October 21, 2019

October 21, 2019

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How to Evaluate Cyber Insurance Options?

On April 10, 2018, the Federal Financial Institutions Examination Council (the “FFIEC”), an interagency body composed of the Board of Governors of the Federal Reserve System, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency and the State Liaison Committee, issued guidance to assist financial institutions in analyzing the use of cyber insurance in an effective risk management program (the “Guidance”).

The Guidance provides, among other things, that in evaluating cyber insurance options institutions should:

  • Involve Multiple Stakeholders in the Cyber Insurance Decision. Involve multiple stakeholders, including management and appropriate departments, in assessing the sufficiency of existing control environments to address cyber risk exposure.

  • Perform Due Diligence. Perform adequate due diligence to understand available options for cyber insurance coverage and to understand the following: (i) the policy’s terms, coverage exclusions and costs; (ii) the potential benefits and costs associated with the insurance coverage; (iii) the variances in different kinds of policies from different providers; (iv) how coverage is triggered and how exclusions to coverage apply; (v) the financial strength (ratings) and claims paying history of the insurance company providing the coverage; and (vi) that outside advisors, such as attorneys, may assist in the due diligence process to assess the benefits of cyber insurance relative to cost.

  • Evaluate Cyber Insurance Annually. Evaluate cyber insurance in the annual insurance review and budgeting process at the board of directors level.

The Guidance states that “it does not contain any new regulatory expectations.” However, another way to interpret the Guidance is that it constitutes a strong suggestion that every covered institution should carefully consider the benefits of cyber insurance and, should it opt out of such coverage, to have well documented reasons in support of that decision.

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About this Author

Juan M. Arciniegas, Vedder Price, derivatives, structured products and futures

Juan M. Arciniegas is a Shareholder at Vedder Price and a member of the Investment Services group in the firm’s Chicago office.

Mr. Arciniegas works primarily as a derivatives lawyer and has significant experience in the market for over-the-counter (OTC) derivatives, structured products and futures. He advises on every stage throughout the life cycle of a derivatives transaction, from conducting pre-trade regulatory due diligence to negotiating transactional documentation and advising on post-trade reporting and recordkeeping obligations. This...

James M. Kane, Vedder Price Law Firm, Finance Attorney

James M. Kane joined Vedder Price in 1993 as a shareholder and is a member of the firm’s Financial Institutions Group. From 1981 until joining Vedder Price, he was the district counsel in Chicago for the Office of the Comptroller of the Currency. As the chief legal officer for the Six-State Central District (Illinois, Wisconsin, Michigan, Ohio, Indiana and Kentucky), he was responsible for providing legal and policy advice to the Deputy Comptroller and the 500 examiners of the Central District. In this capacity, he authored opinions on a wide variety of banking law issues and represented the OCC in numerous enforcement actions involving national banks, bank officers and directors.

Blaine C. Kimrey, media defense Litigation, Vedder Price Law Firm Chicago Office

Blaine C. Kimrey is a Shareholder in the Litigation practice area in the firm’s Chicago office.

A former journalist at two daily newspapers (the Austin American-Statesman and the Arkansas Democrat-Gazette), Mr. Kimrey is a trial lawyer who has dedicated more than 20 years to working for and defending media entities. Mr. Kimrey’s practice, however, extends well beyond media defense, focusing on a broad range of direct and class action litigation involving topics as diverse as privacy, consumer deception, intellectual property,...

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Jennifer King, corporate, capital markets, securities, attorney, Vedder Price,

Jennifer Durham King joined Vedder Price’s Chicago office in 1997 as a member of the firm’s Corporate and Capital Markets practice areas. She concentrates her practice in capital markets and corporate securities transactions, with a specific focus on financial institutions. Ms. King regularly represents issuers and underwriters in a broad range of capital markets transactions, including public and private debt and equity offerings, trust preferred offerings, mergers and acquisitions, and capital planning and formation.

Daniel C. McKay, Vedder Price Law Firm, Financial Attorney

Daniel C. McKay, II concentrates his practice in the representation of financial institutions and corporations and their officers, directors and shareholders in connection with mergers and acquisitions, securities offerings, corporate finance, corporate governance and regulatory and compliance matters.  He has been involved in more than 150 bank or thrift  mergers and acquisitions/securities offerings, with aggregate consideration of these deals totaling over $50 billion.