Cyber Risks

Beyond the Breach

With credit card data flooding the black market, criminals are now more likely to hit a company directly by threatening to vaporize data or cripple operations
By: | October 1, 2015 • 10 min read

The old-school protection racket has gone high tech. There’s a whole new crop of criminals threatening businesses — demanding cash in order for the “privilege” of not having their livelihoods destroyed.


The bad guys may have ditched the fedoras and spats in favor of hoodies and Chuck Taylors. But the bottom line remains the same.

It’s all about the Benjamins. Or maybe the Bitcoins, in this case.

Welcome to the new frontier of cyber extortion — the world where a few lines of programming code can take a company hostage — or even shutter it for good.

Sure, the “old-fashioned” data breach is alive and well, but it has declined in profitability as the black market for credit card and Social Security data has become oversaturated. The bad guys, meanwhile, went in search of greener pastures.

Cyber extortion, in the form of distributed denial of service (DDoS) threats with ransom demands, began grabbing the attention of security professionals several years ago. These attacks are designed to cripple victims’ ability to transact any business online until the ransom is paid.

Welcome to the new frontier of cyber extortion — the world where a few lines of programming code can take a company hostage — or even shutter it for good.

The most obvious targets for DDoS attacks, initially, were those that stood to lose the most from a service outage. Payment processing vendors and online gaming sites were early victims.

Podcast: Mother-daughter duo Alina and Inna Simone tell Radiolab about being held hostage by criminals who burrowed into their lives from half a world away.

But the field of targets broke wide open with the birth of automated ransomware — malware that disables a computer system by encrypting data and locking the victim out.

A pop-up window displays a demand for ransom, typically with a threat to delete or publicly share the data if the ransom isn’t paid by a specified time.

Tim Francis, second vice president and enterprise cyber lead, Travelers

Tim Francis, second vice president and enterprise cyber lead, Travelers

Cryptolocker, first appearing in September 2013, netted around $3 million for its operators until it was finally isolated in June 2014. Variants such as Cryptowall, however, were quick to fill the void.

Prior to Cryptolocker, extortion events were somewhat rare and often involved someone with an axe to grind, said Tim Francis, a second vice president with Travelers and the company’s enterprise cyber lead.

“But around two years ago you saw a switch, which was the commoditization of the software that did the extortion for you …  . Now it wasn’t somebody who knew anything about your company … it was just somebody out to make a buck.”

Fear Sells

Cyber extortion has been propelled into a rather lucrative cottage industry, and potential targets are everywhere.

Reported extortion events have run the gamut from police departments to pizza chains. If criminals cast a wide enough net, they only need a small number of targets to take the email bait in order to collect a respectable payout.

Estimates of the amount being extorted from victims vary wildly. However, in a 2012 report titled “Ransomware: A Growing Menace,” researchers at Symantec were able to estimate the earnings for one particular extortion gang at $394,000 in a single month.

Any current figure would likely be much higher. But the chance of being able to obtain that figure is slim, because no one wants to advertise it.

There are multiple reasons why this type of attack is successful enough to keep criminals engaged.


For one, the rise of Bitcoin and other digital currency has enabled extortionists to operate in a virtually anonymous and untraceable environment.

For another, most criminal actors have shrewdly opted to keep demands modest, increasing the chances that a victim will choose the path of least resistance and simply pay up.

No one is ever eager to capitulate to the demands of an anonymous extortionist. And some have gone to great lengths to avoid giving in. Sometimes, however, that hasn’t been a sound risk management decision.

Code hosting company Code Spaces was hit by a DDoS attack in mid-2014 and refused to give in to ransom demands.

Instead it tried to take back its account by changing passwords. The extortionists, who had created backup logins, retaliated by randomly deleting files.

Most of the company’s data, backups, machine configurations and offsite backups were either partially or completely deleted. The company became a sad statistic — one of the 60 percent of small businesses forced to fold within six months of a serious cyber attack.

Speculation, however, is that many companies opt not to take such a risk, and simply choose the lesser evil and pay off their attackers. The SANS Institute estimated in 2009 that thousands of organizations were quietly paying off cyber extortionists.

“Not disclosing that you’ve been breached, in itself, is one of the main reasons that some decide to pay a cyber extortion threat rather than handling it with assistance from law enforcement,” said Jessica Lindo, vice president, professional lines at Allied World.

Jessica Lindo, vice president, professional lines, Allied World

Jessica Lindo, vice president, professional lines, Allied World

Lindo and other experts aren’t quick to opine on whether victims should or shouldn’t pay, because every situation is unique.

