Cyber Risk

Companies Ill-Prepared to Deal With Cyber Attacks

Companies plan to boost spending on cyber security to deal with an onslaught of cyber attacks.
By: | February 22, 2017 • 4 min read

Despite a barrage of cyber attacks on businesses in the U.S. and abroad – with American firms targeted most often – more than half are ill-prepared to deal with the threat, according to a survey by specialist insurer Hiscox.

Cyber crime costs the global economy more than $450 billion in 2016, Hiscox said. Losses included business interruption and reputational damage to brand.

The findings show 72 percent of U.S. firms with 250 or more employees, and 68 percent of smaller American companies experienced a cyber incident within the past year.

Nearly half of the U.S. firms (47 percent) reported two or more incidents during the last year.

U.S. firms suffered the most serious and costly attacks even though nearly half of those businesses were ranked as “experts” by the survey in dealing with cyber threats.

Martin J. Frappolli, senior director of knowledge resources, The Institutes

Martin J. Frappolli, senior director of knowledge resources for The Institutes/Risk and Insurance Knowledge Group, said many organizations don’t fully recognize that “first party risks are just as big as third party risks and more commonly sources of lost revenue.”

“The biggest risk of cyber breach is the continuity of the business,” he said. Depending on the length of the business disruption, the loss of revenue, he said, could be financially devastating.

Another matter to keep in mind, Frappolli said, is the increased data sharing between firms, vendors and business partners. “The chain is only as strong as its weakest link.”

In the “Hiscox Cyber Readiness Report 2017,” U.S. firms reported their top cyber security challenges were the changing nature of threats, both internal and external.

To deal with them, 63 percent plan to increase spending on cyber security over the next year with the most money invested in technology, followed by training, cyber security, security staffing, other measures and outsourcing. Many plan to buy cyber insurance.

Technology is the top investment despite being the area where most firms appear to be best prepared.

“This isn’t necessarily about throwing money at technology. It’s about having a well-rounded strategy, process and resources,” said Dan Burke, vice president and cyber product head at Hiscox USA. “This is a human problem as much as it is a technology problem.”

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Training employees to recognize potential threats, such as phishing scams in emails, and having strong password management can go a long way toward cyber security, he said. Seven out of 10 respondents say training has reduced the number of business disruptions.

Emily Cummins, a member of the board of directors of RIMS, the Risk Management Society, and managing director of tax and risk management at the National Rifle Association, is a strong proponent of employee cyber risk training.

Emily Cummins, director of tax and risk management, National Rifle Association

“The No. 1 recommendation is always continuous training,” she said. “And that means year-round reinforcement because employees are a source of unintentional errors and training can prevent [breaches].”

Cummins said training done in collaboration with departments, divisions or teams and including top management presents a powerful message to employees that prevention is critical to the organization. She also recommends devising a breach, or disaster response plan and practicing it regularly.

Most survey respondents listed cyber insurance as a key priority, with 57 percent saying they intend to purchase or enhance cyber insurance coverage this year.

More U.S. firms (55 percent) have cyber insurance policies than companies in the U.K. (36 percent) and Germany (30 percent). Another 25 percent of U.S. firms said they plan to take out a policy this year.

Frappolli said a firm’s risk manager, or a good insurance broker, can help determine which type of policy is best, since there is no standard product. Choices include cyber liability policies, business interruption policies, first party coverages, and endorsements or riders to existing policies.

He advised firms to purchase insurance to fill in the gaps not covered by training and technology and to have a breach plan in place in the event a hack occurs.

“Use the whole toolbox,” Frappolli said. “Don’t just think ‘I want to buy insurance’ and I’m done.”

Released in February, “The Hiscox Cyber Readiness Report 2017” details the results of a survey of 3,000 firms according to their cyber readiness in four key areas — strategy, resourcing, technology and process — and ranks them from novice to expert. It includes their plans to combat the threat going forward and offers advice on how to best prevent and manage it.

Conducted by Forrester Consulting on behalf of Hiscox, the survey, taken in late 2016, questioned executives, managers and IT specialists in charge of cyber security at 1,000 companies of all sizes each from U.S., Germany and the U.K.

Jodi Spiegel Arthur is a long-time journalist. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2017 RIMS

Resilience in Face of Cyber

New cyber model platforms will help insurers better manage aggregation risk within their books of business.
By: | April 26, 2017 • 3 min read

As insurers become increasingly concerned about the aggregation of cyber risk exposures in their portfolios, new tools are being developed to help them better assess and manage those exposures.

One of those tools, a comprehensive cyber risk modeling application for the insurance and reinsurance markets, was announced on April 24 by AIR Worldwide.

