Phishing attacks are becoming more convincing, common, and damaging. Although most people are aware of the threat, you only need to let your guard down for a moment to give hackers everything they need to drain your accounts or compromise your computer systems. Brokers can help their clients by educating them on the best ways to avoid phishing attacks.

The State of Phishing

In 2022, 84% of organizations experienced a successful phishing attack, according to Proofpoint. Whereas many of these attacks occurred via email, phone attacks have become more common. Phishing attacks often work because they appear to be from legitimate organizations. In 2022, 30 million phishing messages spoofed Microsoft and its various products. Hackers also frequently impersonated Google, Amazon, DHL, Adobe, and DocuSign.
Once hackers have accessed the information they need, they can proceed to divert funds, install malware, or steal sensitive data. According to IBM X-Force, phishing is the top infection vector, with 41% of attacks starting this way.

Phishing Attacks May Be Surprisingly Sophisticated

Whereas some phishing attacks are easy to spot, others are more convincing.
Spear phishing attacks target an individual and may include the recipient’s name and other information. McKinsey & Company says spear phishing attacks have increased seven-fold since the start of the COVID-19 pandemic.
The National Cyber Security Centre (NCSC) says hackers are using QR codes in phishing emails because people may be less suspicious of them than they are of shortened links and because many security programs don’t scan images. Another tactic hackers use is thread hijacking, in which they impersonate someone in an existing email conversation. IBM X-Force says these attacks increased 100% per month over 2023.
Emerging technology may make phishing attacks even more convincing. TechTarget warns that generative AI can make phishing attacks appear authentic by eliminating grammatical mistakes and spelling errors and adopting more professional writing styles.

Safeguarding Against Phishing

When successful, a single attack can be devastating. IBM says the global average cost of a data breach has been increasing, reaching $4.45 million in 2023. These attacks drive up cyber insurance prices and make coverage more difficult to obtain. Both insurance companies and policyholders have a vested interest in preventing attacks. Brokers can help by sharing tips and resources.

1. Share current best practices.

Organizations can strengthen their cybersecurity by training all workers, not just those involved in IT. Individuals can also reduce the chance of becoming a victim by seeking out the latest warnings and best practices.
Microsoft has tips on how to spot phishing messages, such as watching out for urgent calls to action, threats, bad grammar, mismatched email domains, generic greetings, and suspicious links or attachments. IT Governance recommends being wary of emails that appear to be from a large company but that use an @gmail.com email address.

2. Test workers.

Organizations may send out countless warning messages to employees, but it’s difficult to know whether the information is sinking in. For this reason, many companies implement phishing tests, in which they send out phishing messages (without malware) to see how their employees respond. If workers fall for these messages, they may also fall for messages from hackers with nefarious intentions, meaning they need more training.

3. Use email firewalls.

Many people are bombarded with phishing emails. Even if they don’t fall for these attacks, they may end up wasting their time. Plus, the high volume of emails makes it easier to miss legitimate and important emails.
Email firewalls filter incoming emails to remove spam messages. This is a good first line of defense.

4. Flag external emails.

It may appear as if someone within the company has sent the phishing email. Flagging external emails makes it clear that these emails are, in fact, from an outside source. Microsoft 365 at Work shows how to add an external sender warning to emails using the Microsoft 365 admin center.

5. Implement multifactor authentication.

When combined with strong passwords, multifactor authentication provides another layer of defense against phishing attacks and other unauthorized attempts to access accounts. Many cyber insurers require multifactor authentication as a basic security measure.

6. Create reporting procedures.

If employees accidentally reply to a phishing message or click on a link, quick action can mitigate the damage. In some cases, employees may not think that any harm has come from the action, but the consequences of the attack may not be immediately obvious. Employers should provide a reporting method for all incidents or potential issues.
In the UK, companies and individuals can also report scam emails, phone calls, text messages, and websites to the NCSC.

7. Help your clients secure cyber insurance.

If an attack is successful, cyber insurance can help victims recover. First- and third-party insurance covers cyber incident response costs, social engineering, network security and privacy liability, and more.
Costero provides tailor-made products for both commercial and personal cyber insurance. Learn more.

Businesses need new ways to manage their risks. Many are turning to parametric insurance. However, as with all insurance options, there are both pros and cons to consider.

What Is Parametric Insurance?

Before diving into the pros and cons, let’s review exactly what parametric insurance is.

Parametric insurance pays claims based on the occurrence of a triggering event. The claims amount is based on the magnitude of the event. For example, a parametric insurance policy that provides coverage for hurricanes will pay out based on the location of the hurricane and the category of the storm. This is unlike traditional insurance, which pays out based on actual losses.

The concept is appealing to many businesses that are struggling to secure adequate insurance in the traditional market. According to Allied Market Research, the COVID-19 pandemic sparked increased interest in parametric coverage. The global parametric insurance market was valued at $11.7 billion in 2021 and is expected to reach $29.3 billion by 2031.

