Carriers should pay particular attention to traditional war and terrorism exclusions that may cause ambiguity

As the frequency of systemic events increases, there is a risk that insurance products covering them become unaffordable or unavailable. At the same time, products covering such events or products silent about the coverage may explicitly exclude them in the future.

These developments have the potential to further widen existing protection gaps, which can have a detrimental effect on consumers and make our economies and societies less resilient.

European Insurance and Occupational Pensions Authority (Eiopa) has issued a supervisory statement with the aim to promote supervisory convergence in how national competent authorities assess the treatment of exclusions as part of the product design and terms and conditions drafting process.

The statement seeks to ensure that the interests of existing and prospective policyholders are duly taken into account when products are developed or revised or when events casting doubt on the scope of the coverage materialise. 

Need for clarity

While there may be a limit to insurability, Eiopa is of the view that consumers and small businesses can assess the risks involved better – including those stemming from systemic events – when coverage is clear and aligned to the target market’s needs.

Eiopa has also issued a supervisory statement that specifically addresses the management of non-affirmative cyber exposures.

It recommends carriers pay particular attention to traditional war and terrorism exclusions that may not take into account the digital aspects of modern warfare and thus lead to uncertainty and ambiguity regarding coverages.

”The outcome of this exercise should result in terms and conditions that are clear, simple and aligned with the undertaking’s overall strategy and cyber risk appetite, while at the same time providing value for money to the policyholder in line with the target market,” states Eiopa.

There is also a need for undertakings to identify and measure their exposure to cyber risk with the purpose of implementing sound cyber underwriting practices.  

The management of non-affirmative cyber exposures is of particular importance, including a regular evaluation and use of available reinsurance capacity to mitigate accumulation risk related to cyber risk.

Eiopa has published two Supervisory Statements on: