The Complexities of Cyber Business Income

August 31, 2018

By Chris Keegan

With increasing focus on cyber exposures, companies should review their retentions for business income loss under their cyber policies. Coverage for cyber business income loss is derived from traditional property business income loss coverage, where the trigger is typically physical loss.

Traditional property policies often have a 48-hour or two-day equivalency applied as a franchise retention, providing cover above the dollar retention after the waiting period is met. Cyber insurance policies have almost always had significantly lower hourly retentions; however, there are considerable differences in how they are applied. The most common retention applications in cyber policies are as follows:

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FRANCHISE RETENTION

A franchise hourly retention allows recovery of the entire amount of income loss back to a dollar retention or no retention at all once the hourly period is satisfied. It does not affect the amount recoverable under the policy, only whether the coverage is triggered.

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HOURLY RETENTION ONLY

Hourly retentions allow recovery of income lost but only the amount lost after systems or the business has been interrupted for the specified time.

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DOLLAR RETENTION ONLY

Dollar retentions apply the same way as a traditional dollar retention – requiring that the loss incurred reach a set dollar figure before the insurance carrier starts to pay.

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 GREATER OF DOLLAR OR HOURLY RETENTION

A number of cyber insurance policies incorporate both dollar and hourly retentions, requiring that the greater dollar amount or amount of lost time occur before an insurance payment is made.

The type of retention a company has in their cyber policy can make a considerable difference in the amount recoverable in the event of loss and the ease with which the loss can be quantified. To minimize surprises when a cyber income loss takes place, cyber insurance buyers should review and model their exposures against the particular type of retention in their program.

A well-orchestrated underwriting meeting highlighting strong resiliency, disaster recovery, and business continuity processes will allow companies to significantly improve retention terms to maximize recovery and limit disagreements with insurers over the amount of loss.

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This article is intended for informational purposes only. It is not a guarantee of coverage and should not be used as a substitute for an individualized assessment of one’s need for insurance or alternative risk services, nor should it be relied upon as legal advice, which should only be rendered by a competent attorney familiar with the facts and circumstances of a particular matter. Copyright Beecher Carlson Insurance Services, LLC. All Rights Reserved.