Wondering if parametric insurance may be useful for your organization? Below you’ll find important pros and cons to consider.

Pro: Parametric insurance facilitates a fast payout.

The normal claims process can take time because an insurance adjuster needs to assess the loss to determine both its value and whether the insurance policy covers the loss. This can take days, weeks, or even months, especially following a widespread disaster that overwhelms insurance professionals with a high volume of claims while making travel to the impacted region difficult.

Parametric insurance bypasses all these issues. Claims payouts are based solely on the triggering event, meaning there is no need to assess actual losses before issuing a payment. As a result, claimants receive their money faster, which gives them funds to use on immediate needs and accelerates their recovery from the loss.

Con: The parametric payout may not be enough to cover all losses.

Although separating the claims payout from the actual losses speeds up the claims process, it also means the claims payments may not reflect the actual losses. In some cases, this could work to the policyholder’s advantage by resulting in a payout that exceeds the actual losses. However, it’s also possible the payout could fall short, leaving the claimant with uncovered costs.

For example, consider a manufacturer that buys a parametric insurance policy to insure against flooding. After a flooding event, the policyholder receives a claim payment of $100,000, based on the criteria set forth in the policy. If the policyholder has losses of only $80,000, the claim is more than enough to cover the losses. On the other hand, if the policyholder has losses of $150,000, the payment leaves the policyholder with $50,000 in uncovered losses.

Pro: Parametric insurance can provide coverage for many hard-to-insure risks.

Policyholders often use parametric insurance to cover natural disaster risks, such as wildfires and hurricanes. However, this form of coverage is also suitable for other types of loss events. For example, Deloitte says parametric policies can cover cyber exposures and even operation downtime caused by cloud outages. This option can help businesses secure coverage for risks the traditional market won’t touch.

Con: Parametric insurance does not offer broad coverage.

Whereas some traditional insurance policies are specific to one risk (such as flooding), many cover multiple loss events. A commercial property insurance policy, for example, typically covers fire, hail, wind damage, and other losses. However, parametric policies usually cover one specific peril, such as wildfire. As a result, policyholders may need additional policy types (including more conventional policies) to cover all of their exposures.

Pro: Claim disputes are less likely.

Claim disputes can stem from a number of issues. For example, the policyholder and insurer might disagree on the value of a loss. Disputes can also arise over the interpretation of a policy and whether coverage should exclude a particular loss. These disputes can become bitter and sometimes lead to litigation, costing both parties time and money.

Disputes like these are not typically an issue with parametric insurance because the payout is based on the triggering event and not actual losses. The policy should include criteria for how the insurer determines a loss event, so there is little to dispute.

Are You Interested in Parametric Insurance?

No product is perfect. Despite the potential drawbacks, though, parametric insurance offers many benefits that make it attractive in today’s risk management landscape. To explore your parametric insurance options, contact us.

Learn more about the types of risks parametric insurance can cover.

Some companies may not be as environmentally-friendly as they appear. It’s a practice known as greenwashing. Companies accused of greenwashing may draw backlash and even face lawsuits and regulatory action. Since new rules are paving the way for a crackdown on greenwashing, brokers and their clients need to be ready.

Going Green Is Big Business

PDI Technologies found that 68% of Americans are willing to pay more for environmentally-sustainable products. Adults between the ages of 18 and 42 and those who are parents are even more willing to shell out extra cash in exchange for knowing they’re helping to protect the environment.

This means going green is big business. If companies convince customers they’re more environmentally friendly than their competitors, they may be able to charge more while winning a larger share of the market.

It should, therefore, come as no surprise that many companies are investing in advertising with messages about sustainability. According to The Conversation, many social media ads include “green” claims, particularly in the energy, household products, fashion, health and personal care, and travel industries. In addition to using words such as “clean,” “green,” “sustainable,” and “recycled,” ads frequently include earthy tones, nature imagery, and related emojis.

Many Green Claims May Be Misleading

Although many companies are making green claims, few back up these claims with evidence and specifics. This has led to accusations of greenwashing.

The United Nations says greenwashing can occur in different ways, such as when a company claims to be on track to reduce emissions to net zero without providing proof, when it is vague about its operations and materials, or when it uses undefined labels like “green” or “eco-friendly.” Companies may also be guilty of greenwashing if they imply a minor event has a major impact while ignoring other impacts.

How Green Claims Can Backfire

The Advertising Standards Authority (ASA) received 45 complaints over two ads from HSBC that boasted a transition to net zero and a project to plant 2 million trees. These claims were criticized as misleading because they omitted significant information about the company’s contribution to carbon dioxide and greenhouse gas emissions. The ASA determined that the ads could not appear again and that future claims would need to be properly qualified.

Other green claims have led to regulatory action or even class-action lawsuits. Truth in Advertising maintains a list of companies accused of greenwashing. The list includes lawsuits against Glad Recycling Bags, United Airlines, H&M, Royal Dutch Airlines, and many more.

