6 Commercial Property Hail Risks
Call it spear phishing, social engineering or business email compromise. This type of scheme has gotten plenty of coverage in recent years — when fraudsters posing as the boss or a vendor, or client convince an authorized employee to wire transfer funds to a fraudulent account, never to be seen again. Historically, it’s been a form of fraud that offers a quick payout and requires little work on the part of the perpetrator.
But now the thieves are changing their tactics.
“The methods used to perpetrate these fraudulent events are evolving. The fraudsters are investing more effort in orchestrating them, as the payouts can be significant. The targeted “windfall” has expanded too. No longer is it limited to a transfer of funds. We’re now seeing schemes resulting in the fraudulent transfer of tangible property,” said Patricia Barrett, Vice President and Head of Fidelity, Starr Companies.
Criminals are setting their sights on a company’s goods, not just their cash.
To pull that off, thieves use a hybrid of traditional fraud and sophisticated cyber tactics. Through hacking and malware, they can spy on a company’s operations, gathering valuable intelligence on executives and employees. Then they use social engineering tactics to trick workers into unwittingly sending a shipment of products their way.
The experience of one small business — a distributor of small electronic devices — demonstrates how easy it is to fall victim to this type of theft. To sell its products, this company relied on its executives traveling to trade shows throughout the year, often for weeks at a time.
A fraudster, posing as a prospective customer, sent a link in an email to the company’s sales department. Once opened, the link set loose malware that allowed the perpetrator to “lie in wait,” watching the moves of company insiders. The fraudster knew who was scheduled to travel, when, and what type of property the traveler would need to have delivered. The fraudster knew the vernacular used by traveling executives, and what the protocol was for change requests.
Back at the office one day, an employee received an email that appeared to be from the chief executive. “Joe, the trade shows are going really well,” he said, “In fact, I’m down to less than a dozen mobile devices; I’m likely to run out before reaching my next stop.” He instructed the employee to send an additional shipment of electronics to the location of the next show in Las Vegas.
But there was a wrinkle. He’d had to change some travel plans and would no longer be staying at the conference hotel. He booked a room at the hotel across the street. He asked the employee to direct the shipment there instead.
Everything about the request made sense. It was feasible that the executive might need more products. He stated correctly where the next show would be. There was no reason to doubt that he had decided to switch hotels.
“The employee never questioned that the instruction came from the chief executive, so he transferred that property to the hotel and the entire shipment was lost,” Barrett said.
Executing this theft requires in-depth knowledge of a company’s hierarchy, business processes, and of the employees themselves. Because the potential payout is so large, these fraudsters often spend months gathering information before hitting “send” on that fraudulent email.
Malware is often part of their intel-gathering and may be introduced through social engineering. A phony email asking an employee to click a link or download an attachment could be all it takes to get a virus into the system.
By gaining access to the company’s network, thieves can examine billing systems, transaction records and vendor lists, getting a sense of what a normal transfer of goods looks like and who performs them. They can even obtain the executive’s travel itinerary.
They can also glean personal details and communication styles easily from social media.
“The target employee may have posted that he left work early Friday afternoon to attend his son’s baseball game. The copycat executive in the fraudulent email might ask, ‘How was your afternoon off? Who won the game?’” Barrett said. “It builds familiarity. The employee wouldn’t suspect that anyone else would know that level of detail.”
Email is not the only way to perpetrate this type of fraud, however. Criminals can be just as convincing over the phone.
At one organization, the Accounts Payable department received a call from one of their purported vendors, stating that the vendor had consolidated some banking relationships and needed to change the account listed on their contract.
The accounts payable employee sent a change form to an email address provided by the caller. She did not check the master vendor file, but trusted that the email given to her was correct. She did not phone the vendor at a previously verified phone number to validate the request. The caller posing as a vendor sent back the updated form within 15 minutes, and the change was initiated.
The organization proceeded to make three payments to the fraudulent account totaling $700,000. The mistake was not discovered until the real vendor followed up, asking why their payments were delayed.
“The payments slipped through because this was a multi-million-dollar business relationship; and it was not uncommon for them to transact significant business in a short period of time,” Barrett said. “The same tactic could be used to make change orders, diverting a shipment of inventory.”
“Though several insurers will consider providing coverage for fraudulent impersonations that result in a loss of funds, a coverage gap still remains for a loss of other tangible property,” Barrett said.
