Cyber Risk

Keep the Dialogue Open

As cyber threats become more sophisticated, risk managers must understand and assess evolving exposures.
By: | August 3, 2016 • 7 min read

A shut-down, or even a partial disruption, is the stuff of nightmares for risk managers and C-suites. Business interruption (BI) and contingent business interruption (CBI) policies can help organizations weather those kind of crises, but the coverage is complex, and has only become more so since cyber exposures came to the fore.

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In order to help minimize BI and CBI losses, risk managers must establish and maintain an open dialogue with C-suite executives on a continuous basis.

Open communication will give companies the agility to respond quickly if a business is shut down or production is halted by a cyber attack, determine the best way to assess income loss, and also to protect the company’s reputation.

Prior to a loss, that open dialogue will also help everyone reach a consensus about coverage needs and whether sufficient limits are in place.

Traditional property and BI policies will typically insure against a physical loss or damage to property, however many exclude cyber attacks, even if the cyber attack causes property damage.

As cyber threats become more sophisticated, risk managers and their companies need to better understand and assess these evolving exposures, and to devise an appropriate mitigation strategy and emergency response plan.

Understanding and Measuring the Claim

Al Gier, director of global risk management and insurance at General Motors, said that BI and CBI are often the most complex form of property losses when trying to quantify the actual loss.

“They require a significant marshaling of the risk management, supply chain, finance, marketing, purchasing and distribution functions, in order to support the claim,” he said. “Added to that is the work that people are already doing behind the scenes to bring their company back on line.”

He added that one way of assessing loss is by using pre-loss production schedules, sales and growth projections, and budgets.

Rick Roberts, president and director of risk management and employee benefits, Ensign-Bickford Industries

Rick Roberts, president and director of risk management and employee benefits, Ensign-Bickford Industries

Rick Roberts, president and director of risk management and employee benefits for Ensign-Bickford Industries and immediate past president of RIMS, said there is often a sizeable difference between a company’s loss estimate and the actual loss.

“There are two approaches to BI claims — the first is a top-down approach and the second is bottom-up,” he said.

“I prefer the bottom-up approach that measures lost income plus any continuing expenses as it’s easier to understand.”

Dan Holden, manager of corporate risk and insurance for Daimler Trucks North America, said that risk managers need to explain to the C-suite how BI or CBI coverage would be triggered, what it would cover and for how long.

That allows management to focus on potential events in order to mitigate against any revenue interruption, he said.

Robert Reeves, partner at EY’s Fraud Investigation and Dispute Services (FIDS) practice, said that should a loss occur, risk managers need to help senior management understand the claim, as well as the claims process and the potential range of the claim.

“[BI and CBI] require a significant marshaling of the risk management, supply chain, finance, marketing, purchasing and distribution functions, in order to support the claim.” — Al Gier, director of global risk management and insurance, General Motors

He added that when assessing a loss, it’s also important to take into account both sales and production.

“Sales is really focused on demand and production is focused on capacity,” he said. “So no matter what industry you are in, you have to look at both factors.”

Selecting the Right Policy

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Dave Finnis, executive vice president and national property practice leader at Willis Towers Watson, said that most property insurance policies won’t provide coverage as standard in the event of a cyber attack unless there was evidence of physical damage.

“I am seeing a lot more instances where these kinds of occurrences are becoming a reality,” he said. “In the last year, a German power plant had a cyber attack and suffered physical damage when the hackers accessed one of their furnaces, but fortunately they were covered under their property policy.”

Reeves said that it is important to read the policy’s wording first as most cyber insurance will provide coverage for a BI claim, but won’t necessarily cover a CBI claim.

Josh Gold, a cyber insurance attorney at Anderson Kill’s New York office, said that BI or CBI coverage should provide for loss of business income at a minimum, covering both lost profits and continuing expenses.

He added that it was important to build in coverage for extra expenses, such as the cost of using other facilities while your operations are down, bringing consultants in, or moving your system to a new cloud platform.

Doug Backes, FM Global’s claims manager, said that it is also important to match the coverage to the loss.

“From our perspective, we have always approached data as property and it needs to be covered as such,” he said. “Whether data is damaged in a fire or as a result of a cyber attack, there needs to be cover for that.”

Impact on Reputation

Reeves said that an often-overlooked impact of a BI or CBI claim is on a company’s reputation with its customers, employees and shareholders.

“Once the physical loss has gone away, then you have got to make sure that you manage your reputation,” he said. “So you need to let your customers know what is happening, how long you are going to be down and what your mitigation strategy is.”

Al Gier, director of global risk management and insurance, General Motors

Al Gier, director of global risk management and insurance, General Motors

Citing the example of Target’s major data breach, which has cost the company $300 million to date, Gold said that the impact of a cyber attack often runs much deeper than the initial loss, and it can damage reputation in terms of customer privacy and payment details.

“From a loss mitigation 101 standpoint, you wouldn’t want to exacerbate the problem by being less than candid about what is going on,” he said.

“Of course, a lot of risk mitigation can be done before a breach occurs, to ensure that you have the appropriate plan and insurance policy in place.”

Gier said that the impact of a BI or CBI loss on a business’ reputation depended largely on the cause of the loss, as well as the company’s response time.

“Companies can do a lot to minimize the risk of BI or CBI losses on their reputation by maintaining ultimate sources of supply, keeping extra inventory and having a thorough understanding of the financial impact of BI in protecting the most valuable parts of the business,” he said.