Companies accused of greenwashing may also lose the customers they were trying to gain. According to KPMG, 54% of UK consumers say they would stop buying from companies with misleading sustainability claims.

New Regulations Aim to Curb Greenwashing

Amid concerns over greenwashing from consumers and advocacy groups, regulators have been working on new ways to curb greenwashing. In January, Members of the European Parliament announced new rules to ban greenwashing and misleading information. Notably, the new rules outlaw generic environmental claims and misleading product information, restrict sustainability labels to those based on approved certification schemes or established by public authorities, and require information to be more visible.

These new rules should help with the unclear labelling that has been at the heart of many greenwashing claims. Currently, a company may claim to be “natural” or “environmentally friendly.” However, with no clearly-defined criteria for these terms, it is unclear exactly what the company means by its claims.

At the time of the announcement, the EP directive still needed final approval from the Council. Then, the member states would have 24 months to establish corresponding national law.

Meanwhile, the UK is working on new rules. The FCA is introducing a new anti-greenwashing rule that is expected to take effect at the end of May, to help ensure that sustainability-related claims are fair, clear, and not misleading. The FCA is also introducing naming and marketing requirements to prevent products from being described as having a positive impact on sustainability when they don’t. It is also introducing product labels to help investors understand how companies are using their money.

Preventing Greenwashing Litigation and Regulatory Trouble

Manufacturers, transportation companies, and energy companies may be tempted to paint themselves as the environmentally-friendly choice. However, if they cannot support these claims with clear evidence, they may fail to attract customers and expose themselves to lawsuits and regulatory action. Brokers can help by raising awareness of the current greenwashing backlash and by discussing insurance coverage options for lawsuits alleging misleading statements.

Do you need assistance securing coverage for your clients? Costero provides creative solutions for your coverage problems. Contact us.

Today, a wide range of smart devices provide internet connectivity. Whereas this opens the door to new possibilities for businesses, it also leads to new cyber exposures. Brokers can help their clients by raising awareness of the risks, promoting cyber safety for smart devices, and offering insurance coverage for cyber exposures.

The Growth of the Internet of Things

The Internet of things (IoT) refers to internet-connected devices, often called smart devices. These are everything from smart refrigerators to internet-enabled drones and are used for both personal and commercial purposes.

IoT Analytics estimates there were 16.7 billion IoT endpoints (or devices) in 2023. This represents a 16% increase from 2022, when there were 14.3 billion endpoints. By 2027, there will likely be at least 29 billion endpoints.

Fortune Business Insights says IoT technology will likely create new revenue streams, drive business efficiencies, and enable new business models. In 2022, the IoT market was valued at $544.38 billion. By 2023, it could reach $3,352.97 billion. According to TechTarget, examples of IoT devices in business include securing systems, environmental monitoring systems and sensors, telematics, GPS, and analytics to track vehicles. However, these are just a few possibilities – there are countless other ways to leverage IoT devices.

IoT Devices Create Easy Access for Hackers

By now, most people understand the importance of securing computers with strong passwords, antivirus software, and up-to-date systems. However, it’s easy to overlook the ever-growing number of IoT devices.

Another issue is there is no regulation of IoT devices, making it possible for some manufacturers to get away with lax security. However, the UK has addressed this with the Product Security and Telecommunications Infrastructure Act of 2022, which creates new cybersecurity requirements for connected devices. This may help going forward, but many devices already in use may have poor cybersecurity.

Reuters says hackers regularly scan the internet for low-security devices to recruit to their botnet to launch distributed denial of service (DDoS) attacks. Hackers also use botnets to access other devices on the same network and steal data or carry out other malicious activities. IoT Solutions World Congress names several high-profile attacks that leveraged IoT vulnerabilities. One involved security cameras that allowed people to look through devices and sometimes even capture audio, as long as they had the IP address. Another was a massive DDoS attack that temporarily took down large sections of the internet in 2016 by targeting a DNS service provider.

The threat is growing. In 2022, Tech Monitor warned that hacking groups were increasingly targeting IoT devices. A report from SonicWall indicated that malware targeting IoT devices had increased by 98% in the final quarter of the year.

How Businesses Can Control Their IoT Exposures

Although IoT devices are vulnerable to hacking, business leaders can reduce their risks by taking IoT cybersecurity seriously.

• When purchasing IoT devices, make cybersecurity a top priority. Although stricter cybersecurity requirements should help, some devices – such as those available in regions with laxer standards or before standards went into effect – may have poor security.
• Keep an inventory of IoT devices and actively monitor them for security threats. If you are no longer using devices or features, disable them.
• Employ good cybersecurity practices for IoT devices, just as you would for computer systems. For example, select a strong password instead of relying on the default password and apply multifactor authentication. You should also use encryption and IoT network firewalls.
• Keep the network and router that IoT devices use secure. When possible, use a separate network for IoT devices or apply network segmentation. This can prevent hackers that compromise one device from accessing computers on the same network.
• Apply updates for devices as they become available. Consider whether you will be able to keep IoT devices secure if the provider stops supporting them with updates.