As with the loss of funds, recovering the stolen property in most cases is next to impossible.
“Once discovered, the trail can go cold very quickly,” Barrett said. To recoup the loss, insureds may have to navigate the intersection of crime, fidelity, cyber, and professional liability coverages.
As cyber criminals grow more sophisticated, calculating and patient, companies need solutions that fill in those gray areas so prevalent in the world of cyber threat and fraud.
Starr Companies crafted an endorsement to its crime and fidelity coverages that covers the loss of other tangible property, in addition to loss of funds, resulting from fraudulent impersonation scams.
“The expanded Fraudulent Impersonation endorsement allows a company to secure coverage for loss of funds and loss of other tangible property; The endorsement is flexible in its structure. This allows the coverage to address the risks that are of most concern to a company. Whether the company is concerned about a loss of funds, a loss of other tangible property, or both the endorsement can be crafted to meet that company’s interests,” Barrett said.
It is widely recognized that one of the best defenses against social engineering risks is education at all levels of a company.
With that in mind, Starr’s Fraudulent Impersonation endorsement is accompanied with the offer of the Starr Companies-KnowBe4 Risk Management Program. KnowBe4 is an internationally recognized IT security firm. This program provides valuable risk management tools to assist in reducing the risk to fraudulent impersonation (social engineering) losses. The downloadable documents are designed to be circulated to employees at every level of the insured company/organization. This program is offered by Starr Companies at no cost to the insured. Upon binding, the Insured company will receive an information packet with instructions on how to access an exclusive area of the KnowBe4 website.
“We believe that the combination of this risk management program and the insurance protection is a winning one for businesses of all types and sizes,” Barrett said.
“Our knowledge and expertise enable us to connect clients with expert resources and to tailor coverage to meet each client’s particular exposures and buying needs,” Barrett said.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Starr Companies. The editorial staff of Risk & Insurance had no role in its preparation.
Recent hacks on the likes of Sony, HBO and Netflix highlight the vulnerability entertainment companies have to cyber attack. The threat can take many forms, from the destruction or early release of stolen content to the sabotage of broadcast, production or streaming feeds.
“Cyber attacks are becoming the biggest emerging threat for entertainment companies, bringing risk to reputations, bottom lines and the product itself,” said Brian Taliaferro, entertainment and hospitality specialist, JLT Specialty USA.
For most entertainment firms, intellectual property (IP) is the crown jewel that must be protected at all costs, though risk profiles vary by sub-sector. Maintaining an uninterrupted service may be the biggest single concern for live broadcasters and online streaming providers, for example.
In the case of Sony, North Korea was allegedly behind the leak of stolen private information in 2014 in response to a film casting leader Kim Jong Un in what it considered an unfavorable light.
This year, Netflix and HBO both faced pre-broadcast leaks of popular TV series, and Netflix last year also had its systems interrupted by a hack.
Online video game platforms are also ripe for attack, with Steam admitting that 77,000 of its gamer accounts are hacked every month.
The list goes on and will only get more extensive over time.
Regardless of the platform, any cyber attack that prevents companies from producing or distributing content as planned can have huge financial implications, particularly when it comes to major releases and marquee content, which can make or break a financial year.
“People and culture are the biggest challenges but also the keys to success.” — David Legassick, head of life science, technology and cyber, CNA Hardy
The bottom line, said David Legassick, head of life science, technology and cyber, CNA Hardy, is that these firms have a combination of both assets and business models that are inherently open to attack.
“Vulnerabilities exist at every point in the supply chain because it’s all tech-dependent,” he said, adding that projects often run on public schedules, allowing criminals to time their attacks to maximize impact.
“The combination of IP, revenue and reputation risk make entertainment a hot sector for cyber criminals.”
Film, TV, literary and music projects invariably involve numerous collaborators and third-party vendors at every stage, from development to distribution. This creates multiple touchpoints through which hackers could gain access to materials or systems.
According to Kyle Bryant, regional cyber manager, Europe, for Chubb, there is nothing unique about the type of attack media companies suffer — usually non-targeted ransomware attacks with a demand built in.
He added targeted attacks can be more damaging, however. Some sophisticated types of ransomware attack, for example, are tailored to detect certain file types to extract or destroy.
“NotPetya was designed to be non-recoverable. For a media company, it could be critical if intellectual property is destroyed.”