“Whether a company decides to pay depends on their assessment of the credibility of the threat,” said Lindo.

“If they are confident … that the threat is legitimate and can be actioned upon, they may be inclined to pay the ransom. … Within the retention it may be solely up to them to decide whether they want to pay the ransom without involving the insurer,” she said.

“Each situation would need to be analyzed on its own merits,” agreed Matt Donovan, national underwriting leader, technology and privacy, with Hiscox USA.

“Many companies are able to thwart ransomware issues if they are able to restore to an earlier backup of the file system. In these instances, the system restoration can potentially be a better option than paying the demand.”

That solution won’t fit every type of threat, however. The very public airing last year of Sony’s dirty laundry understandably rattled plenty of top-level executives. The threat of public exposure rather than outright deletion of data could easily be enough to force the hand of businesses that fear embarrassment or loss of reputational stature.

Lindo noted that in the event an insured is faced with a demand high enough to pierce its retention level, it would be a mistake to assume that an insurer would withhold approval to pay on a ransom demand.

“Once that threat is actioned upon, it could become a much larger cyber loss.” she said.

“And the loss may move from one handled solely by the company within the retention to one involving insurance.”

Cyber, Extortion, or Both?

There are a few gray areas surrounding the question of whether a cyber extortion event would trigger coverage in a typical cyber policy. Some also have questions about whether a kidnap, ransom and extortion policy (KR&E) would exclude a cyber event.


Travelers’ Francis said that as with any policy, it’s going to come down to whether the circumstances of the event align with the wording of the policy.

“Not every K&R policy is the same, not every cyber policy is the same,” he said.

“Like anything else, your agent or the customer needs to make sure their specific policy as written would cover it. … Certainly in any standard cyber policy you should expect to find some degree of coverage. But it would not be unusual for a K&R policy to cover cyber-related events in addition to non-cyber types of extortion events.”

“Having the financial backing of an insurance policy can bring financial security and the breach response expertise needed to navigate the attack when it occurs.” — Matt Donovan, national underwriting leader, technology and privacy, Hiscox USA

Brian Dunphy, senior managing director, management and professional risk group, Crystal & Company, added that because cyber extortion is rarely enacted under a policy, such a policy is fairly easily to obtain.

“But it’s not in many cases a standard grant of cover. It’s one of those things you have to ask for it if you want it.”

Not many are asking though, because they’re not thinking about it as an exposure unless there is a specific reason to consider their data sensitive.

But the bad guys don’t really care who they attack, said Francis, and plenty of organizations simply have no type of coverage in place.

“Cyber policies are still not purchased as frequently as they should be, but still they’re more likely to be purchased than K&R policies generally,” he said.

“Many companies have neither.”

Those companies could easily find themselves in a world of hurt.

“Having the financial backing of an insurance policy can bring financial security and the breach response expertise needed to navigate the attack when it occurs,” said Donovan of Hiscox.

Path of Least Resistance

Most cyber extortion is an opportunistic crime, said Allied World’s Lindo. Organizations with less than adequate security controls are going to be the most vulnerable.

“The controls you implement in a sophisticated security and business continuity program are the same controls that are likely to prevent a cyber extortion threat,” she said.

“So if there’s any good news in cyber, I think it’s that.

“The most important thing [risk managers] can do is to prioritize their assets,” said Lindo.

“Identify the most valuable data, most sensitive data — areas that would give you the greatest financial harm if disclosed, your most critical processes and applications.”

“Segregating the ‘crown jewels’ from the rest of your network can be an easy starting point,” said Donovan.

“You can’t just rip the plug out of the wall and expect the threat to go away.” — Brian Dunphy, senior managing director, management and professional risk group, Crystal & Company

Once you’ve identified those assets, then you can target your resources around preventing access to those assets and ensuring that you’ve built redundant systems around them to ensure business continuity in the event of an attack.

Many of the other precautions that should be in place are the same as those companies employ to protect against other types of network intrusions.

Beyond simple anti-virus software installation, said Donovan, companies should consider penetration testing, bug-bounty programs and data-classification programs.

“Daily backups can help thwart the ransomware attacks as well,” he said.

Travelers’ Francis poses an apt analogy: “There are a dozen houses on the street. One of them is well lit with clear lines of sight, the doors and windows are locked. [Criminals are] going to move on to the other house down the street that doesn’t have lights and leaves the door open; they’re going to take the path of least resistance.

“Lock your doors, turn on your lights. Use firewalls, have a process in place, use the right software, check your logs, have virus detection. It’s not bulletproof, but it may be enough to have the bad guys go after someone else instead of you.”

