The Expert Podcast

The recent cyber attack against CDK, a company that provides technical platforms for car dealerships, is a very good case study in how cyber attacks work and what the response is from clients, third parties, and insurance companies.

The cyber attack hit CDK, which provides platforms for new car dealerships, helping them manage their sales department, service department, parts department, paperwork, scheduling, and accounting. Since these dealerships rely heavily on CDK, one cyber attack against one company affected 15,000 car dealerships. Many of these dealerships were effectively shut down for about a week; they couldn't sell cars, couldn't work on cars. Some dealerships found workarounds with old school pen and paper, but many of them were just out of business.

Now that the cyber attack is over, CDK eventually resolved it. I'm not sure if they paid a ransom or did something internally. Now, the legal process starts, and some dealerships are filing insurance claims for the damages and losses—if they lost sales, if they had to pay extra money for overtime. Is it going to work? Well, it depends on what your insurance policy covers.

If you have a cyber liability insurance policy, that's great. But some of them only cover if you, as a company, are individually hacked. If a third party's hack affects you, you may not have coverage for third parties. Also, if you have business interruption insurance (BI), it may not kick in unless you have physical damage to your premises, which a hack really isn't. So, you have to look at your coverages to make sure that it does cover the types of things that are losses.

The types of coverages are important. Many times, commercial lines insurance policies are very complex, with different layers of coverages, endorsements, and exclusions from coverage. You have to make sure that, especially in these days of cyber liability, you know what kind of coverages you have. The most important thing is to realize that in this developing cyber attack environment, the biggest risk to most companies is a cyber attack. It's not your building burning down, it's not a hurricane, it's not other types of losses. Cyber attack is growing like wildfire.

While your general liability policy might have an endorsement for some cyber coverage, it probably doesn't cover third parties. It probably has a limit of maybe $10,000 or $15,000, which is nothing, and it may have a lot of exclusions. You really want to take a look at a standalone cyber liability policy and see what the coverage differences are. Ask your agent, ask your broker what's excluded. Have them look at it—they may not know by heart what the coverages are, but have them go through it. Whatever coverages you decide, you want to know what you're covered for and what you're not covered for.

If you might want to make a decision to not have insurance for certain perils or risks, that's fine as long as you know what they are. You don't want to be surprised later when something comes up and you think, "Hey, wait a minute, I thought I would be taken care of." You can decide whether it's worth the money to spend or not. But because cyber liability and cyber attacks are a very new type of insurance and a very new type of risk, it's an evolving type of landscape, and you want to know exactly what is going to be your responsibility to take care of if there's a loss or if there's a claim.

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