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

Employment Practices


Sexual harassment is a growing concern for corporate America. Risk managers can pave the way to top-down culture change.
By: | March 5, 2018 • 12 min read

The #MeToo and #TimesUp movements opened up Pandora’s Box, launching countless public scandals and accusations. The stories that continue to emerge paint an unflattering picture of corporate America and the culture of sexual harassment that has permeated it for decades.


“The clock has run out on sexual assault, harassment and inequality in the workplace. It’s time to do something about it,” reads the official tagline of Time’s Up, one of the most vocal groups demanding change.

The GoFundMe campaign that supports the Time’s Up Legal Defense Fund raised more than $16.7 million in less than a month, making it the most successful GoFundMe initiative on record.

Funds will be used to help victims of sexual harassment and assault bring legal action against harassers, as well as provide public relations consultation to manage any media attention such suits might attract.

The problem was never really a secret.

In surveys conducted since 1980 by the U.S. Merit Systems Protection Board, 40 percent of women and 15 percent of men consistently reported being sexually harassed at work.

In a sweeping meta-analysis of 25 years’ worth of research data, published in “Personnel Psychology,” an average of 25 percent of women reported experiencing sexual harassment at work. When respondents were given clear definitions of harassing behavior, that figure shot up to 60 percent.

The current climate is just now pushing awareness to the forefront. It was reported last November that law firms in the nation’s capital are seeing a spike in inquiries about sexual harassment cases.

Laura Coppola, regional head of commercial management liability in North America, Allianz Global Corporate & Specialty

In addition, the Equal Employment Opportunity Commission (EEOC) website is seeing visits to its harassment web page double.

There’s no question the costs to businesses can be staggering. Twenty-First Century Fox reportedly incurred $50 million in costs tied to the settlement of sexual harassment and discrimination allegations in its Fox News division, as well as a $90 million settlement of shareholder claims arising from sexual harassment scandals.

In June, the company disclosed in a regulatory filing that it had $224 million in costs during the fiscal year related to “management and employee transitions and restructuring” at business units, including the group that houses Fox News.

If time is indeed up, it won’t just impact Hollywood, Silicon Valley or Capitol Hill. It will impact every workplace, in every industry.

“It affects everybody,” said Marie-France Gelot, senior vice president and insurance & claims counsel for Lockton’s Northeast Claims Advisory Group.

“I think anybody in corporate America — at some point — has seen it or been aware of it or been around it.”

“This particular phenomenon is certainly at a much wider scope than we’ve seen in the last decade or so,” said Laura Coppola, regional head of commercial management liability in North America, Allianz Global Corporate & Specialty.

“This is going to touch many industries, many segments, and many people.”

Employers are beginning to wonder if their workplace could be next.

“I think if you’d been asking [insureds] a year ago, ‘Are you interested in hearing about sexual harassment prevention?’ I think the answer would have been, ‘No, we’re good, we’ve got it,’ ” said Bob Graham, vice president, HUB International Limited.

“But I think now everyone’s saying ‘Sure, yes, we’d like to hear something.’ ”

Leading the Conversation

As American workplaces come under increasing scrutiny, the time is ripe for a large-scale pivot in the way employers manage risks related to sexual harassment.

The co-chairs of the EEOC’s select task force on the study of harassment in the workplace expressed it aptly in 2016:

“With legal liability long ago established, with reputational harm from harassment well known, with an entire cottage industry of workplace compliance and training adopted and encouraged for 30 years, why does so much harassment persist and take place in so many of our workplaces? And, most important of all, what can be done to prevent it? After 30 years — is there something we’ve been missing?”

Experts in the management liability field unanimously told Risk & Insurance® these issues should be elevated to the board level and the C-suite.

“Just as cyber liability shifted rapidly from an IT discussion to a board level discussion, so too will the harassment and discrimination discussion go beyond HR and be elevated to the highest levels,” said Coppola. It will become a corporate-wide, enterprise-wide conversation.

“It’s going to take some time to get to that board level, but it’s going to have to happen,” said Paul King, national practice leader, management and professional services, USI Insurance Services.