Securing Cyber Insurance

Cyber insurance can help with cyber incident response costs, reputational harm, system damage, and business interruption as well as losses stemming from botnetting, cryptojacking, ransomware, and other cybercrimes. Coverage is also available for technology errors and omissions, media liability, and network security and privacy liability.

Since cyber exposures keep becoming more complex and severe, businesses need to consider cyber insurance packages that meet their specific exposures. Costero offers first- and third-party cyber coverages that we can package to meet your client’s needs. Learn more.

Flood risks are rising, but many business owners are still unprepared. Whereas homeowners have access to conventional flood insurance, obtaining coverage is challenging for businesses. This does not mean businesses should go without coverage. By leveraging less traditional insurance strategies, brokers can help businesses secure the coverage they need.

Rising Flood Risks in the UK and Beyond

Climate change could bring an increase in floods around the world, including in the UK. Research from the University of Bristol shows that the annual damage caused by flooding could increase by 20% over the next year in the UK. The United Nations Development Programme says sea level rise over the last two decades has meant that 14 million additional people worldwide live in coastal communities with a one-in-20 annual chance of flooding. By the end of the century, 73 million people may be living in such areas.

Severe flooding has already become a reality for some people. Reuters says flooding cost the global economy more than $82 billion in 2021, representing close to one-third of all natural catastrophe losses for the year. The BBC says Storm Henk led to more than 250 flood warnings in England and left thousands of homes without power. As of early January, some properties near the River Severn had already experienced flooding for the fourth time during the 2023/2024 winter.

This is not the first time the UK has experienced severe flooding. The House of Commons Library says the winter of 2015/2016 saw flooding in approximately 16,000 properties in England, although 20,000 more could have flooded if not for existing flood defenses.

Flooding Can Devastate Businesses

When discussing mounting flood exposures, research often focuses on the individuals and families who could lose their homes to rising water levels. However, businesses are also vulnerable to flood damage.

In the aftermath of a flood, businesses face two primary obstacles:

• Property may be destroyed. Floods can destroy buildings as well as the equipment, inventory, and supplies stored within.
• Business operations may have to pause. While dealing with property damage and general flood conditions in the region, businesses may be unable to continue normal operations. Furthermore, they may lose computer systems and physical documents, meaning they won’t have access to the necessary data to resume operations. The resulting impact on revenue may put the business’s recovery in jeopardy.

Insurance Coverage Is Challenging But Not Impossible

Given the potential for severe property damage and business interruption, companies in the UK should consider obtaining flood insurance. However, they may have difficulty securing affordable coverage with sufficient limits, especially if they have elevated risks.

It’s important to note that the Flood Re program won’t help businesses. This joint initiative between the UK government and insurers aims to help UK residents obtain affordable coverage in light of rising risks and premiums. However, the program only provides residential coverage – businesses are ineligible to participate.

This means many businesses are facing rising risks and premiums without the help of a government program to keep costs down. As the threat continues to rise, businesses may need to look beyond conventional insurance programs to secure adequate coverage.

Alternative Flood Insurance Solutions

For many businesses that have struggled to find coverage in the traditional market, self-insurance may seem like the only option.

Businesses that choose to self-insure their own flood risks may simply set aside funds to cover potential flood-related losses. Another, more structured option is to form a captive insurance company. This is a subsidiary company, wholly owned by the parent company or companies that it provides insurance for. As captive owners, the insured businesses can obtain coverage for hard-to-place risks without facing coverage denials or non-renewals. If the business manages risks well, this can be a fiscally-sound option. The Financial Times says insurers are currently calling for lighter regulation to attract captive insurers to London.

However, brokers should also offer another option: parametric insurance.

Conventional insurance pays claims based on actual losses. Parametric insurance takes a different approach by providing payouts based solely on the occurrence of a triggering event, which the policy defines in terms of the severity and location and how it will be measured. When a triggering event occurs, the business promptly receives a claim payout without the insurer needing to calculate actual losses.

Parametric insurance is a flexible coverage option and is especially well suited for hard-to-place natural catastrophe losses. For this reason, interest in parametric insurance has been growing. Swiss Re says the global parametric industry generated $11.7 billion in 2021 and could generate $29.3 billion a year by 2031.

Do you need assistance securing coverage for commercial flood risks for your clients? Costero provides creative solutions for your coverage problems. Contact us.

New product liability regulations are coming to Europe. The European Union has reached an agreement on a revision to its old product liability directive, and the updated directive will mean significant changes to modernise product liability. Meanwhile, the UK recently published new proposals for changes to its product safety regime. With new product liability rules on the horizon, businesses may need to reassess their exposures and insurance coverage.

