has been compromised, hackers have the ability to lock up servers and, as such, shut down production. One diabolical scheme is ransomware, through which a hacker is basically holding the system hostage until money is paid, often at great expense to the owner, to unlock the system.

“Basically, they can put everything in a business at a standstill,” Hoffman said, explaining that even if a business pays the ransom, which often is a hefty sum in and of itself, the owner then still has to figure out what went wrong with the system and replace the hardware and equipment.

“It can be very, very expensive to businesses,” he said, explaining that cyber liability insurance is just one means of managing the risk.

“What cyber liability does is it provides a response,” Hoffman said. A “forensics” team goes in to analyze the breach and any damage or compromised parts of the system, and if any information has been disseminated. It then works with the client for an appropriate response to the situation. Liability provides “coverage for that forensics piece to pay for ransomware demands, to pay for damaged equipment as a result of the hack, and to help businesses financially recover from the incident.”

While cyber liability is not anything new, it is a relatively underdeveloped market, according to Onken, of Bell Insurance. More businesses are interested in having cyber insurance these days because more of their employees are working remotely.

Onken said the benefits of cyber insurance are the coverage it provides for first- and third-party damages and the forensic cost if a system was compromised.

“The first-party damages are the notification expenses,” he said. “There are rules and regulations that if you have a cyber breach, you have to notify everybody who is impacted by it. … There's also going to be some computer forensic cost associated with it and you might have to rebuild your infrastructure or some data. So that's the first-party coverage of a cyber policy, which is just really protecting you as a business.

“The second piece is the third-party liability side, where let's say you've got some private information that gets leaked. Maybe it's information in health care or it's personal information, or it's a patent or corporate information; maybe you're a lawyer or a vendor and you're under a nondisclosure agreement. You can get sued for that financial damage. That would be covered underneath the third-party liability.”

Of note, Hoffman said the purchasing of insurance is only one way helping to manage the risk of cyber problems, just one part of a mitigation strategy. Organizations working with their in-house IT team or their IT provider to develop security measures to mitigate that exposure should be the first defense.

“You don’t fix it by buying insurance,” he said. “The biggest, the most important mitigation effort, is the security team to build a defense against an attack.”

Onken said not all insurance policies are created equal, and as trusted insurance advisers it is up to the insurance professional to make sure their clients know about cyber liability and what it projects and doesn’t protect.

He said nationally about 65% of businesses now buy cyber insurance “in some form or fashion.”

Ternes, of EMC, said it is always good for business owners to be open with their insurance agent, and never be afraid to ask questions as they arise. There is no cookie-cutter insurance answer for every business; it all depends on what the owner is seeking.

“There's not one answer that would fit them all,” she said. “It might be that they have only one conversation and walk out the door with the policy. There are other times it may take several months to put something together, depending on the size of the business. .... It could take hours to months.”

Andrew Weeks may be reached at 701-780-1276 or aweeks AT prairiebusinessmagazine.com