“Risk management and HR cannot go down parallel paths, not understanding one another. Not anymore. There’s too much at stake.” — Paul King, national practice leader, management and professional services, USI Insurance Services

Risk managers, said Kelly Thoerig, U.S. employment practices liability coverage leader, Marsh, are well suited to lead this conversation, which means actively partnering with human resources, the legal department, the general counsel’s office and outside counsel.


“Just like the quarterback depends on the offensive line, on receivers, on the running backs, it’s not a one-man show,” said King. “This can’t be the risk manager operating in a vacuum; they have to be liaising with multiple parts of the organization.”

Added King, “Risk management and HR cannot go down parallel paths, not understanding one another. Not anymore. There’s too much at stake.”

Connecting with outside counsel can also be of great benefit to risk managers, said Coppola.

“[They can] provide a very independent objective view of what they see in the overall market and how their knowledge of the individual client’s best practices can be improved and enhanced to ensure that they are protecting employees and the organization.”

Brokers and carriers also may be able to offer insights and services. Unfortunately, that piece is often lost because risk management and HR are siloed.

“The [knowledge of the] services that come with the insurance policy end up with the policy — in a drawer in the risk manager’s office,” said Tom Hams, employment practice liability insurance leader, Aon.

“HR doesn’t know that they exist. Even if they’re just online blogs or something like that, they could be more meaningful to the HR department than they are to risk management.

“So it’s important to make sure that companies are aware they’ve got those tools and — more importantly — to share them internally.”

Expediting Cultural Change

The X factor that underpins every aspect of these efforts is culture, experts agreed.

“It’s not so much ‘does the company have best-in-class policies and procedures in place;’ I think many of them do. I think that a significant change needed is doing a full overhaul of corporate culture, and that’s no small feat,” said Gelot.

Paul King, national practice leader, management and professional services, USI Insurance Services

True culture change can only come from the top level. But that isn’t likely to happen unless everyone at the top understands what the scope of the exposure could be if it’s not addressed appropriately on the front end. And for that, money talks, said Thoerig, who will be presenting on the topic at RIMS 2018 in San Antonio.

“Nothing is more instructive than real tangible claims examples and settlement amounts. Arm yourself with … recent, relevant claims examples specific to the industry and the jurisdictions the company operates in.”

In addition, said King, HR and legal should be regularly feeding claims information to risk managers to share at quarterly meetings of the board and give specific updates around these issues.

Armed with that level of intelligence, top brass can set the goals that will drive all anti-harassment efforts, said experts, putting an emphasis on identifying and correcting behavior that could potentially expose a company to liability.

Better Training and Reporting 

The best anti-harassment programs are multilayered, said Hams, with each facet carefully tailored to suit the employee population, the industry and the organization’s goals. A clearly defined policy is essential, stating that harassment will not be tolerated and neither will retaliation against those who report it.

The policy should be clear that employees are expected to report harassment or unacceptable behavior. Hams said he’s seen companies go so far as to state employees who don’t speak up are in violation of the policy.

“At least it should give them pause to stop and think about what they might have seen before they click the button or sign the document,” he said.

Companies should consider how uncomfortable employees may be about speaking up. An open-door policy is a start.

But there should also be multiple reporting points throughout the organization, said Hams, and an anonymous hotline for those reluctant to bring the matter up with anyone in their chain of command, and a multilingual hotline as well.

An effective training plan will have multiple moving parts and should touch every level of the organization from the executive suite to managers and supervisors to the rank and file. Comprehensive training is especially critical for the managers and supervisors who might receive or investigate complaints.

Many large employers already have training programs that can be considered best-in-class. Small to midsized employers, however, may still be using the cookie-cutter compliance-centric training that has dominated the field for decades.

The goal of this training is to hit all the bases related to Title VII of the Civil Rights Act, ticking off a list of acts or speech that would be considered illegal and affirming the company will not tolerate illegal behavior.

Overwhelmingly though, this type of training misses the mark. Studies have shown that this one-size-fits-all training is ineffective, especially when it’s a rote check-the-box exercise. Employees get the message their employer doesn’t take the subject too seriously.

Worse, it can even aggravate tensions, creating more discriminatory behavior from men who avoid working with women just to eliminate the chance of being accused of anything.

