Cyber Risks

Fueling Cybersecurity

The Feds designate critical infrastructure and shine a light on perils within and without.
By: | September 1, 2013 • 8 min read

With cybercrime now top of mind for many, the executive branch of the federal government is laying the groundwork to address cybersecurity at a national level. Under a series of target dates set in an executive order signed by President Barack Obama on Feb. 12, several departments and agencies are compiling lists of “critical infrastructure at greatest risk,” and enlisting the private sector’s help.

While the energy sector is not named specifically in the order, risk-management professionals said the sector — from oil and gas wells through pipelines and processing plants to refineries, fuel distribution, and petrochemicals — is at the top of the draft lists of critical infrastructure to be protected.

And there is much to be done to defend energy resources from hackers, said industry experts.

05_Jody Westby

Jody Westby, CEO, Global Cyber Risk

It might seem that a refinery or pipeline would be a self-contained, secure operation, but in reality “most of the energy complex is connected to the Internet,” said Jody Westby, CEO of Global Cyber Risk.

“That includes data systems and control systems,” she said. “Refineries manage their crude-oil inputs, their processing and their shipments through distribution systems that are on the Internet. They do not operate anymore on stand-alone dedicated systems.”

Westby said that “there is always the risk that some exposure can come through those connections and involve critical data or operations. The risk profile of the energy sector has changed substantially in recent years. At the same time, the sophistication of these threats has risen exponentially.”

Social Media Risk

The threats and exposures are many and varied. They range from a single rogue employee to organized crime to terrorists to spying by other nations. The threats can be theft of confidential personal data or proprietary competitive information, to malicious acts causing loss of data or actual disruption of operations. For the energy industry, which handles hazardous materials, a hacking event that leads to a spill becomes more than just a bad day at the office.


Use of the web by employees for personal recreation is an area where energy risk managers concerned about cyberrisk should also be paying attention.

“Energy companies do not think of themselves as big users of social media,” said Westby, “but their employees are, and they tend to have employees in some very sensitive areas of the world.”

Security breaches can happen by accident or ignorance, she added, not just by deliberate attacks.

“I have one energy client that conducted an online search as part of an exposure assessment and found critical plans for some of its facilities out there on the Internet.”

So far, energy companies do not have a good reputation for their ability to defend against cyberattacks.

GCR conducts a corporate cybersecurity governance report every other year, in collaboration with the CyLab at Carnegie Mellon University in Pittsburgh, and Westby noted that “in every area, energy and utility companies rank last or near last.”

According to the latest report, from 2012, “Energy/utilities respondents also ranked the lowest in establishing board risk committees separate from the audit committee, but indicated that when they do form a risk committee, they assign it responsibility for privacy and security. Only half of the energy/utilities and infrastructure sectors indicated that they have cross-organizational committees.”

Research toward the next report is already underway. That report will be issued in May 2014.

In addition to the report, GCR collaborates with Dempsey Partners, just recently acquired by Aon, in cyber evaluation and risk quantification (CERQ).

Dempsey is an accounting firm that specializes in pre-loss quantification to be used in planning, such as for business continuity, contingency and risk transfer.

“Energy companies have quite compelling cyberrisk exposures,” said John D. Dempsey, the firm’s managing director and practice leader for Property Claims and Valuation at Aon Global Risk Consulting.

“The risks are changing and the threats are multiplying. Energy companies do have vulnerabilities and lapses in security. They know this,” he said. “What they don’t know is what the actual damages of a breach or loss could be. We try to figure that in advance, so they can better determine which exposures to address in what order.”

The most obvious ones may not be the most damaging ones, and the potential costlier ones may not be the most difficult to rectify.

“Insureds are out there buying limits and they don’t really know if that is enough or too little or too much,” said Dempsey. “One thing for sure is that the more any system is dependent on process, the more they represent a vulnerability.


“For example, an oil company selling fuel may not think of itself as such, but it is a consumer products company gathering personal and financial information. It has an obligation to keep that data secure,” he said.

Beyond the material threats and responses, there is also a meta-risk in the fluid nature of the existing insurance coverage, warned Greg Gamble, director with Crystal & Co., with responsibility for management and professional risk.

“When coverage of cyberrisks was first introduced, all the carriers had different names and terms and conditions,” he said, “but that is now rapidly being standardized. The key insuring clauses often had sublimits, and we are seeing those increased every quarter or six months.”

Personal Injury a Gray Area

That said, there are still gray areas.

“The market has been slow to extend bodily injury coverage to those caused by electronic perils. If a pipeline or refinery gets hacked, and that causes a spill or fire, there will have to be some sorting out,” he said. “Property causes are very specific and are only triggered by covered perils such as wind or fire.

“If the proximate cause is software failure or a network breach, at this moment we are definitely talking about litigation to resolve. Property insurers will have to recognize that those should be covered, but they are moving very slowly. At this point no one has wrestled with this in the real world,” he said.

Currently Crystal’s work with customers has been more tactical.

“We have spent a lot of time focused on contracting practices with outside vendors and third parties,” said Gamble.