The EU’s New Product Liability Agreement

In December 2023, the Council of the European Union announced an agreement between the Council and the European Parliament to establish new liability rules. The text still needs to go through the approval and formal adoption process.

The proposed directive includes several significant changes, including the following:

• Product liability laws will extend to digital products. One of the most critical revisions involves a new definition of what constitutes a product. Many modern products only exist in digital form. Under the new directive, products will include digital manufacturing files and software. However, products will not include free and open-source software developed or supplied outside of commercial activity. Under the directive, damage or irreversible corruption of data is a type of damage that can lead to compensation.
• Companies that modify products will face liability. The new directive addresses product liability complications created by the circular economy, in which products are often reused after repairs or other modifications. Under the new directive, individuals or companies that make substantial modifications to products shall be held liable as the manufacturer.
• Individuals who suffer damage will be entitled to compensation. The new directive states that any natural person who suffers damage caused by a defective product will have a right to compensation. Damage includes death, personal injury, damage to psychological health, damage or destruction of property, and damage or irreversible corruption of data.
• Importers will be liable for defective products. The Council states that consumers in the EU are buying products from manufacturers located outside the EU more frequently and deserve the same level of protection. To achieve this, the directive calls for holding importers or authorised representatives of manufacturers of defective products or components liable. If it is not possible to hold an importer or authorised representative liable, the fulfilment service provider may face liability.
• Claimants may only need to prove the likelihood of a defect or causal link. The Council states that injured consumers may face excessive difficulties proving that a product is defective or that the defective product is the cause of damage. In such cases, the court may decide that the claimant only needs to prove the likelihood of the claim.

The UK’s Product Safety Proposals

In October 2023, the UK Department for Business & Trade published its UK Product Safety Review. Back in 2021, the UK issued a Product Safety Review Call for Evidence. The recent publication indicates that respondents identified challenges and opportunities in product safety regulations connected to changing business models, new technologies, and shifts in how products are made, supplied, and used.

According to Cooley, key changes in the proposals include mandatory incident reporting, voluntary e-labelling, an increase in the information provided in online listings for consumers, and direct penalty powers for enforcement authorities without prosecution. The proposals also call for a review of the UK product liability regime and a shift away from the existing product safety framework derived from EU rules in favor of a new cross-cutting and hazard-based approach. Additionally, the proposal calls for newly-defined roles and specific duties for online marketplaces.

New Liabilities and Insurance Needs

Under the proposed changes, businesses may face new liability exposures. While business leaders wait for the finalisation of new rules, brokers can seize the opportunity to review product liability insurance coverage with their clients.

• Do they have product liability coverage in place? Changes in regulations may create additional liability for software developers, online marketplaces, importers, and fulfilment service providers. Organizations that forwent coverage in the past may wish to secure coverage moving forward.
• What types of claims does the policy cover? In addition to claims of physical bodily injury and property damage, the EU directive may cover claims of psychological injury and data loss. Review the various types of injuries policies cover and identify exclusions or coverage gaps.
• How much coverage is available? Reassess both the per occurrence and aggregate limits in light of increased liability exposures.

Do you need assistance securing product liability coverage for your clients? Costero provides creative solutions for your clients’ coverage challenges. Contact us.

Cryptocurrency has attracted investors from around the world. However, it has also attracted scammers looking to take advantage of a growing market. Recent scandals and cyber incidents have shown that many companies and individual investors have substantial cryptocurrency exposures. Brokers can help their clients by discussing cryptocurrency investments and offering coverage solutions for crypto exposures.

The State of the Cryptocurrency Market

Fortune Business Insights says the global cryptocurrency market was valued at $826.6 million in 2020 and is expected to reach $1,902.5 million by 2028. Rising digital investments in venture capital are a key driver of the 11.1% compound annual growth rate that is expected to occur between 2021 and 2028.

Multiple financial institutions have invested in cryptocurrency in recent years. In fact, CB Insights found that 55% of the top 100 banks (when ranked by assets under management) were involved in the blockchain or digital currency either directly or through their subsidiaries, as of August 2021.

According to Chainalysis, the Central, Northern, and Western Europe (CNWE) market is the second largest cryptocurrency economy in the world, as of 2023, surpassed only by the North American market. The CNWE market accounted for $1 trillion in on-chain value between July 2022 and June 2023, representing 17.6% of all global transaction volume.

Fraud in the Cryptocurrency Market

The FTC says cryptocurrency is attractive to scammers because there’s no centralized authority to flag suspicious transactions, it’s not possible to reverse transfers to recoup losses, and many people are unfamiliar with how cryptocurrency works – a fact that scammers can exploit. These factors have led cryptocurrency scams to surge – in 2021, reported losses were 60 times greater than in 2018.

What may be the largest case of cryptocurrency fraud has centered on FTX. In 2022, the cryptocurrency market suffered following the collapse of FTX. The BBC reports that Sam Bankman-Fried, the founder of FTX, faces prison time for fraud and money laundering after a jury found him guilty of lying to lenders and investors and stealing from FTX.