One study even found that men were more likely to place blame on the victim of sexual abuse after they’d received that type of anti-harassment training.

Even at best, compliance-centric training will still fail, because it only addresses behaviors that violate the law. But there is a broad array of behavior that — while not quite illegal — shouldn’t be tolerated.

When this kind of activity is allowed to flourish unchecked, the environment becomes increasingly toxic for those on the receiving end. It also tells employees that the company will tolerate harassment as long as it’s not overly egregious. In that case, it’s just a matter of time before the company is faced with a serious claim.

“Nothing is more instructive than real tangible claims examples and settlement amounts. Arm yourself with … recent, relevant claims examples specific to the industry and the jurisdictions the company operates in.” — Kelly Thoerig, U.S. employment practices liability coverage leader, Marsh

In its 2016 report, the EEOC’s harassment task force recommended changing tactics, exploring alternative training models such as respect-based civility training — what some call professionalism training.


The theory is “if you train them to act in a professional manner, these things tend not to happen at all,” said Hams.

The EEOC also suggested bystander intervention training, which is designed to empower employees to intervene when they witness harassing behavior.

Experts agreed whatever training programs or modules a company chooses, it’s important the training material reflect the workforce and be continuous and regularly refreshed.

A certification scheme also should be put in place to ensure the training is hitting the mark. While the law does not yet require companies to prove the effectiveness of their programs, some suggest it’s only a matter of time before the courts catch up to the problem.

What’s more, said Coppola, it’s simply the right thing to do for companies that want to confirm they’ve created a culture where all employees can expect to be treated professionally.

Zero Tolerance

Gelot and others believe a zero-tolerance policy should be a key component of an effective anti-harassment program.

“There are many companies that have Harvey Weinsteins and Matt Lauers and Kevin Spaceys working in their midst and those people are tolerated. Employees know about them — it’s not a secret.”

Bob Graham, vice president, HUB International Limited

Particularly when the harasser is a high-level executive, companies may wrestle with the decision to look the other way or lose a key rainmaker. In a zero-tolerance environment — one that starts at the top — the decision would be clear.

“What we saw with Matt Lauer and Charlie Rose — they were terminated immediately as the accusations came out. That’s zero tolerance. That’s sending a message to all of the employees within the company that this is completely unacceptable, we won’t tolerate it, and [it] clearly sends a message to the public at large.”

Employers should promote a workplace culture where all forms of harassment and discrimination are unacceptable and reportable, said Gelot. That’s the only way to take the fear and the stigma out of reporting.

That said, the EEOC offers a word of caution on zero-tolerance policies applied militantly without regard for common sense. Employers should hash out the specifics of which acts merit immediate termination versus a warning.

Overzealous application of the zero-tolerance doctrine can backfire if an employee fears her coworker’s children will go hungry if she reports his lewd or sexist jokes.

Creating a Dialogue

As with managing any other exposure that touches everyone, robust sharing of ideas and best practices has the power to improve the risk profile of entire industry sectors.

Facebook raised eyebrows in December, making public its sexual harassment policy in full.

“I hope in sharing it we will start a discussion, both to help smaller companies thinking about this for the first time, and to improve our own practices by learning from other companies,” wrote Lori Goler, Facebook’s global VP of people, about the company’s bold move.


That level of disclosure is making some risk professionals uncomfortable. But others acknowledge the wisdom of it.

“Any time you can share best practices that’s probably a great idea, because no one has all the answers … or at least not all the right answers,” said Graham.

“There’s a reason they did that, and I think it’s for all the right, positive reasons. They want to drive the momentum that is going to reduce or even eliminate what we have seen in corporate America over the last 50-plus years. They want to lead by example, they want to be the model and rightly so,” added Coppola.

“I think we are at a perfect time in our economic environment that allows the evolution of equality in our workplace.”

Part of that should involve making the workplace more egalitarian, said Gelot, and figuring out “how to make female employees not feel ostracized by a ‘boys’ club’ atmosphere, and actively championing the ascension of women into senior rolls.”

“We can’t focus on the past,” said Coppola. “But we can work very hard collectively as a community, and within the insurance industry specifically, to move forward.” &

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