“We review contracts as they pertain to data hosting and cloud-based software to evaluate indemnification and hold-harmless agreements. We try to make sure all parties are holding up their responsibilities.”

Part of the challenge, Gamble noted, is that “risk-transfer tools, policies and practices have been around for a very long time. The risk management professionals at insureds know their coverages, but they need to know how the coverages they have will protect them from these new perils. That is why we involve those risk management officials in the process early.

“There has to be a healthy dialogue,” he explained, because sometimes the risks are from the outside in, others from the inside out.

In an effort to get a handle on the many different manifestations of cyberrisk to the energy industry, ACE divides them into two groups, said Michael Tanenbaum, senior vice president of ACE Professional Risk.

“The first is very similar to retail. It is uniquely identifiable information and other customer records. There are state laws mandating notification if a breach occurs, and consequences for making whole those affected by the breach.” The other group involves energy companies seeking coverage for business interruption coverage for extra expense and lost revenue arising out of a network attack.

For data breaches, ACE has response resources for insureds, Tanenbaum said.

“We have a data-breach team that is led by a coach, which is an independent law firm. The first step in any breach is to contact counsel, so the attorney-client privilege resides with them. The second is a team of service providers with specific areas of expertise: call centers, data monitoring, forensics, ID restoration and public relations among them. We really try to avoid one-stop shops. Not every firm skilled in forensics is also an expert in setting up a call center.”

Tanenbaum stressed that the selection process for the service providers is robust, including financial solvency and performance history.

For all that emergency-response capability, the best risk management is risk prevention.


“We work with a firm to conduct risk assessments with our clients to determine their vulnerabilities and what possible mitigations there may be,” said Tanenbaum.

“We also insist that there is a dedicated team within the client company that can assess risks and handle breaches. That includes a member of the C-suite, as well as legal, information technology, communications and operations.”

Circling back to the president’s executive order, Toby Merrill, a vice president with ACE Professional Risk, noted that once critical infrastructure is designated, and the threats are assessed, a standard similar to the “reasonable standard of care,” in health care is likely to result.

“That will raise the bar for cyberrisks in energy and other critical industries,” he said. “The playbook is being written as we speak. There will be more defined responsibilities, and failure to deliver on those standards will affect liability.”

Summarizing, Merrill noted that the grouping of risks into retail and operational is overlaid with insurance conventions of first- and third-party exposures. “There is a trend within the traditional lines of insurance to insert more privacy and network security exclusions in those policies. So insureds and brokers need to determine what perils are listed and if they address cyber issues with a stand-alone policy. If there is an infrastructure exclusion, that would need to be modified or addressed, both first-party and third-party, to cover an instance where a hacker were to access a network and disrupt data or operations.”


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]

More from Risk & Insurance

More from Risk & Insurance

Cyber Resilience

No, Seriously. You Need a Comprehensive Cyber Incident Response Plan Before It’s Too Late.

Awareness of cyber risk is increasing, but some companies may be neglecting to prepare adequate response plans that could save them millions. 
By: | June 1, 2018 • 7 min read

To minimize the financial and reputational damage from a cyber attack, it is absolutely critical that businesses have a cyber incident response plan.

“Sadly, not all yet do,” said David Legassick, head of life sciences, tech and cyber, CNA Hardy.


In the event of a breach, a company must be able to quickly identify and contain the problem, assess the level of impact, communicate internally and externally, recover where possible any lost data or functionality needed to resume business operations and act quickly to manage potential reputational risk.

This can only be achieved with help from the right external experts and the design and practice of a well-honed internal response.

The first step a company must take, said Legassick, is to understand its cyber exposures through asset identification, classification, risk assessment and protection measures, both technological and human.

According to Raf Sanchez, international breach response manager, Beazley, cyber-response plans should be flexible and applicable to a wide range of incidents, “not just a list of consecutive steps.”

They also should bring together key stakeholders and specify end goals.

Jason J. Hogg, CEO, Aon Cyber Solutions

With bad actors becoming increasingly sophisticated and often acting in groups, attack vectors can hit companies from multiple angles simultaneously, meaning a holistic approach is essential, agreed Jason J. Hogg, CEO, Aon Cyber Solutions.

“Collaboration is key — you have to take silos down and work in a cross-functional manner.”

This means assembling a response team including individuals from IT, legal, operations, risk management, HR, finance and the board — each of whom must be well drilled in their responsibilities in the event of a breach.

“You can’t pick your players on the day of the game,” said Hogg. “Response times are critical, so speed and timing are of the essence. You should also have a very clear communication plan to keep the CEO and board of directors informed of recommended courses of action and timing expectations.”

People on the incident response team must have sufficient technical skills and access to critical third parties to be able to make decisions and move to contain incidents fast. Knowledge of the company’s data and network topology is also key, said Legassick.

“Perhaps most important of all,” he added, “is to capture in detail how, when, where and why an incident occurred so there is a feedback loop that ensures each threat makes the cyber defense stronger.”