The UK has also experienced a massive surge in cryptocurrency fraud. According to RPC, data from Action Fraud shows that the value of cryptocurrency fraud in the UK increased by 41% between March 2022 and March 2023, reaching a record high of £306 million.

Hacks are another major concern. Investopedia says several high-profile thefts have targeted cryptocurrency exchanges and platforms, including a $625 million hack on the Ronin Network and a $586 million hack on the Binance exchange. In 2022, hackers stole an estimated $3.8 billion from cryptocurrency exchanges and platforms.

New Cryptocurrency Regulations

According to Investopedia, FTX was the third largest crypto exchange at the time of the collapse. Its downfall has led to distrust in the crypto market and prompted calls for a regulatory crackdown with greater government oversight.

In the UK, new regulations restrict cryptocurrency promotions. Within 24 hours of implementation, the Financial Conduct Authority issued 146 alerts of unauthorised promotions. Meanwhile, the European Parliament says the EU adopted a comprehensive regulatory framework to regulate cryptocurrency markets in June 2023.

Helping Clients Navigate the Volatile Cryptocurrency Market

Recent volatility and fraudulent activity show that investors face numerous risks when dealing with crypto assets.

Since cryptocurrency is a relatively new and still developing market, some brokers may not have incorporated crypto-related risk management strategies into their services yet. As a result, many clients may lack the protection they need to prevent and mitigate major losses. Brokers can help in the following ways:

• Educate clients about cryptocurrency-related risks. Both retail investors and businesses with cryptocurrency investments should be aware of the risks. One way to inform them is to provide information from reputable sources. For example, Action Fraud has tips for avoiding cryptocurrency fraud, such as checking the FCA Register to verify that a firm is authorized.
• Offer insurance for cryptocurrency-related losses. The nature of cryptocurrency means it may be impossible to recover funds once they are lost to a scammer. However, new cryptocurrency insurance products offer coverage for some losses. For individuals and businesses with significant crypto-related exposures, such coverage may be worth pursuing.

Costero offers innovative insurance products for digital assets and cryptocurrency-related exposures. Retail investors can rest easy with Coincover’s wallet protection product, whereas exchanges, custodians, banks, investment managers, and other companies with crypto exposures can benefit from our various protection solutions. Learn more.

Cybercrime risks have received significant attention recently, but other types of crime continue to be a threat. Amid growing concerns over economic and social unrest, companies are facing elevated crime risks. As a result, many of them are increasing their security investments.

Physical Security Incidents Are Causing Greater Losses

The 2023 World Security Report from Allied Universal found that companies lost $1 trillion due to physical security incidents in 2022. One in four publicly-listed companies reported a drop in their value following a physical security incident in the last year. The report identified economic unrest, social unrest, climate change, war and political instability, pandemics, and disruption to energy supplies as hazards impacting security.

Recent Crime Trends

The question as to whether crime is rising is a difficult one to answer – you’ll receive different responses depending on whom you ask. The Office for National Statistics says total crime in England and Wales decreased in the 12 months ending June 2023. However, certain types of crime increased: computer misuse by 33%, police-recorded robbery offences by 11%, offences involving knives or sharp instruments by 3%, and offences involving firearms by 13%.

UK retailers have also experienced an increase in crime. According to the British Retail Consortium’s Crime Survey 2023, every day more than 850 retail workers experienced violence or abuse in 2021/2022, which is almost twice the rate seen before the pandemic. During this time, crime resulted in losses of £1.76 billion. Reuters says 88 UK retail leaders signed a letter to the interior minister demanding action to stop rising retail crime rates.

Crime has also been a growing issue in other parts of the world. Le Monde says shoplifting has increased in countries including Greece and France. In the U.S., the National Retail Federation says retail crime resulted in losses of $112.1 billion in 2022, up from $93.9 billion in 2021.

Economic Stress May Fuel Crime

To explain the recent increases in retail crime, many people point to high inflation rates that have made necessities unaffordable. The International Monetary Fund says global inflation reached 8.7% in 2022 and fell to 7.0% in 2023. Inflation is not expected to return to target levels before 2025 in most cases.

Inflation has hit many families hard. For example, CNN says U.S. families are spending $709 more per month compared to two years ago.

Social Unrest Is Exacerbating the Problem

Social tensions are also contributing to security risks. In some cases, social unrest and economic stressors go hand in hand. According to Politico, protests over food and fuel increased in 2022, with Europe being especially impacted. For example, protestors in Italy denounced high energy costs, protestors in France rallied against the high cost of living, and those in Spain called for higher wages.

Other protests have been more political in nature. According to the BBC, French police broke up a pro-Palestine demonstration after such protests were banned, whereas ARTnews says Just Stop Oil protestors in England have been found guilty of property destruction. Immigration is another hot topic – Euronews says there were 307 anti-migrant protests in 2022.

