Cyber Risk

High Net Worth’s Unique Cyber Challenges

Emerging cyber risk is a challenge for everyone these days, but for high net worth individuals and families, the challenges can be even greater.
By: | September 12, 2017 • 6 min read

High net worth individuals have a bigger attack surface,” said Martin Hartley, executive vice president and chief operating officer of PURE Group of Insurance Companies. “They have more devices, they travel more, they may have domestic staff. There is just a greater attack surface for someone targeting them to get through.”

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Wealth attracts theft, but the lifestyles of the better off make them targets as well. They tend to embrace technology, from computer-enhanced toys to a vast array of smart home devices, most of which are Wi-Fi enabled, presenting opportunities for would-be cyber thieves.

“With all of the smart home technology, [criminals can] hack into your thermostat, which now gives them access to the rest of your network and … the phones, iPads, and computers that family members do their banking on,” said Lisa Lindsay, executive director at the Private Risk Management Association. The latest gadgets or apps may still have unknown bugs or weaknesses, as well.

Domestic staff and frequent entertaining can both lead to sharing passwords, which makes networks less secure.

“Children of the high net worth will have phones earlier,” said Kim Lucarelli, senior vice president and director of personal client management at Oswald Companies. “They may have them at 10, 11 years old.” Children that age are less likely to understand the importance of good cyber hygiene, and more likely to develop bad habits that will be difficult to unlearn when they get older.

The wealthy tend to travel more. Using unknown networks to control remote devices or conduct financial transactions, especially abroad, puts home networks, sensitive financial information, or even accounts themselves at risk.

Lisa Lindsay, executive director, the Private Risk Management Association

“People think all the time, ‘Everything I do at home I can do remotely,’ and that is true,” said Heather Posner, director of high net worth at Burns & Wilcox. “But … how do you make sure you’re secure? Whether you’re paying bills, filing your taxes, changing your thermostat, setting your alarm, what kind of exposure are you opening yourself up to if you’re not doing that in a secure manner?”

Lindsay agrees. “People have to know public Wi-Fi common sense,” she said. “They’re sitting in a hotel lobby in Rome transacting financial matters. It’s crazy. You shouldn’t even do that [in the U.S].”

Other risks arise from technological advances of another sort. Cyber criminals drive through neighborhoods to access vulnerable home networks, and experts are increasingly concerned about the use of drones, which would allow criminals to detect and hack into networks remotely from a mile or two away, including networks not accessible from the street.

The ultimate goal of those hackers is, of course, simple. “Without a doubt, it is theft of funds from their bank account, through a variety of different means,” said Hartley. “ … That is the highest risk facing high net worth individuals.”

“High net worth individuals have a bigger attack surface. They have more devices, they travel more, they may have domestic staff … more transactions are occurring.” —Martin Hartley, executive vice president and chief operating officer, PURE Group of Insurance Companies

Identity theft or the use of stolen login info to access accounts can be devastating and disruptive, but in those cases the financial institution may accept liability. However, criminals can also use information gleaned from social media accounts, with or without stolen personal information, to craft sophisticated social engineering scams.

Social media posts made while traveling often provide details that make fraudulent correspondence so convincing, and the distance between family members can make fake pleas for money more believable and urgent.

Hartley routinely sees cases where thieves have used information stolen or gleaned from social media to create utterly convincing correspondences instructing personal assistants to transfer often vast sums of money.

“The bank is not liable,” said Hartley. “They say, ‘We followed our protocols. It was your personal assistant, who is an authorized bank user, who wired the money out of the account.’ That money is gone.”

“This is the nature of an evolving risk,” he said. “Today we have $10,000 worth of coverage for this kind of loss,” although PURE will soon roll out new coverage with much higher limits.

Defamation Claims

The fastest growing liability claim, according to a claim supervisor at Chubb, is online defamation, said Oswald’s Lucarelli.

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These claims often have to do with negative reviews on Yelp or other online platforms.

While such a claim may be picked up by a traditional liability policy, Lucarelli sees the potential for coverage gaps.

“If it’s deemed an intentional act there may not be coverage,” she said, adding, “The coverage really is more around bodily injury … Mental anguish isn’t a loss that’s likely covered.”

And coverage under a traditional liability policy maybe not be a sure thing. “AIG calls their coverage ‘silent,’” she said. Meaning maybe they’ll cover it, maybe they won’t.

Ambiguous language typically leans in the client’s favor, but Lucarelli hopes the industry will trend toward more explicit coverage.

Some high net worth carriers have bolstered their cyber offering. Lucarelli said it’s a good start, citing a new coverage from AIG called Family Cyber Edge, which includes coverage for data restoration, cyber extortion and ransomware, crisis management for reputational harm, as well as cyber bullying expenses. “They’ve done a good job rolling a lot of these coverages into one endorsement.”

Still, Lucarelli sees unmet demand for more specific cyber bullying liability coverage. “We interviewed 300 people and most said, ‘If you offer coverage that defines this and you even put a cap a limit on it of, say, $250,000, I’ll buy it.’ ”

Kim Lucarelli, senior vice president and director, personal client management, Oswald Companies

The new, higher-limit coverage PURE will be rolling out in coming months — which will include high-limit coverage for social engineering and cyber fraud losses — utilizes a new approach to cyber security. PURE is partnering with the cyber security firm Rubica for active cyber monitoring.