Working in Partnership

Reeves said that risk managers need to explain to senior managers how their BI and CBI policies work and to identify key areas that need to be written into the coverage based on previous claims experience.

“The C-suite needs to make sure that those resources are available and the risk manager needs to make sure that everyone has realistic expectations about the time frame for the claims process.” — Jill Dalton, managing director, Aon Global Risk Consulting

He added that it was also important to help them understand the interdependencies between the different parts of their business in the supply chain.

Jill Dalton, managing director, Aon Global Risk Consulting

Jill Dalton, managing director, Aon Global Risk Consulting

“We had a client with a very small site in the south that got hit by a tornado,” he said.

Initially they thought it wouldn’t have much of a financial impact, but they soon realized that it was the only plant that produced a small component used in all of their products.

“They dodged a real bullet, because fortunately they were able to get alternative sourcing, otherwise they would have been facing a $1 billion loss,” Reeves said.

Jill Dalton, managing director of Aon Global Risk Consulting, said that C-suites and risk managers need to work in unison.

“The C-suite needs to make sure that those resources are available and the risk manager needs to make sure that everyone has realistic expectations about the time frame for the claims process,” she said.

Carlos Moran, director of claims at Aon Global Risk Consulting, added that businesses need to develop a contingency plan in order to maintain critical operations in the event of a loss.

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“Risk managers have a very difficult job,” FM Global’s Backes said. “Sometimes it’s very difficult for them at times to get the attention and buy-in from the C-suite.

“But when they can do that successfully, they can build out greater resiliency and redundancy into the company’s practices and procedures.” &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

As risk manager for a cloud computing and software company, Laurie LeLack knows that the interconnected economy and cyber security remain top risks.
By: | December 14, 2017 • 4 min read

R&I: What was your first job?

One of my first jobs was actually at a local insurance agency when I was a high school student, before I had any idea I was going to get into insurance. After college, I was a claims analyst at Sunbeam.

R&I: How did you come to work in risk management?

I fell into it after college, where I studied international business. I had a stack of resumes, and Sunbeam came to Florida from Rhode Island, so I applied. I interviewed with the director of risk management and just stuck with it and worked my way up.

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

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Getting a holistic view of risk. Risk managers are understanding how to get all stakeholders together, so we understand how each risk is aligned. In my view, that’s the only way to properly protect and serve our organizations.

R&I: What could the risk management community do better?

We’ve come a long way, but we still have to continue breaking down silos at organizations. You also have to make sure you really understand your business model and your story so you can communicate that effectively to your broker or carrier. Without full understanding of your business, you can’t assess your exposures.

R&I: What was the best location and year for the RIMS conference and why?

Being on the East Coast, I like Philadelphia.

Laurie LeLack, Senior Director, Corporate Risk and Americas Real Estate, Citrix Systems Inc.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

Organizations understanding their cyber risk exposures and how this line of insurance can best protect them. Five to ten years ago, people shrugged it off as something just for technologies companies. But you can really see the trend ticking up as a must-have. It was always something that was needed, but people came to their own defining moments as we got more involved in electronic content and social media globally. Cyber risk is inherent in the way we do business today.

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

The advent of security and contractual obligations. These are concerns as we all play a part in this big web of a global economy. There’s that downstream effect — who’s going to be best insulated at the end of the day should something transpire, and did we set the right expectations?

R&I: Is the contingent commission controversy overblown?

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I think so. At the end of the day, it’s all about the transparency you’re getting from the people you work with. I think some best practices in transparency came out of the situation, but we were working on a fee basis, so it wasn’t as much of an issue for us as it may have been for other companies.

R&I: Are you optimistic about the U.S. economy or pessimistic and why?

I’m cautiously optimistic. We seem to be stable in terms of growth, and I’m hoping that the efficiencies and the economies of scale we achieve through technology will benefit us. But I’m also worried about the impact that could have on the number of jobs globally.

R&I: Who is your mentor and why?

Robert O’Connor, my former director when I was first on-boarded at Sunbeam, gave me so many valuable tidbits. I’ll call him to this day if I have an idea I want to bounce off him. He’s a good source of comfort and guidance.

R&I: Of what accomplishment are you most proud?

I have two very empathetic, healthy and happy boys. Eleven and soon-to-be 14.

On the professional side, there were a lot of moments during my career at Citrix where we were running a very lean organization, so I had the opportunity to get involved in many different projects that I probably wouldn’t have had in other larger organizations.

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

My favorite movie is Raiders of the Lost Ark.

R&I: What’s the best restaurant you’ve ever eaten at?

A place in Santa Barbara called Bouchon.

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

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Caverns in Gatlinburg, Tennessee. They were interesting. It was cool to see these stalagmites and stalactites that have been growing for millions of years, and then just above ground there are homes from the 1950s.

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

Riding on the back of my husband’s Harley.

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

I like educating people and helping them find their ‘aha’ moment when you highlight areas of risk they may not have thought about. It allows people to broaden their horizons a little bit when we talk about risk and try to explore it from a different angle. I try not to be the person who always says “No” because it’s too risky, but find solutions that everyone is comfortable with given a risk profile.

R&I: What do your friends and family think you do?

I tell my kids I protect people and property and sometimes the things you can’t feel or touch.




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