A far-too-often overlooked piece of the puzzle is having an incident response plan for a cyber extortion event, experts agreed.

“Today, I would say that cyber extortion is probably not a part of [most companies’] incident response plans,” said Lindo. “I’m not sure that most companies have fully considered these type of threats.”

Without a plan in place, there’s little chance for an organization to address an extortion event effectively, or prevent it from escalating.

“You can’t just rip the plug out of the wall and expect the threat to go away,” added Dunphy of Crystal & Company.

“There’s a lot that needs to be addressed. … It’s like practicing a fire drill for kids in school — when the alarm sounds, does everybody know what their roles and responsibilities are? Cyber extortion is just like that. Do you know what to do? Who to contact? The steps in which things are supposed to take place?”


When faced with a threat, said Lindo, you never want that to be “the first time you’re discussing what you’re going to do and how you’re going to respond.”

The threat of cyber extortion is yet another reason why risk managers must help their organizations understand that data security is an enterprise-level issue.

“It’s important to have a culture that understands the value of the data that they’ve got, and the ramifications financially and reputationally if that data was to go missing or to be made public,” said Francis.

And that culture must be driven from the top of the organization down into every department, so that data security is top priority for all.

“There’s no one weak link,” he said.

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Focus: Cyber

Expanding Cyber BI

Cyber business interruption insurance is a thriving market, but growth carries the threat of a mega-loss. 
By: | March 5, 2018 • 7 min read

Lingering hopes that large-scale cyber attack might be a once-in-a-lifetime event were dashed last year. The four-day WannaCry ransomware strike in May across 150 countries targeted more than 300,000 computers running Microsoft Windows. A month later, NotPetya hit multinationals ranging from Danish shipping firm Maersk to pharmaceutical giant Merck.


Maersk’s chairman, Jim Hagemann Snabe, revealed at this year’s Davos summit that NotPetya shut down most of the group’s network. While it was replacing 45,000 PCs and 4,000 servers, freight transactions had to be completed manually. The combined cost of business interruption and rebuilding the system was up to $300 million.

Merck’s CFO Robert Davis told investors that its NotPetya bill included $135 million in lost sales plus $175 million in additional costs. Fellow victims FedEx and French construction group Saint Gobain reported similar financial hits from lost business and clean-up costs.

The fast-expanding world of cryptocurrencies is also increasingly targeted. Echoes of the 2014 hack that triggered the collapse of Bitcoin exchange Mt. Gox emerged this January when Japanese cryptocurrency exchange Coincheck pledged to repay customers $500 million stolen by hackers in a cyber heist.

The size and scope of last summer’s attacks accelerated discussions on both sides of the Atlantic, between risk managers and brokers seeking more comprehensive cyber business interruption insurance products.

It also recently persuaded Pool Re, the UK’s terrorism reinsurance pool set up 25 years ago after bomb attacks in London’s financial quarter, to announce that from April its cover will extend to include material damage and direct BI resulting from acts of terrorism using a cyber trigger.

“The threat from a cyber attack is evident, and businesses have become increasingly concerned about the extensive repercussions these types of attacks could have on them,” said Pool Re’s chief, Julian Enoizi. “This was a clear gap in our coverage which left businesses potentially exposed.”

Shifting Focus

Development of cyber BI insurance to date reveals something of a transatlantic divide, said Hans Allnutt, head of cyber and data risk at international law firm DAC Beachcroft. The first U.S. mainstream cyber insurance products were a response to California’s data security and breach notification legislation in 2003.

Jimaan Sané, technology underwriter, Beazley

Of more recent vintage, Europe’s first cyber policies’ wordings initially reflected U.S. wordings, with the focus on data breaches. “So underwriters had to innovate and push hard on other areas of cyber cover, particularly BI and cyber crimes such as ransomware demands and distributed denial of service attacks,” said Allnut.

“Europe now has regulation coming up this May in the form of the General Data Protection Regulation across the EU, so the focus has essentially come full circle.”

Cyber insurance policies also provide a degree of cover for BI resulting from one of three main triggers, said Jimaan Sané, technology underwriter for specialist insurer Beazley. “First is the malicious-type trigger, where the system goes down or an outage results directly from a hack.

“Second is any incident involving negligence — the so-called ‘fat finger’ — where human or operational error causes a loss or there has been failure to upgrade or maintain the system. Third is any broader unplanned outage that hits either the company or anyone on which it relies, such as a service provider.”

The importance of cyber BI covering negligent acts in addition to phishing and social engineering attacks was underlined by last May’s IT meltdown suffered by airline BA.