Coverage will be contingent on having an app installed on each of the insured’s devices. All data will be sent via VPN to Rubica’s cloud, which will use pattern recognition, a constantly updated list of known trouble spots, and AI to flag problems.

“They’re actively monitoring where data packages are being sent and identifying if they go off somewhere they shouldn’t. Then they can shut them off,” said Hartley.

Rubica’s model could be game changing. By monitoring the data itself, Rubica can detect problems regardless of how they are introduced, and avert them before they are executed.

PURE has such confidence in its efficacy that it will be offering coverage limits that would previously been considered prohibitive.

Ultimately, however, the most important aspect of cyber coverage for the high net worth lies in assessing and minimizing cyber risk. “So many people are looking for that,” said Lucarelli. “‘Just give me 10 great tips to make myself more secure.’”

“People want to know how to best prevent this sort of thing, not deal with it after it’s occurred,” agreed Hartley. “The gap between smart risk behavior and not smart risk behavior is one of just simply not knowing.” &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

As a professor of business, Jack Hampton knows firsthand the positive impact education has on risk managers as they tackle growing risks.
By: | April 9, 2018 • 4 min read

R&I: Who is your mentor and why?

Ellen Thrower, president (retired), The College of Insurance, introduced me to the importance of insurance as a component of risk management. Further, she encouraged me to explore strategic and operational risk as foundation topics shaping the role of the modern risk manager.

Chris Mandel, former president of RIMS and Risk Manager of the Year, introduced me to the emerging area of enterprise risk management. He helped me recognize the need to align hazard, strategic, operational and financial risk into a single framework. He gave me the perspective of ERM in a high-tech environment, using USAA as a model program that later won an excellence award for innovation.

Bob Morrell, founder and former CEO of Riskonnect, showed me how technology could be applied to solving serious risk management and governance problems. He created a platform that made some of my ideas practical and extended them into a highly-successful enterprise that served risk and governance management needs of major corporations.

R&I: How did you come to work in this industry?

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From a background in corporate finance and commercial banking, I accepted the position of provost of The College of Insurance. Recognizing my limited prior knowledge in the field, I became a student of insurance and risk management leading to authorship of books on hazard and financial risk. This led to industry consulting, as well as to the development of graduate-level courses and concentrations in MBA programs.

R&I: What was your first job?

The provost position was the first job I had in the industry, after serving as dean of the Seton Hall University School of Business and founding The Princeton Consulting Group. Earlier positions were in business development with Marine Transport Lines, consulting in commercial banking and college professorships.

R&I: What have you accomplished that you are proudest of?

Creating a risk management concentration in the MBA program at Saint Peter’s, co-founding the Russian Risk Management Society (RUSRISK), and writing “Fundamentals of Enterprise Risk Management” and the “AMA Handbook of Financial Risk Management.”

A few years ago, I expanded into risk management in higher education. From 2017 into 2018, Rowman and Littlefield published my four books that address risks facing colleges and universities, professors, students and parents.

Jack Hampton, Professor of Business, St. Peter’s University

R&I: What is your favorite book or movie?

The Godfather. I see it as a story of managing risk, even as the behavior of its leading characters create risk for others.

R&I: What is your favorite drink?

Jameson’s Irish whiskey. Mixed with a little ice, it is a serious rival for Johnny Walker Gold scotch and Jack Daniel’s Tennessee whiskey.

R&I: What is the most unusual/interesting place you have ever visited?

Mount Etna, Taormina, and Agrigento, Sicily. I actually supervised an MBA program in Siracusa and learned about risk from a new perspective.

R&I: What is the riskiest activity you ever engaged in?

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Army Airborne training and jumping out of an airplane. Fortunately, I never had to do it in combat even though I served in Vietnam.

R&I: If the world has a modern hero, who is it and why?

George C. Marshall, one of the most decorated military leaders in American history, architect of the economic recovery program for Europe after World War II, and recipient of the 1953 Nobel Peace Prize. For Marshall, it was not just about winning the war. It was also about winning the peace.

R&I: What about this work do you find the most fulfilling or rewarding?

Sharing lessons with colleagues and students by writing, publishing and teaching. A professor with a knowledge of risk management does not only share lessons. The professor is also a student when MBA candidates talk about the risks they manage every day.

R&I: What is the risk management community doing right?

Sensitizing for-profit, nonprofit and governmental agencies to the exposures and complexities facing their organizations. Sometimes we focus too much on strategies that sound good but do not withstand closer examination. Risk managers help organizations make better decisions.

R&I: What could the risk management community be doing a better job of?

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Developing executive training programs to help risk managers assume C-suite positions in organizations. Insurance may be a good place to start but so is an MBA degree. The Risk and Insurance Management Society recognizes the importance of a wide range of risk knowledge. Colleges and universities need to catch up with RIMS.

R&I: What emerging commercial risk most concerns you?

Cyber risk and its impact on hazard, operational and financial strategies. A terrorist can take down a building. A cyber-criminal can take down much more.

R&I: What does your family think you do?

My family members think I’m a professor. They do not seem to be too interested in my views on risk management.




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]