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Cyber Risk

Cybersecurity by the Numbers

Some corporate boards innovate in cyber risk while some fall behind, according to some new reports.
By: | May 12, 2017 • 4 min read

New reports show how companies can profit from innovative risk strategies and achieve the cyber risk maturity that still eludes most firms.

PwC released its annual Risk in Review report, “Managing risk from the front line” in April. The report highlights companies that shift risk management strategy into their revenue-generating units — and project higher profits as a result.

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The study’s “Front Liners” — companies most adept at moving risk decision-making into their front line units — comprise only 13 percent of a wide sample (almost 1600 executives across 30 industries), with 63 percent agreeing that they should take similar measures and 46 percent actively intending to within 36 months.

These Front Liners, as PwC calls them, tend to predict increased profit margin growth and increased revenue growth. They also recover more quickly from business disruptions.

Front Liners also manage all measured risks more efficiently, including cybersecurity risks — but many of these top scorers unexpectedly lag in overall “cyber risk maturity.”

Only 3 percent of all respondents showed “very high maturity” at managing cyber risks, with only 6 percent more at “high maturity.”

“Every company is on a journey,” Grant Waterfall, PwC’s global cybersecurity and privacy assurance co-leader pointed out.

Beyond heavily regulated, data-centric industries like banking and finance, he said, traditional or manufacturing firms are increasingly becoming tech companies, as they do business online, through mobile apps, or embed tech in their products.

Grant Waterfall, PwC’s global cybersecurity and privacy assurance co-leader

They accumulate —  and need to protect — consumer data (or consumers themselves, vulnerable from the use of hack-prone driverless cars or medical devices). Their own proprietary information and systems are also high-value hacker targets.

In the new Internet of Things marketplace, companies also need to be known as safe to do business with, said Waterfall.  Cybersecurity budgets may become part of the brand conversation.

Cyber risk is top-of-mind across all industries. A full 62 percent of firms surveyed expect a breach in the next three years. In PwC’s 20th Annual Global CEO survey, 85 percent of U.S. CEOs were “somewhat or extremely concerned” about cyber threats to fiscal growth.

Despite this concern, companies remain slow to upgrade or implement security measures.  Observers blame poor communication between corporate directors and security executives.

Yong-Gon Chon, CEO of Focal Point Data Risk LLC, a data security company, points to a “disparity in alignment” between the perspectives of board members and security leaders. Many studies have highlighted each side’s different priorities, he said. Data (and data security) are intangible and invisible.

Their value can be hard to quantify. Corporate directors may be slow to perceive the security measures (and expenditures) needed.

Waterfall, a co-sponsor of the PwC 2017 report, agreed that this is a problem.

“There’s no lack of awareness at board-level that this is a very, very important risk. But there is a disconnect between the people who really understand the issues and the boards’ understanding of the issues,” he said.

Many boardroom visitors note this troubled dynamic.

Dena Cusick, Technology, Privacy and Network Risk Practice Leader at Wells Fargo Insurance Services, consults with security leaders, directors and their committees on risk transfer options.

Boards — and security leaders — routinely ask her team to fill knowledge gaps or help with readiness evaluations when in-house communication falls short. Cusick has reviewed numerous proprietary risk assessments, and often finds little clarity.

“If I don’t know what this means,” she says, “how is the board going to know what this means?”

Focal Point Data Risk LLC, located in Tampa, Fla., and Virginia-based research services firm Cyentia Institute, jointly issued an in-depth analysis of this tension between CISOs, their CIO/CTOs, and their boards.

“There’s no lack of awareness at board-level that this is a very, very important risk. But there is a disconnect between the people who really understand the issues and the boards’ understanding of the issues,” — Grant Waterfall, global cybersecurity and privacy assurance co-leader, PwC

The “Cyber Balance Sheet” 2017 Report acknowledges that stakeholders’ different priorities (and vocabularies) can preclude meaningful dialogue.