As entertainment companies have large consumer bases, they are also attractive targets for ideological attackers wishing to spread messages by hijacking websites and other media, he added.
They also have vast quantities of personal information on cast and crew, including celebrities, which may also have monetary value for hackers.
“It is essential to identify the most critical information assets and then put a value on them. After that, it is all about putting protection in place that matches the level of concern,” Bryant advised.
As with any cyber risk, humans are almost always the biggest point of vulnerability, so training staff to identify risks such as suspicious messages and phishing scams, as well as security and crisis response protocols, is essential. Sources also agree it is vital for entertainment companies to give responsibility for cyber security to a C-suite executive.
“People and culture are the biggest challenges but also the keys to success,” said Legassick.
“Managing the cyber threat is not a job that can just be left to the IT team. It must come from the top and pervade every aspect of how a company works.”
Joe DePaul, head of cyber, North America, Willis Towers Watson, suggested entertainment companies adopt a “holistic, integrated approach to cyber risk management,” which includes clearly defining processes and conducting background checks on the cyber security of any third party that touches the IP.
This includes establishing that the third parties understand the importance of the media they are handling and have appropriate physical and non-physical security at least equal to the IP owner in place. These requirements should also be written into contracts with vendors, he added.
“The touchpoints in creating content used to be much more open and collaborative, but following the events of the last few years, entertainment firms have rapidly introduced cyber and physical security to create a more secure environment,” said Ryan Griffin, cyber specialist, JLT Specialty USA.
“These companies are dealing with all the issues large data aggregators have dealt with for years. Some use secure third-party vendors, while others build their own infrastructure. Those who do business securely and avoid leaks can gain an advantage over their competitors.”
If IP is leaked or destroyed, there is little that can be done to reverse the damage. Insurance can cushion the financial blow, though full recovery is very difficult to achieve in the entertainment space, as quantifying the financial impact is so speculative.
As Bill Boeck, insurance and claims counsel, Lockton, pointed out, there are only “a handful of underwriters in the world that would even consider writing this risk,” and sources agreed that even entertainment firms themselves struggle to put a monetary value on this type of exposure.
“The actual value of the IP taken isn’t generally going to be covered unless you have negotiated a bespoke policy,” said Boeck.
“If you’re in season five of a series with a track record and associated income stream, that is much easier, but putting a value on a new script, series or novel is difficult.”
Companies for whom live feeds or streaming are the primary source of revenue may find it easier to recoup losses. Determining the cost of a hack of that sort of service is a more easily quantifiable business interruption loss based on minutes, hours, ad dollars and subscription fees.
Brokers and insurers agree that while the cyber insurance market has not to date developed specific entertainment products, underwriters are open for negotiation when it comes to covering IP. The ball is therefore in the insured’s court to bring the most accurate projections to the table.
“Clients can get out of the insurance market what they bring to the equation. If you identify your concerns and what you want to get from insurance, the market will respond,” said Bryant.And according to Griffin, entertainment companies are working with their brokers to improve forecasts for the impact of interruptions and IP hacks and to proactively agree to terms with underwriters in advance.
However, Legassick noted that many entertainment firms still add cyber extensions to their standard property policies to cover non-physical damage business interruption, and many may not have the extent of coverage they need.
Having a well-planned and practiced crisis response plan is critical to minimizing financial and reputational costs. This should involve the input of experienced, specialist third parties, as well as numerous internal departments.
“The more business operation leaders can get involved the better,” said Griffin.
Given the entertainment industry’s highly public nature, “it is critically important that the victim of a hack brings in a PR firm to communicate statements both outside and within the organization,” said Boeck, while DePaul added that given that most cyber attacks are not detected for 200-plus days, bringing in a forensic investigator to determine what happened is also essential.
Indeed, said Griffin, knowing who perpetrated the attack could help bring the event to a swifter and cheaper conclusion.
“Is it a nation state upset about the way it’s been portrayed or criminals after a quick buck? Understanding your enemy’s motivation is important in mitigating the damage.”
Some hackers, he noted, have in the past lived up to their word and released encryption keys to unlock stolen data if ransoms are paid. Inevitably, entertainment firms won’t always get so lucky.
Given the potentially catastrophic stakes, it is little surprise these firms are now waking up to the need for robust crisis plans and Fort Knox-level security for valuable projects going forward. &