Cyber insurance can play a key role by providing a range of experts such as forensic analysts to help manage a cyber breach quickly and effectively (as well as PR and legal help). However, the learning process should begin before a breach occurs.

Practice Makes Perfect

“Any incident response plan is only as strong as the practice that goes into it,” explained Mike Peters, vice president, IT, RIMS — who also conducts stress testing through his firm Sentinel Cyber Defense Advisors.


Unless companies have an ethical hacker or certified information security officer on board who can conduct sophisticated simulated attacks, Peters recommended they hire third-party experts to test their networks for weaknesses, remediate these issues and retest again for vulnerabilities that haven’t been patched or have newly appeared.

“You need to plan for every type of threat that’s out there,” he added.

Hogg agreed that bringing third parties in to conduct tests brings “fresh thinking, best practice and cross-pollination of learnings from testing plans across a multitude of industries and enterprises.”

“Collaboration is key — you have to take silos down and work in a cross-functional manner.” — Jason J. Hogg, CEO, Aon Cyber Solutions

Legassick added that companies should test their plans at least annually, updating procedures whenever there is a significant change in business activity, technology or location.

“As companies expand, cyber security is not always front of mind, but new operations and territories all expose a company to new risks.”

For smaller companies that might not have the resources or the expertise to develop an internal cyber response plan from whole cloth, some carriers offer their own cyber risk resources online.

Evan Fenaroli, an underwriting product manager with the Philadelphia Insurance Companies (PHLY), said his company hosts an eRiskHub, which gives PHLY clients a place to start looking for cyber event response answers.

That includes access to a pool of attorneys who can guide company executives in creating a plan.

“It’s something at the highest level that needs to be a priority,” Fenaroli said. For those just getting started, Fenaroli provided a checklist for consideration:

  • Purchase cyber insurance, read the policy and understand its notice requirements.
  • Work with an attorney to develop a cyber event response plan that you can customize to your business.
  • Identify stakeholders within the company who will own the plan and its execution.
  • Find outside forensics experts that the company can call in an emergency.
  • Identify a public relations expert who can be called in the case of an event that could be leaked to the press or otherwise become newsworthy.

“When all of these things fall into place, the outcome is far better in that there isn’t a panic,” said Fenaroli, who, like others, recommends the plan be tested at least annually.

Cyber’s Physical Threat

With the digital and physical worlds converging due to the rise of the Internet of Things, Hogg reminded companies: “You can’t just test in the virtual world — testing physical end-point security is critical too.”


How that testing is communicated to underwriters should also be a key focus, said Rich DePiero, head of cyber, North America, Swiss Re Corporate Solutions.

Don’t just report on what went well; it’s far more believable for an underwriter to hear what didn’t go well, he said.

“If I hear a client say it is perfect and then I look at some of the results of the responses to breaches last year, there is a disconnect. Help us understand what you learned and what you worked out. You want things to fail during these incident response tests, because that is how we learn,” he explained.

“Bringing in these outside firms, detailing what they learned and defining roles and responsibilities in the event of an incident is really the best practice, and we are seeing more and more companies do that.”

Support from the Board

Good cyber protection is built around a combination of process, technology, learning and people. While not every cyber incident needs to be reported to the boardroom, senior management has a key role in creating a culture of planning and risk awareness.

David Legassick, head of life sciences, tech and cyber, CNA Hardy

“Cyber is a boardroom risk. If it is not taken seriously at boardroom level, you are more than likely to suffer a network breach,” Legassick said.

However, getting board buy-in or buy-in from the C-suite is not always easy.

“C-suite executives often put off testing crisis plans as they get in the way of the day job. The irony here is obvious given how disruptive an incident can be,” said Sanchez.

“The C-suite must demonstrate its support for incident response planning and that it expects staff at all levels of the organization to play their part in recovering from serious incidents.”

“What these people need from the board is support,” said Jill Salmon, New York-based vice president, head of cyber/tech/MPL, Berkshire Hathaway Specialty Insurance.

“I don’t know that the information security folks are looking for direction from the board as much as they are looking for support from a resources standpoint and a visibility standpoint.

“They’ve got to be aware of what they need and they need to have the money to be able to build it up to that level,” she said.

Without that support, according to Legassick, failure to empower and encourage the IT team to manage cyber threats holistically through integration with the rest of the organization, particularly risk managers, becomes a common mistake.

He also warned that “blame culture” can prevent staff from escalating problems to management in a timely manner.

Collaboration and Communication

Given that cyber incident response truly is a team effort, it is therefore essential that a culture of collaboration, preparation and practice is embedded from the top down.


One of the biggest tripping points for companies — and an area that has done the most damage from a reputational perspective — is in how quickly and effectively the company communicates to the public in the aftermath of a cyber event.

Salmon said of all the cyber incident response plans she has seen, the companies that have impressed her most are those that have written mock press releases and rehearsed how they are going to respond to the media in the aftermath of an event.

“We have seen so many companies trip up in that regard,” she said. “There have been examples of companies taking too long and then not explaining why it took them so long. It’s like any other crisis — the way that you are communicating it to the public is really important.” &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected] Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]