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To Understand Cyber Liability Premiums, Let’s Talk About Hurricanes


Key Takeaways

Rarely does devastation, such as a hurricane, provide society with enlightenment. However, sometimes that chaos helps us understand other challenges when we frame the scenarios together. This post highlights the increasing cyber liability premiums by reframing the situation within margins we can all understand — hurricanes.  

Understanding Hurricane Insurance

It’s true, Founder Shield doesn’t handle much related to hurricane insurance. Instead, we like to use it as an example of how catastrophic events impact or drive a hard market. That said, let’s dive into the eye of the storm.

Most people don’t realize that hurricane insurance doesn’t actually exist. Instead, homeowners must combine policies to protect their properties against a hurricane’s most damaging elements: wind and water. Windstorm and flood insurance is widely available in most states where hurricanes are a genuine threat. 

Strangely enough, some policies have what’s known as a “named storm deductible,” which only kicks in if the National Weather Service or National Hurricane Center officially names the storm. Naturally, the particulars of these policies are according to each state. 

The Damage

However, one thing is certain: massive hurricanes can cost homeowners in several ways, from property damage to increased insurance premiums. According to National Centers for Environmental Information (NCEI), here are the costliest hurricanes the US has ever experienced: 

  1. Hurricane Katrina cost $186.3B in 2005
  2. Hurricane Harvey cost $148.8B in 2017 
  3. Hurricane Maria cost $107.1B in 2017 
  4. Hurricane Sandy cost $81.9B in 2012 
  5. Hurricane Ida cost $78.7B in 2021

The Outcome

Here’s the thing, two neighbors might endure the same hurricane. But one sustains immense damage, forcing them to file a costly homeowners claim, while the other can manage repairs out-of-pocket. This outcome has little to do with their economic status and more with the erraticness of natural disasters. However, both homeowners will likely experience an increase in their premiums upon renewal.


Insurance premiums are a way for insureds to share the risk, regardless of the policy line. As the risk increases, so does the cost to cover it — for everyone facing the exposure. Unfortunately, we’ve seen increased premiums on the residential homeowners’ front and the commercial cyber liability landscape.

Making Sense of the Cybersecurity Landscape

Read any daily headline; at least one of them will focus on the most recent hack or data breach. Sometimes cybercriminals target more significant companies, such as in the Robinhood and Twitch breaches of 2021. Other times, they zone in on vulnerable smaller businesses. According to HackControl, the industries hackers target most are:

  • Healthcare
  • Finance
  • Education

Furthermore, the recent global health crisis has only compounded any cybersecurity problems we’ve already faced. Hackers didn’t waste one second before pouncing on any signs of vulnerability. For example, according to Deloitte, more than 500,000 video conferencing service users were impacted by breaches that compromised their personal data between February 2020 and May 2020 alone. And that’s just for starters. 

While human error has always been a primary cause of cybersecurity issues, these dynamics only worsened during the pandemic. Business Wire says cyber threats have increased 81% globally during COVID-19.

Unsurprisingly, cyber liability premiums have also increased, reaching a median rate increase of 37%, which circles us back to the hurricane concept. 

The “Hurricane Effect”

Remember the stormy scenario where one neighbor experienced damage while the other didn’t, and yet, each of their premiums increased? When we frame cyber liability in the context of tropical cyclones, we get what we call the “hurricane effect.” I guess you can say that each attack is like the National Hurricane Center officially naming a storm.

Much like the expensive aftermath following a treacherous hurricane season, cyber liability insurance policies mirror this turbulent impact. Several years ago, when a select few businesses fell victim to cyberattacks and filed claims with their insurers, the ripple effect was felt across the entire landscape of cyber liability insurance. In no time, insurers found themselves raising premiums in response to the surging tide of cyber risks. Some claims payouts reached staggering proportions, and other insurers grappled with unprecedented numbers of cyber liability insurance claims.

Remember that the hurricane effect has also impacted other coverage lines, not only insureds with a cyber liability policy. For example, if a data breach occurs, a shareholder’s suit may hit directors and officers incredibly hard, thus utilizing D&O insurance for cyber claims. Unfortunately, we expect this type of litigation to continue in the future. To understand this dynamic entirely, let’s review each policy: 

  • Cyber liability: Cyber liability insurance protects companies from third-party lawsuits relating to electric activities (i.e., phishing scams). Plus, it offers many recovery benefits, supporting data restoration and reimbursement for income lost and payroll spent.
  • D&O: Shareholders, competitors, investors, etc., can sue a company’s directors and officers, putting their personal assets at stake. Directors and officers (D&O) insurance protects these assets from lawsuits alleging leaders of wrongful acts managing the business. 

What Happens Next?

Although reframing cyber liability premium increases into hurricane terms might make the future sound bleak, it’s anything but that. As history shows, we adapt to weather changes, managing natural disasters with innovative solutions the best we humans can. We expect the cyber landscape to follow suit — we will adapt. Perhaps we won’t overcome as the Marine Corps says — improvise, adapt, and overcome — but we will navigate this terrain successfully.  

Even now, our team is working hard to develop novel solutions for insureds with distinctive risks. We might be unable to stop hackers in their tracks, but we can provide a quicker recovery time with far less room for defeat. 

Understanding the details of what coverage your company needs can be confusing. Founder Shield specializes in knowing the risks your industry faces to make sure you have adequate protection. Feel free to reach out to us, and we’ll walk you through the process of finding the right policy for you.

What to know more about cyber liability insurance? Talk to us! Please contact us at info@foundershield.com or create an account here to get started on a quote.

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