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Overhaul cyber insurance wording to get on the same page

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The pandemic has underscored the importance of clear and consistent cyber policy wording, according to a new research paper.

Insurance think-tank The Geneva Association and the International Forum of Terrorism Risk (Re)Insurance Pools say inconsistencies in the definitions of cyber terrorism and cyber war in the insurance industry result in confusion and coverage gaps, with courts left to determine the scope of cover for acts that lie between the two.

The paper, titled Cyber war and terrorism: towards a common language to promote insurability, proposes the introduction of a new “hostile cyber activity” (HCA) term as “an intermediate solution based on a proposed common language”.

“There are inconsistencies in the definitions of cyber terrorism and cyber war in the insurance industry,” it says. “Resulting grey areas create confusion and misunderstanding, and in some instances have resulted in litigation and reputational damage.”

Cover for HCA, which describes interstate aggression, would resolve issues associated with ambiguous terminology and help clarify existing coverage within the market. Comparability and a common language will also put the industry in a stronger position in discussions with governments on backstops or pooling solutions.

“With greater clarity across the global (re)insurance market it will be possible to properly assess specific coverage and potential protection gaps and to look at possible solutions to enhance insurance coverage,” the paper says.

The authors see the HCA term as a “stepping stone” for the industry, to be optimised and adapted as the risk evolves and industry knowledge, understanding and practices converge.

They say the “cyber and non-cyber schools of thought” will likely become interconnected in the future and the “historical narrative” which divided the positioning for coverage of property and non-property damage would be “deconstructed”.