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Last year at RIMS, AIR announced the release of the industry’s first open source deterministic cyber risk scenario, subsequently releasing a series of scenarios throughout the year, and offering the service to insurers on a consulting basis.

Its latest release, ARC– Analytics of Risk from Cyber — continues that work by offering the modeling platform for license to insurance clients for internal use rather than on a consulting basis. ARC is separate from AIR’s Touchstone platform, allowing for more flexibility in the rapidly changing cyber environment.

ARC allows insurers to get a better picture of their exposures across an entire book of business, with the help of a comprehensive industry exposure database that combines data from multiple public and commercial sources.

Scott Stransky, assistant vice president and principal scientist, AIR Worldwide

The recent attacks on Dyn and Amazon Web Services (AWS) provide perfect examples of how the ARC platform can be used to enhance the industry’s resilience, said Scott Stransky, assistant vice president and principal scientist for AIR Worldwide.

Stransky noted that insurers don’t necessarily have visibility into which of their insureds use Dyn, Amazon Web Services, Rackspace, or other common internet services providers.

In the Dyn and AWS events, there was little insured loss because the downtime fell largely just under policy waiting periods.

But,” said Stransky, “it got our clients thinking, well it happened for a few hours – could it happen for longer? And what does that do to us if it does? … This is really where our model can be very helpful.”

The purpose of having this model is to make the world more resilient … that’s really the goal.” Scott Stransky, assistant vice president and principal scientist, AIR Worldwide

AIR has run the Dyn incident through its model, with the parameters of a single day of downtime impacting the Fortune 1000. Then it did the same with the AWS event.

When we run Fortune 1000 for Dyn for one day, we get a half a billion dollars of loss,” said Stransky. “Taking it one step further – we’ve run the same exercise for AWS for one day, through the Fortune 1000 only, and the losses are about $3 billion.”

So once you expand it out to millions of businesses, the losses would be much higher,” he added.

The ARC platform allows insurers to assess cyber exposures including “silent cyber,” across the spectrum of business, be it D&O, E&O, general liability or property. There are 18 scenarios that can be modeled, with the capability to adjust variables broadly for a better handle on events of varying severity and scope.

Looking ahead, AIR is taking a closer look at what Stransky calls “silent silent cyber,” the complex indirect and difficult to assess or insure potential impacts of any given cyber event.

Stransky cites the 2014 hack of the National Weather Service website as an example. For several days after the hack, no satellite weather imagery was available to be fed into weather models.

Imagine there was a hurricane happening during the time there was no weather service imagery,” he said. “[So] the models wouldn’t have been as accurate; people wouldn’t have had as much advance warning; they wouldn’t have evacuated as quickly or boarded up their homes.”

It’s possible that the losses would be significantly higher in such a scenario, but there would be no way to quantify how much of it could be attributed to the cyber attack and how much was strictly the result of the hurricane itself.

It’s very, very indirect,” said Stransky, citing the recent hack of the Dallas tornado sirens as another example. Not only did the situation jam up the 911 system, potentially exacerbating any number of crisis events, but such a false alarm could lead to increased losses in the future.

The next time if there’s a real tornado, people make think, ‘Oh, its just some hack,’ ” he said. “So if there’s a real tornado, who knows what’s going to happen.”

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Modeling for “silent silent cyber” remains elusive. But platforms like ARC are a step in the right direction for ensuring the continued health and strength of the insurance industry in the face of the ever-changing specter of cyber exposure.

Because we have this model, insurers are now able to manage the risks better, to be more resilient against cyber attacks, to really understand their portfolios,” said Stransky. “So when it does happen, they’ll be able to respond, they’ll be able to pay out the claims properly, they’ll be prepared.

The purpose of having this model is to make the world more resilient … that’s really the goal.”

Additional stories from RIMS 2017:

Blockchain Pros and Cons

If barriers to implementation are brought down, blockchain offers potential for financial institutions.

Embrace the Internet of Things

Risk managers can use IoT for data analytics and other risk mitigation needs, but connected devices also offer a multitude of exposures.

Feeling Unprepared to Deal With Risks

Damage to brand and reputation ranked as the top risk concern of risk managers throughout the world.

Reviewing Medical Marijuana Claims

Liberty Mutual appears to be the first carrier to create a workflow process for evaluating medical marijuana expense reimbursement requests.

Cyber Threat Will Get More Difficult

Companies should focus on response, resiliency and recovery when it comes to cyber risks.

RIMS Conference Held in Birthplace of Insurance in US

Carriers continue their vital role of helping insureds mitigate risks and promote safety.

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