This was triggered by a technician who switched off and then reconnected the power supply to BA’s data center, physically damaging servers and distribution panels.

Compensating delayed passengers cost the company around $80 million, although the bill fell short of the $461 million operational error loss suffered by Knight Capital in 2012, which pushed it close to bankruptcy and decimated its share price.

Mistaken Assumption

Awareness of potentially huge BI losses resulting from cyber attack was heightened by well-publicized hacks suffered by retailers such as Target and Home Depot in late 2013 and 2014, said Matt Kletzli, SVP and head of management liability at Victor O. Schinnerer & Company.


However, the incidents didn’t initially alarm smaller, less high-profile businesses, which assumed they wouldn’t be similarly targeted.

“But perpetrators employing bots and ransomware set out to expose any firms with weaknesses in their system,” he added.

“Suddenly, smaller firms found that even when they weren’t themselves targeted, many of those around them had fallen victim to attacks. Awareness started to lift, as the focus moved from large, headline-grabbing attacks to more everyday incidents.”

Publications such as the Director’s Handbook of Cyber-Risk Oversight, issued by the National Association of Corporate Directors and the Internet Security Alliance fixed the issue firmly on boardroom agendas.

“What’s possibly of greater concern is the sheer number of different businesses that can be affected by a single cyber attack and the cost of getting them up and running again quickly.” — Jimaan Sané, technology underwriter, Beazley

Reformed ex-hackers were recruited to offer board members their insights into the most vulnerable points across the company’s systems — in much the same way as forger-turned-security-expert Frank Abagnale Jr., subject of the Spielberg biopic “Catch Me If You Can.”

There also has been an increasing focus on systemic risk related to cyber attacks. Allnutt cites “Business Blackout,” a July 2015 study by Lloyd’s of London and the Cambridge University’s Centre for Risk Studies.

This detailed analysis of what could result from a major cyber attack on America’s power grid predicted a cost to the U.S. economy of hundreds of billions and claims to the insurance industry totalling upwards of $21.4 billion.

Lloyd’s described the scenario as both “technologically possible” and “improbable.” Three years on, however, it appears less fanciful.

In January, the head of the UK’s National Cyber Security Centre, Ciaran Martin, said the UK had been fortunate in so far averting a ‘category one’ attack. A C1 would shut down the financial services sector on which the country relies heavily and other vital infrastructure. It was a case of “when, not if” such an assault would be launched, he warned.

AI: Friend or Foe?

Despite daunting potential financial losses, pioneers of cyber BI insurance such as Beazley, Zurich, AIG and Chubb now see new competitors in the market. Capacity is growing steadily, said Allnutt.

“Not only is cyber insurance a new product, it also offers a new source of premium revenue so there is considerable appetite for taking it on,” he added. “However, whilst most insurers are comfortable with the liability aspects of cyber risk; not all insurers are covering loss of income.”

Matt Kletzli, SVP and head of management liability, Victor O. Schinnerer & Company

Kletzli added that available products include several well-written, broad cyber coverages that take into account all types of potential cyber attack and don’t attempt to limit cover by applying a narrow definition of BI loss.

“It’s a rapidly-evolving coverage — and needs to be — in order to keep up with changing circumstances,” he said.

The good news, according to a Fitch report, is that the cyber loss ratio has been reduced to 45 percent as more companies buy cover and the market continues to expand, bringing down the size of the average loss.

“The bad news is that at cyber events, talk is regularly turning to ‘what will be the Hurricane Katrina-type event’ for the cyber market?” said Kletzli.

“What’s worse is that with hurricane losses, underwriters know which regions are most at risk, whereas cyber is a global risk and insurers potentially face huge aggregation.”


Nor is the advent of robotics and artificial intelligence (AI) necessarily cause for optimism. As Allnutt noted, while AI can potentially be used to decode malware, by the same token sophisticated criminals can employ it to develop new malware and escalate the ‘computer versus computer’ battle.

“The trend towards greater automation of business means that we can expect more incidents involving loss of income,” said Sané. “What’s possibly of greater concern is the sheer number of different businesses that can be affected by a single cyber attack and the cost of getting them up and running again quickly.

“We’re likely to see a growing number of attacks where the aim is to cause disruption, rather than demand a ransom.

“The paradox of cyber BI is that the more sophisticated your organization and the more it embraces automation, the bigger the potential impact when an outage does occur. Those old-fashioned businesses still reliant on traditional processes generally aren’t affected as much and incur smaller losses.” &

Graham Buck is editor of He can be reached at