Businesses Are Beefing Up Security

Faced with mounting security risks, many businesses are investing in physical securing measures. In the report from Allied Universal, 46% of responding companies said they plan to significantly increase their physical security budgets. The most popular method is to introduce new technology, which 55% of respondents named as a priority. Training staff, optimizing security processes, increasing physical security measures, conducting risk assessments and threat analyses, and meeting compliance and regulatory requirements also rank as high priorities.

Data from the British Security Industry Association shows that security businesses have increased the size of their workforces by 16% since July 2022. The rising demand for security workers contrasts with the overall hiring freezes and job cuts in most industries. In Europe, demand for private security has been growing, according to the International Security Journal, but nearly half of security companies struggle to meet demand due to labour shortages.

Protecting Businesses from Security Threats

Economic and social unrest leading to elevated risk levels is pushing businesses to invest in security, but they should also be thinking about insurance. If you need assistance finding coverage for your clients, Costero Brokers can help. We provide creative solutions for your coverage problems. Contact us.

You want some things to last forever, but dangerous chemicals aren’t one of them. Per- and polyfluoroalkyl substances (PFAS) are often called forever chemicals. Watchdogs are raising the alarm about the potentially harmful effects of forever chemicals, which could result in manufacturers facing mounting liability. Brokers and their commercial clients need to keep an eye on this emerging issue.

What Are Forever Chemicals?

The UN Environment Programme describes PFAS as toxic, manmade, hazardous chemicals with dangerous effects on the environment and human health. Scientifically speaking, chemicals in the PFAS family are synthetic organic chemicals with completely or partially fluorinated carbon chains. Thousands of different chemicals are classified as PFAS. They all have a stable structure that is resistant to heat, fire, stains, water, grease, and friction, making them useful in multiple industries. Many common goods use PFAS, including water-repellent clothing, non-stick cookware, stain-resistant carpet, and cleaning agents.

According to the European Environment Agency, PFAS are extremely persistent in bodies and the environment, hence the nickname “forever chemicals.” PFAS have been linked to various health problems, including liver damage, thyroid disease, obesity, cancer, and fertility issues.

Forever Chemicals Are Everywhere

The European Environment Agency says it’s impossible to conduct an in-depth risk assessment of PFAS due to sheer diversity of chemicals in use. However, monitoring activities have shown that PFAS are prevalent in the environment. The production and use of PFAS has led to the contamination of water supplies in European countries, and PFAS have been detected in the blood of European citizens.

Proposed PFAS Bans

Amid growing concerns over the long-term effects of PFAS chemicals, some governments have considered banning the chemicals.

The European Chemical Agency says one group of PFAS chemicals – perfluorooctane sulfonic acid and its derivatives (PFOS) – have been restricted in the European Union for more than a decade under the Persistent Organic Pollutants Regulation. PFOS chemicals are also included for elimination in the international Stockholm Convention.

Bloomberg Law says the EU has proposed a PFAS ban on approximately 10,000 substances. This ban would be phased in through the late 2030s. Since it would impact thousands of products, pushback was inevitable. For example, Reuters says the pharma lobby has warned that the ban would negatively impact drug production. According to The Guardian, the ban was not included in recently leaked policy proposals, leading the newspaper to say the EU has abandoned its promise of a ban.

Nevertheless, stricter rules may be coming in Europe and abroad. In the United States, California is leading the trend, with bans on PFAS in textiles and cosmetics, according to Safer States. Washington and New York are considering similar bans.

Litigation Over Forever Chemicals

Although regulatory change may be slow, litigation surrounding forever chemicals has already occurred. TIME predicts that PFAS litigation could eclipse settlements over tobacco, whereas the EUobserver says investors think forever chemicals could be the “new asbestos.”

In the US, Safer States says 27 attorneys general have already filed lawsuits over forever chemicals, including 13 that filed lawsuits in 2023. According to AP News, 3M will pay a minimum of $10.3 billion and possibly as much as $12.5 billion to settle lawsuits claiming that forever chemicals used in firefighting foam and other products have contaminated public drinking water systems.

3M may also face massive costs in the Netherlands, where the government has said it will hold the organization liable for polluting the Western Scheldt River, according to Reuters. In addition, Insurance Day says PFAS-related claims have increased in the EU and a similar rise in litigation could be coming to the UK.

Insurance Coverage for PFAS Exposures

Businesses may seek coverage for PFAS liability under environmental and pollution liability policies. However, Bloomberg Law notes that insurers have argued they are not liable for PFAS-related claims.

As litigation risks grow, PFAS exclusions may become more common. Indeed, the Independent Insurance Agency & Brokers of America says the ISO has introduced forms that exclude coverage for PFAS. The Lloyd’s Market Association has also published exclusion clauses for PFAS. According to Lexology, these clauses were recently updated to include common examples of PFAS substances. The new clauses are LMA5595A and LMA5596A.

