Contingent Business Interruption Insurance in Cyber Attacks

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The recent cyberattack on UnitedHealth Group’s Change Healthcare unit reminded us all that a cyber policy is a must-have nowadays. But there is another policy that every business should consider:

Contingent or Dependent Business Interruption insurance, which helps companies stay on their feet when disaster befalls a vendor (including cloud service providers) or a key customer.

Traditional CBI policies were designed to cover physical damage to a supplier's facilities. However, as cyber threats have become more common, some insurers have started offering policies that cover non-physical damage, including cyberattacks. Whether a cyberattack on a vendor is covered may depend on how the policy is written, so, as aways, buyer beware.

If you missed the news, the Feb. 21 cyberattack, orchestrated by the ALPHV/BlackCat ransomware gang, targeted Change Healthcare, a critical component of UnitedHealth Group. This unit's extensive network, responsible for processing around 15 billion transactions annually and touching one in three medical records in the U.S., was severely disrupted.

The impact was felt across the healthcare sector, effecting hospitals, clinics, and others reliant on Change's services for claims processing and revenue management.

Physician-owned medical groups, psychiatry practices and private practitioners across the U.S. have seen cash flow dry up. Some have been forced to furlough staff or use their own money to pay employees.

It’s scenarios just like this in which CBI insurance can be a lifeline.

CBI insurance is designed to cover loss of income and extra expenses resulting from disruptions in a business's supply chain, including services provided by third parties like Change Healthcare.

Unlike traditional Business Interruption insurance, CBI coverage extends to scenarios where the insured's property hasn't been directly damaged.

CBI pays for loss of net income, necessary continuing expenses and extra expenses incurred during what’s known as a “period of restoration.” This period is generally defined as the reasonable amount of time necessary for the dependent property — i.e., the supplier or customer — to return to normal operations.

In short, the clinics that have suffered the most through Change Healthcare’s catastrophe could have been spared the worst of it if they had CBI in place.

If you’re thinking of adding CBI to your insurance program, keep in mind that coverage terms and conditions can vary greatly between insurers, with a host of limitations and exclusions potentially at play. As always, it helps to retain an insurance broker with a good understanding of your supply chain and operations who can then negotiate the coverage you need.

The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the U.S. For more information, visit our website or call 877-440-3304.

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.

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