This study identifies and explores six “balance points” where communication stalls or breaks down between the CISO and the directors — and provides tools to ignite collaboration.

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“We as an industry have an opportunity to really change how we measure cyber risk,” said Chon. Common ground, including mutually accepted metrics, must come first.

The report introduces the concept of the cyber balance sheet, which enables security leaders to present data and cyber security concepts as traditional assets and liabilities.

Directors can then view these in the same format used for operational or financial risks. They can accept, mitigate, or transfer risk as needed, directly from the balance sheet. Chon insists true risk management includes all three processes.

When directors are fully educated in their own language, he said, progress begins. Security leaders who can get backing for an organizational “stress test,” such as a breach-readiness assessment, or establish the value of their data (including “crown jewels” vs. other data types), have made important strides.

Board members do lose sleep over possible cyber events, said Cusick. They know the risk is out there, and are not afraid to parse options.

“Someone just needs to distill it for them.”

David Whiteside spent 23 years in the insurance industry, and now works as an insurance and financial journalist. He lives and writes from southwestern Utah. David can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2018 Risk All Stars

Masters of Risk

The concept of risk mastery and ownership, as displayed by the 2018 Risk All Stars, includes not simply seeking to control outcomes but taking full responsibility for them.
By: | September 14, 2018 • 3 min read

People talk a lot about how risk managers can get a seat at the table. The discussion implies that the risk manager is an outsider, striving to get the ear or the attention of an insider, the CEO or CFO.

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But there are risk managers who go about things in a different way. And the 2018 Risk All Stars are prime examples of that.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Goodyear’s Craig Melnick had only been with the global tire maker a few months when Hurricane Harvey dumped a record amount of rainfall on Houston.

Brilliant communication between Melnick and his new teammates gave him timely and valuable updates on the condition of manufacturing locations. Melnick remained in Akron, mastering the situation by moving inventory out of the storm’s path and making sure remediation crews were lined up ahead of time to give Goodyear its best leg up once the storm passed and the flood waters receded.

Goodyear’s resiliency in the face of the storm gave it credibility when it went to the insurance markets later that year for renewals. And here is where we hear a key phrase, produced by Kevin Garvey, one of Goodyear’s brokers at Aon.

“The markets always appreciate a risk manager who demonstrates ownership,” Garvey said, in what may be something of an understatement.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Dianne Howard, a 2018 Risk All Star and the director of benefits and risk management for the Palm Beach County School District, achieved ownership of $50 million in property storm exposures for the district.

With FEMA saying it wouldn’t pay again for district storm losses it had already paid for, Howard went to the London markets and was successful in getting coverage. She also hammered out a deal in London that would partially reimburse the district if it suffered a mass shooting and needed to demolish a building, like what happened at Sandy Hook in Connecticut.

2018 Risk All Star Jim Cunningham was well-versed enough to know what traditional risk management theories would say when hospitality workers were suffering too many kitchen cuts. “Put a cut-prevention plan in place,” is the traditional wisdom.

But Cunningham, the vice president of risk management for the gaming company Pinnacle Entertainment, wasn’t satisfied with what looked to him like a Band-Aid approach.

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Instead, he used predictive analytics, depending on his own team to assemble company-specific data, to determine which safety measures should be used company wide. The result? Claims frequency at the company dropped 60 percent in the first year of his program.

Alumine Bellone, a 2018 Risk All Star and the vice president of risk management for Ardent Health Services, faced an overwhelming task: Create a uniform risk management program when her hospital group grew from 14 hospitals in three states to 31 hospitals in seven.

Bellone owned the situation by visiting each facility right before the acquisition and again right after, to make sure each caregiving population was ready to integrate into a standardized risk management system.

After consolidating insurance policies, Bellone achieved $893,000 in synergies.

In each of these cases, and in more on the following pages, we see examples of risk managers who weren’t just knocking on the door; they were owning the room. &

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Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, clarity of vision and passion.

See the complete list of 2018 Risk All Stars.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]