Helping Your Clients Navigate PFAS Risks

For businesses involved in the manufacturing of PFAS products, the recent rise in litigation and regulatory activity may be alarming. As business leaders assess their risks, they will likely be looking for insurance coverage. However, coverage may not be readily available. Brokers should be aware of these PFAS exclusions and make sure their clients understand their coverage.

Do you need help securing coverage for your manufacturing clients? Costero provides creative solutions for your coverage problems. Contact us.

Over the last year, some of the most impressive technological advancements have come from the development of generative AI. Businesses around the world are figuring out how they can leverage this technology to increase efficiency and profits. At the same time, it’s important to identify and control related exposures.

The Potential of Generative AI

Generative AI refers to AI algorithms and deep-learning models that can generate text, images, video, audio, and code. Many generative AI programs have text-based interfaces that enable the user to type a simple prompt telling the AI what to create. Popular examples include DALL-E (AI-generated images) and ChatGPT (AI-generated text), but numerous other programs have also become available.

According to McKinsey & Company, recent breakthroughs in generative AI could change the way people approach content generation. However, since the technology is very new, there are limitations and risks to consider.

Copyright Disputes

Some of the stickiest issues surrounding AI-generated content involve copyright.

Generative AI models are trained using vast amounts of content, which is often copyrighted. According to Reuters, this has led to lawsuits between AI companies claiming fair use and copyright holders claiming infringement. There has also been some concern that AI models may generate content that closely resembles existing copyrighted content, thereby infringing on the original creator’s intellectual property. A report from the U.S. Congressional Research Service says both the AI user and the AI company could potentially be held liable for infringing on the copyright holders’ exclusive right when they create AI-generated materials.

Even if the AI-generated content is not infringing on anyone’s rights, companies creating it may be unable to claim ownership. The U.S. Copyright Office has determined that AI-generated works are made without the creative contribution of a human actor and therefore can’t be copyrighted. However, other countries may reach different conclusions. According to Herbert Smith Freehills, the UK’s Copyright Designs and Patents Act of 1988 provides copyright protection for computer-generated works with no human author, but there are nonetheless issues of originality and authorship to consider.

Disinformation and Defamation

It’s never been so easy to create factually-incorrect but highly-convincing material. According to Vice, Adobe has been caught selling user-submitted AI-generated images of violence in Gaza and Israel. Some of these images may end up online without being labeled as AI. This means there’s a huge potential for disinformation. With AI, anyone can create realistic images of people doing things they never did and of events that never happened.

Even when AI-users don’t set out to spread disinformation, they may end up generating falsehoods. This is largely due to AI’s propensity to “hallucinate” or make up facts, which can be a major problem when companies use AI to create articles or to conduct research. For example, The Law Society Gazette says New Zealand’s Law Society has received multiple requests from lawyer members for cases that were cited by ChatGPT but that don’t actually exist. Plus, research published in the Cureus Journal of Medical Science says ChatGPT-generated content has high rates of inaccurate or fabricated references. Gizmodo says CNET had to review the accuracy of its AI-written articles after several significant inaccuracies required corrections. According to Bloomberg News, AI hallucinations have even led to a defamation lawsuit.

Fraud

Companies determine how to use AI to their advantage; criminals are doing the same. For example, CNBC says generative AI tools are leading to a massive increase in malicious phishing emails. Scammers can also use generative AI to create fake videos and audio of real people, called deepfakes. According to The Next Web, deepfake fraud increased by 3,000% in 2023.

Data Privacy and Security

Generative AI has led to several concerns over data privacy and security. According to Reuters, Italy went so far as to ban ChatGPT, although the country did lift the ban after OpenAI (the company behind ChatGPT) addressed its data privacy concerns. Business Insider says several companies – including Apple, Verizon, and Wells Fargo – have banned or restricted the use of ChatGPT, largely due to data privacy risks.

Companies that use ChatGPT to write code may also encounter risks. Research published in Cornell University’s ArXiv found that ChatGPT often generates code that is not robust against certain attacks, even though the chatbot appears to be aware of the vulnerabilities.

Controlling Your AI Risks

Despite the risks, many companies are eager to harness the potential of generative AI. To avoid complications, they should exercise caution.

• Watch for evolving regulations. Governments are constantly reacting to new developments. New legislation may impact copyright and data protection.
• Don’t use AI-generated content without thoroughly reviewing it first. Code may not be secure and text may be incorrect.
• Train your team to be alert for phishing and deepfake risks. Since AI-powered scams may be more convincing, everyone needs to look for threats.
• Establish clear company policies regarding AI use, including when workers can use AI and what information they can include in AI prompts.
• Determine how your insurance coverage would respond to AI-related claims, such as copyright infringement, data breaches, and defamation.

Generative AI has brought about major change and many of your clients’ risk management teams are still catching up. Costero Brokers can help you secure smart protection for your clients. Contact us.