Cyber attacks and data breach risks are at the forefront of most business owners’ minds, whether they’ve heard about an event or experienced an incident themselves, according to Ben Armbrust, a business insurance adviser specializing in the construction and real estate sector.

Armbrust works for Marsh McLennan Agency (MMA) in Fargo. The company provides business insurance, employee health and benefits, retirement and private client insurance solutions to organizations and individuals.

/ Courtesy Marsh McLennan Agency

“Phishing emails, a lot of activity around ransomware, and the social engineering space — we see those weekly in our area. The good news about the cyber marketplace is that since COVID imploded, the control requirements have been more strict. Now that those have been in place for a few years, we’re starting to see a softening in that market and carriers are seeing decreases in some areas,” he said.

Putting the controls in place to protect a business is a costly process, but it’s had a positive impact on the insurance industry, he said, helping insurance rates drop slightly for cyber coverage.

“A large, sophisticated company will have a pretty strong IT department. In a lot of ways, these bad actors are targeting smaller businesses because they may be more susceptible to an event. Everyone’s got the exposure. The question is, how are you going to prevent it? Are you buying an insurance policy to mitigate that risk?” Armbrust asks.

According to MMA’s 2024 Business Insurance Trends Survey, the top five threats are cyber and data risks, regulatory risk, workforce risk, catastrophic weather risks and property limit capacity, and nuclear verdicts and social inflation.

Armbrust said there’s a variety of products designed around cybersecurity insurance, but a monoline cyber policy, if written correctly, should include coverage for business interruption.

“A true monoline cyber policy would have three buckets — first-party coverage, which is coverage for your (business) loss; third party coverage covers someone else (in an event) that you are negligent in causing; and you’ve got breach notification data privacy costs. Legally, you have some obligations to provide breach notification and credit or identity monitoring; that’s the best way to think about it if it’s a monoline policy,” he said.

Four areas gaining momentum under regulatory risk are worker classification, Biometric Information Privacy Act (BIPA) laws, climate disclosure and workers’ compensation presumptions.

“The relevant one from that list is worker classification. A lot of companies will hire a 1099, an independent contractor, and if that 1099 doesn’t have their own insurance in place, then the company would provide that insurance for them,” Armbrust said. “We’re starting to see carriers look at those relationships more closely.

Recent catastrophic weather events such as hurricanes, wildfires and hailstorms around the country have caused an unprecedented number of property claims to be paid out, resulting in increased costs for coverage.

“The cost of reinsurance has gone up. Every carrier relies on reinsurance — national players are less reliant on reinsurance than the smaller regional players. That cost has gone up due to loss activity and passing that cost down to the consumer,” he said. “Because of the poor performance in the reinsurance world, there’s a lot of private equity money that was pulled out within the last 24 months, which has also driven up costs.”

Social inflation is another area causing insurers’ claims costs to rise above and beyond what can be explained by general economic inflation, many times attributed to things including increased litigation, wider definitions of liability and larger jury awards.

“Negligent entrustment is a big one, and distracted driving,” Ambrust said. “Negligent entrustment is essentially letting someone drive on the company’s behalf when you knew they had a poor driving record, for example. Insurance companies are tightening controls on how companies are managing their fleet and drivers. Those are where we see big awards, when something bad happens with someone driving and you knew they shouldn’t be.”

Those social inflation and nuclear verdicts add additional exposure for an umbrella policy, causing some carriers to reduce capacity by pulling back the limits they offer a business or an insured individual. Armbrust said the outlook is heading toward reduced capacity and higher rates. Noting it sounds very doom and gloom, he said this is why it’s important to speak with a trusted adviser about what’s going on in the insurance marketplace and why having strong relationships with carriers can help people navigate it.

It’s to be determined what effect the increased tariffs will have on the economy and on the insurance marketplace. One idea to mitigate losses is trade credit insurance, a risk management tool that protects businesses from financial losses due to customer non-payment. It has gained popularity for those companies that have large accounts receivable schedules, he said.

“Business owners are frustrated with rising costs of insurance so I think there’s a lot of opportunity in the marketplace to provide value to people, but also I think they’re looking for more — whether it’s alternative risk strategy or benchmarking assistance on limits. They’re looking for more information to make informed decisions,” Armbrust said.

More competition would help not only the industry, but the consumers. As many of the large insurance companies are reducing their coverage lines or leaving certain states entirely because they aren’t making money, a gap has been created. Armbrust said there will be a breaking point where eventually, the smart carriers will re-evaluate their rates and come back to offer more options in the marketplace.

“Businesses are wanting to offset costs, take more control. They’re looking at alternative risk strategies, looking at different program structures, deductible structures, taking on more exposure themselves, self-insuring. … It offsets premiums and generally, if you have good controls in place, you’re going to see returns on that over a five-year period,” he said.