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.

Advertisement




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.

Advertisement




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.

Advertisement




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?”

Advertisement




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 mkerr@lrp.com

More from Risk & Insurance

More from Risk & Insurance

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

Advertisement




“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

Advertisement




“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

Advertisement




“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.