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As a managing general agent, Elpha Secure needed to find capacity providers, an increasingly challenging proposition as reinsurers shy away from all types of catastrophic risk, including exposure to a catastrophic cyber event as a result of systemic risk.
“From an ultimate loss perspective,” MacDonald says, “you could take all your hurricanes, wildfires, and wind events and put them on the Florida Panhandle and the damage would still be lower than if a threat actor took down Microsoft.”
But Milliman had the expertise to surmount this challenge, as Scott recalled an innovation she’d once used to manage the catastrophe risk on a homeowners insurance program and could now apply to cyber.
With homeowners, a catastrophe such as a hurricane puts property insurers’ capital at risk to pay for damage to multiple properties from a single event. Managing the catastrophe aggregation and concentration risk in that case requires different underwriting and pricing tools than those traditionally used in this line of business. To be able to apply different underwriting and pricing tools to the hurricane exposure, Scott split all the coverages apart, isolating the hurricane coverage. This allowed her to develop underwriting rules and rates specific to the hurricane coverage separate from the other coverages.
When the Milliman team applied this approach to cyber, it meant splitting the “attritional” risk—say, a small breach within a single company—from the “systemic” risk—an attack that affects many insureds, such as a breach in a payment system used by many websites. This granular risk breakdown enabled Elpha’s capacity providers to participate only in the portion of the risk they chose, at a rate that made them comfortable.
“We used sophisticated ratemaking techniques typically used to create a by-peril homeowners insurance product to build a novel cyber insurance product,” Scott explains. “To take our learnings and our experience from one line of business and apply them to a new and evolving line of business was exciting.”
The result was an innovative cyber insurance product that was appealing to capacity providers, appropriately priced, and within reach of small businesses.
Today, Elpha Secure helps protect thousands of small and medium-sized enterprises across the United States, from seafood purveyors to solo accountants.
“We’ve been able to guarantee full coverage for businesses that would otherwise be restricted to a low-limits policy that wouldn’t help them much when they have a real claim,” MacDonald says.
Since Elpha launched its main product in 2022, leaders have continued to meet regularly with Milliman to refine the company’s insurance product rating and coverages, including a recent errors and omissions coverage enhancement. The ongoing relationship means Elpha can continue to adapt to the ever-evolving cyber market.
“I think it’s really fun work,” Zolla says. “And for us to be able to build something that meets our clients’ needs and helps Main Street businesses, it’s just fulfilling.”
MacDonald agrees. “There's so much room for innovation in cyber insurance, and Milliman recognizes that. It’s just a challenging—and exciting—industry to be in.”
This article was written by Milliman Senior Writer Adin Bookbinder.
