Cyber Defense

How Insurers Are Using AI to Better Protect and Serve

Insurers are fighting the good fight by building powerful machine learning tools to help insureds stay a step ahead in their cyber security management.
By: | August 30, 2018 • 3 min read

It’s safe to say that we’ve barely scratched the surface of what machine learning and deep learning can do, and the idea of ruthless criminals harnessing that much power could keep risk managers — and everyone else — up at night.

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But don’t count out the good guys.

There are scores upon scores of talented and passionate people working to leverage machine learning techniques to make the cyber realm a safer place.

“What artificial intelligence and machine learning has changed is the nature of the engagement,” said Tim Marlin, senior managing director, and head of Cyber & Professional Liability for The Hartford. With powerful artificial intelligence being implemented on both sides, he said “this is truly an arms race now. And the folks with the best technology often win.”

Many cyber security firms are using sophisticated AI to automatically detect, analyze, and defend against advanced attacks by deceiving or confusing the attackers’ technology. As the attackers learn and adapt over time, the defenders do the same.

From the insurance angle, that same phenomenal computing power can be used to get a more precise handle on an insured’s risks, understand opportunities for improving the risk, and better price appropriate coverage for it.

“What artificial intelligence and machine learning has changed is the nature of the engagement.” With powerful artificial intelligence being implemented on both sides, “this is truly an arms race now. And the folks with the best technology often win.” — Tim Marlin, senior managing director, and head of Cyber & Professional Liability, The Hartford

Joshua Motta, CEO of Coalition, a new firm that provides comprehensive cyber insurance coverage, cyber security, and risk management services, spoke with R&I about the risks of advanced AI in the hands of bad actors. And he explained how his firm is taking that same power and using it to solve cyber risk in a dynamic way.

“During our underwriting process … we gather hundreds of thousands of data points using machine learning techniques to assess the risks of that company — to determine the likely probability of an attack and what the severity would be.”

Coalition analyzes each company’s IT infrastructure, scanning their domains and their corporate networks, categorizing the specific versions of each technology they’re using and what vulnerabilities are known for each element.  It also cross-references company employees to see whether any have had passwords compromised in third-party data breaches.

Tim Marlin, senior managing director, and head of Cyber & Professional Liability, The Hartford

“It’s just an enormous amount of data,” said Motta. “ … and we’ve stored that not just for the companies that quote with us. We currently gather this data once a week for 14 million companies — the vast majority of small and medium businesses in the United States.”

Coalition uses that data to simulate attack vulnerability in real-time.

“When we write [any of] these 14 million companies, we know what they look like. We know what technologies and services [they use and] how they configure them. So we spin up what we call virtual machines on the Internet that are configured to look exactly like the different profiles of policyholders we have.

“Say we have one policyholder that is running an Apache Web server with a WordPress content management system to develop their blog. That may be distinct from someone else who’s running a Microsoft Web server running Magento shopping cart. So we’ll spin up things that look like these and then we just wait and see who attacks them. We log every single type of attack and the techniques they’re using.

“With that we can now start to learn on that data and we can start to make predictions on which companies are more likely to experience a cyber attack and which companies, based on the technology choices they’ve made, are more likely to succumb to one – [meaning which attacks] will be successful.”

Motta said that as the company develops loss and claims data, it will use those for learning purposes as well.

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“This is where you’re starting to see those techniques brought into effect — [with deep learning] we can use the claim and loss data that we collect to refine our underwriting, but also to help build better tools and provide better data to the policyholders, to help them prevent losses in the first place.”

The Hartford’s Tim Marlin shares Motta’s dedication to helping insureds stay ahead of a risk landscape that changes at breakneck speed.

“What we are trying to do as an insurance carrier is to make sure that [cyber risk mitigation] is part of our offering, part of the services that we can help bring to bear,” he said. “We are trying to make available the service partners that can bring some powerful [machine learning] tools to our insureds.” &

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

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

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