Many risk managers in Central and Eastern Europe are identifying their cyber exposures, but few are buying insurance covers

Cyber security risk is on the radar of risk managers in Central and Eastern Europe, but brokers are awaiting demand from insurance buyers.

The EU’s incoming General Data Protection Regulation (GDPR) is expected to drive demand for risk transfer, according to Jan Stok, chief executive of MAI CEE, an insurance broker set up in Budapest, active in 29 countries in Central and Eastern Europe (CEE), with some $100m of brokerage.

“In Poland, Czech Republic and Hungary, clients are starting to look into cyber risk,” Stok told StrategicRISK.

“They’re still not buying, but they’re starting to identify it as a potential risk. It’s just a question of time before this trend will turn into buying habits,” said Stok.

He said he sees GDPR implementation as the next driver in relation to cyber exposures, such as data breaches caused by fraudsters and hackers.

From 25 May 2018, GDPR could lead to fines of up to €20m or 4% of global annual turnover for the preceding financial year.

“It’s a hot topic for the market, no doubt because of the penalties. The broking associations across the region have it as main topic on the agenda,” said Stok.

How Europe’s patchwork of national regulators will interpret the rules, and how they will choose to enforce them, is still moot – including governing whether penalties can be insured.

“There are still major gaps of information in how it will be implemented across CEE,” agreed Stok.

“The cyber topic is really moving, but I think a lot of clients are at the stage of recognising the risks, not at stage of buying [insurance products]. Clients are now saying they know what it is. The expectation is that more and more policies are coming next year and in 2019,” he continued.

“The insurers are offering cover. I’m quite curious how it will go forward in the coming months,” Stok added.

Much of his business comes from brokers and clients working within firms based in other jurisdictions, particularly Western Europe, looking to insure their multinational operations within CEE countries.

The region remains a challenge for freedom of service, he suggests, including both EU members and non-EU member states.

“Premium-wise it’s not far from the premium of Spain, except that there are thirty countries, thirty legislations, part in EU, part outside, partly in the euro, and part using different currencies. Each has its own different legislation,” he said.

“All this results in the need for somebody on the ground to service needs,” Stok suggested, emphasising the need for a mix of locally and internationally placed covers.

He said some overseas brokers, faced with cross-border liability issues, and a mess of changing legislation to keep track of, were leaving multinational insurance questions to clients to figure out for themselves.

“Basically, if you are a French client investing in Czech, Poland, you might obtain a French policy covering these countries from France, managed by a broker and insurer in France,” said Stok.

“That doesn’t mean you’re properly serving the Polish or Czech parts of, let’s say a workers’ compensation or general liability policy. Those are differently managed across countries in CEE. Buyers need to be aware of that and need a policy reflecting that,” he said.

Employee benefits for multinationals is another area of interest, he explained, particularly commercial health solutions in Russia, Ukraine and Poland.

“State schemes are providing very limited coverage in some countries. In Russia, employee benefits have become a hot topic,” said Stok.

“We see more and more interest in employee benefits from headquarters in Russia, relating to commercial health, for example,” he said.

In comparison, in the Czech Republic and Slovakia the state schemes are more sufficient, he suggested.

“Again, it differs by country. When facilitating for international clients how to apply employee benefits across the region, the level of cover differs across countries,” continued Stok.

Some of the demand is based on competition, with a fight for talent going on among companies, with employee benefits covers a major attraction for skilled workers.

“There is a lot of demand for life insurance,” said Stok. “Companies are more interested in employee benefits now, how to attract talent, amid more competition, so they are fighting for the same labour.”