Technology is transforming claims in Latin America
Over the past five years Latin America has seen a rise in the prevalence of cyber risk. Cyber attacks have become increasingly common, with financial institutions the main target, particularly via social engineering; the manipulation of employees into breaking security procedures to gain access to systems or networks. A 2018 report found that 92% of banks in the region had reported some kind of digital security event, with the average cost of an attack placed at US$1.9 million. Whilst a 2016 report placed the cost of cyber-crime across Latin America at approximately US$90 billion per year.
As a result, the region has seen a demand-driven expansion in the underwriting of standalone cyber risks. Although, such underwriting remains nascent and the relative novelty of the product in the region means standalone cyber claims are few and far between.
What the region has seen, however, is a rise in indirect cyber claims or 'Silent Cyber'— claims that fall, whether intentionally or not, under the cover of separate all-risk property or financial lines policies. For example, in 2018 a major bank in Chile suffered a cyber attack where malware was introduced to the bank’s computer system via an email to an employee. The malware slowly and discreetly infected the system, compiling passwords and amounts for accounts in the bank.
A few months later, hackers attempted to make a number of transfers via other banks. While the bank was able to stop the majority of the transfers, hackers made off with approximately US$9 million. The bank, who did not have a standalone cyber policy, was able to claim coverage for this loss under its banker’s blanket bond (BBB) policy due to an endorsement that provided cover for losses arising out of the transfer of funds based on any fraudulent electronic communication posing to be a client, financial institution, or office that authorizes the payment of these funds.
Direct cyber claims
Contributing to the low level of standalone cyber claims is a regional tendency not to report cyber incidents. A 2016 Inter-American Development Bank (IADB) Report found that the region in general suffers from a low level of public awareness when it comes to cybercrime and data security. This is heightened by the fact that many jurisdictions in the region have no legislation in place to force private firms to disclose if they have been victim to a cyber-attack. Of the six biggest markets in the region (Argentina, Brazil, Chile, Colombia, Mexico, and Peru), only three require data handlers to notify the data owner of a personal data breach.
However, as legislation modeled on the European Union’s General Data Protection Regulation (GDPR) begins to emerge throughout the entire region, obliging the reporting of data incidents, and as standalone cyber product becomes more prevalent – perhaps a rise in standalone cyber claims is around the corner.
According to a recent report, technology will transform the Latin American insurance sector over the next 5-10 years. Already, we have seen a rise in carriers seeking to use technology to streamline both underwriting and claims process and drive operational efficiencies. Recent examples include, insurers in Peru using live geo-meteorological data-feeds to better model and price catastrophic and natural events risk exposures.
So, with the aforementioned claim trends in mind, how might insurers use technology to: 1) more effectively deal with the current rise in 'Silent Cyber'; and 2) more efficiently deal with a future rise in the reporting and handling of direct cyber claims?
In recent years we have seen insurers seeking to make better use of cognitive/machine learning technology. There is precedent for advanced data-analytical techniques now usefully being applied to insurance policy wordings in order to help insurers:
- Identify patterns in the language of wordings and policies
- Quantify the risk attached to such language/patterns, based on a trained model
- Augment coverage decision-making by comparison of the facts of the claim against learnt policy wordings.
With regional insurers increasingly facing the time consuming task of reviewing policies to determine if language contains ‘Silent Cyber’ exposure, and to what extent they would be susceptible to a cyber-loss, we can immediately see how the application of such technology could speed-up the identification of cyber-exclusionary language and determination of coverage for ‘Silent Cyber’ claims.
Faster incident notification and management
With over 80% of adults now in possession of a smartphone, front-end mobile applications can play a vital role in helping insurers, their insured and loss adjusters to capture more enhanced, legally relevant evidence at the scene of loss-causing incidents. They facilitate the more immediate capture of richer data about the incident - video, photo, audio, location and electronically executed witness statements, as well as possessing the ability to guide insureds and loss adjustors through a series of bespoke digital questions designed to ensure:
- The right evidence is being captured dependent on the type of incident
- The correct next steps are being taken by the affected parties in accordance with the relevant law and regulation.
Incident data can then immediately be sent to a back-end web platform, accessed by relevant stakeholders at the insurer – allowing quicker decisions and communications to be made with the insured regarding coverage, incident management and loss mitigation.
Again, regional insurers’ greater adoption of such technology could provide more efficient/streamlined means of dealing with a potential rise in the notification of direct standalone cyber claims.
The above claim trends were recently discussed at 2019 Miami Latin American Claims (Re) Insurance Forum hosted by Kennedys in conjunction with Quintana López Donoghue & González. The subject of how technology can be used to transform the claims process for insurers in Latin America was the topic of a presentation by Kennedys at Insurtech Colombia 2019 hosted by Federación de Aseguradores Colombianos.
At Kennedys we are actively involved in the creation and testing of such technological solutions to allow our clients to streamline parts of their claims process, make quicker and better decisions on liability and settlement offers, and as a result - use lawyers less. And we watch with a keen interest to see how the market embraces such technology in a move towards greater claim and underwriting process efficiency.
This article was first published by Insurance Day on 2 July 2019