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.


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.


“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

Risk Report: Marine

Crewless Ships Raise Questions

Is a remote operator legally a master? New technology confounds old terms.
By: | March 5, 2018 • 6 min read

For many developers, the accelerating development of remote-controlled and autonomous ships represents what could be the dawn of a new era. For underwriters and brokers, however, such vessels could represent the end of thousands of years of maritime law and risk management.

Rod Johnson, director of marine risk management, RSA Global Risk

While crewless vessels have yet to breach commercial service, there are active testing programs. Most brokers and underwriters expect small-scale commercial operations to be feasible in a few years, but that outlook only considers technical feasibility. How such operations will be insured remains unclear.

“I have been giving this a great deal of thought, this sits on my desk every day,” said Rod Johnson, director of marine risk management, RSA Global Risk, a major UK underwriter. Johnson sits on the loss-prevention committee of the International Union of Maritime Insurers.

“The agreed uncertainty that underpins marine insurance is falling away, but we are pretending that it isn’t. The contractual framework is being made less relevant all the time.”

Defining Autonomous Vessels

Two types of crewless vessels are being contemplated. First up is a drone with no one on board but actively controlled by a human at a remote command post on land or even on another vessel.

While some debate whether the controllers of drone aircrafts are pilots or operators, the very real question yet to be addressed is if a vessel controller is legally a “master” under maritime law.


The other type of crewless vessel would be completely autonomous, with the onboard systems making decisions about navigation, weather and operations.

Advocates tout the benefits of larger cargo capacity without crew spaces, including radically different hull designs without decks people can walk on. Doubters note a crew can fix things at sea while a ship cannot.

Rolls-Royce is one of the major proponents and designers. The company tested a remote-controlled tug in Copenhagen in June 2017.

“We think the initial early adopters will be vessels operating on fixed routes within coastal waters under the jurisdiction of flag states,” the company said.

“We expect to see the first autonomous vessel in commercial operation by the end of the decade. Further out, around 2025, we expect autonomous vessels to operate further from shore — perhaps coastal cargo ships. For ocean-going vessels to be autonomous, it will require a change in international regulations, so this will take longer.”

Once autonomous ships are a reality, “the entire current legal framework for maritime law and insurance is done,” said Johnson. “The master has not been replaced; he is just gone. Commodity ships (bulk carriers) would be most amenable to that technology. I’m not overly bothered by fully automated ships, but I am extremely bothered by heavily automated ones.”

He cited two risks specifically: hacking and fire.

“We expect to see the first autonomous vessel in commercial operation by the end of the decade. Further out, around 2025, we expect autonomous vessels to operate further from shore — perhaps coastal cargo ships. For ocean-going vessels to be autonomous, it will require a change in international regulations, so this will take longer.” — Rolls-Royce Holdings study

Andrew Kinsey, senior marine risk consultant, Allianz Global Corporate & Specialty, asked an even more existential question: “From an insurance standpoint, are we even still talking about a vessel as it is under law? Starting with the legal framework, the duty of a flag state is ‘manning of ships.’ What about the duty to render assistance? There cannot be insurance coverage of an illegal contract.”

Several sources noted that the technological development of crewless ships, while impressive, seems to be a solution in search of a problem. There is no known need in the market; no shippers, operators, owners or mariners advocate that crewless ships will solve their problems.

Kinsey takes umbrage at the suggestion that promotional material on crewless vessels cherry picks his company’s data, which found 75 percent to 90 percent of marine losses are caused by human error.


“Removing the humans from the vessels does not eliminate the human error. It just moves the human error from the helm to the coder. The reports on development by the companies with a vested interest [in crewless vessels] tend to read a lot like advertisements. The pressure for this is not coming from the end users.”

To be sure, Kinsey is a proponent of automation and technology when applied prudently, believing automation can make strides in areas of the supply chains. Much of the talk about automation is trying to bury the serious shortage of qualified crews. It also overshadows the very real potential for blockchain technology to overhaul the backend of marine insurance.

As a marine surveyor, Kinsey said he can go down to the wharf, inspect cranes, vessels and securements, and supervise loading and unloading — but he can’t inspect computer code or cyber security.

New Times, New Risks

In all fairness, insurance language has changed since the 17th century, especially as technology races ahead in the 21st.

“If you read any hull form, it’s practically Shakespearean,” said Stephen J. Harris, senior vice president of marine protection UK, Marsh. “The language is no longer fit for purpose. Our concern specifically to this topic is that the antiquated language talks about crew being on board. If they are not on board, do they still legally count as crew?”

Harris further questioned, “Under hull insurance, and provided that the ship owner has acted diligently, cover is extended to negligence of the master or crew. Does that still apply if the captain is not on board but sitting at a desk in an office?”

Andrew Kinsey, senior marine risk consultant, Allianz Global Corporate & Specialty

Several sources noted that a few international organizations, notably the Comite Maritime International and the International Maritime Organization, “have been very active in asking the legal profession around the world about their thoughts. The interpretations vary greatly. The legal complications of crewless vessels are actually more complicated than the technology.”

For example, if the operational, insurance and regulatory entities in two countries agree on the voyage of a crewless vessel across the ocean, a mishap or storm could drive the vessel into port or on shore of a third country that does not recognize those agreements.

“What worries insurers is legal uncertainty,” said Harris.

“If an operator did everything fine but a system went down, then most likely the designer would be responsible. But even if a designer explicitly accepted responsibility, what matters would be the flag state’s law in international waters and the local state’s law in territorial waters.


“We see the way ahead for this technology as local and short-sea operations. The law has to catch up with the technology, and it is showing no signs of doing so.”

Thomas M. Boudreau, head of specialty insurance, The Hartford, suggested that remote ferry operations could be the most appropriate use: “They travel fixed routes, all within one country’s waters.”

There could also be environmental and operational benefits from using battery power rather than conventional fuels.

“In terms of underwriting, the burden would shift to the manufacturer and designer of the operating systems,” Boudreau added.

It may just be, he suggested, that crewless ships are merely replacing old risks with new ones. Crews can deal with small repairs, fires or leaks at sea, but small conditions such as those can go unchecked and endanger the whole ship and cargo.

“The cyber risk is also concerning. The vessel may be safe from physical piracy, but what about hacking?” &

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]