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Main Street America: A Vulnerable Target for Cyber Attack

Stop your small business from being the next victim by working with an insurer who can offer tailored solutions to fit your needs.
By: | May 23, 2018 • 6 min read

Cyber risk affects everyone. There’s not a business small or simple enough to escape its reach. If you handle personally identifiable information on behalf of employees or customers, use a computer to conduct business, or work with a vendor that does, your company is exposed.

Small businesses that make up Main Street America, however, continually underestimate their risk. These are the local food markets, ice cream shops and hardware stores; independent legal and consulting firms; preschools and small nonprofits that underpin community economies.

Sixty-one percent of businesses in this sector suffered a cyber attack in 2017, yet only 25 percent had sufficient cyber insurance coverage, according to Ponemon Institute’s “2017 State of Cyber Security in Small & Medium-Sized Businesses.” Even fewer – 22 percent – were taking steps to protect themselves by encrypting private employee and customer data.

Addressing the coverage gap requires two steps. First, small business owners need to better understand the type and extent of their cyber exposure. Second, their insurer and broker partners need to proactively educate this sector about the risk transfer solutions available to them.

The Many Forms of Cyber Risk

Betty Shepherd, Divisional Senior Vice President

“Cyber risk refers to the financial consequences a business has in the face of a network security breach or a breach of private information in their care, custody or control,” said Betty Shepherd, Divisional Senior Vice President, Great American Insurance Group.

“This risk can manifest itself in several forms, but the majority comes down to data. It’s important to analyze how data flows through your organization to determine your exposure.”

A network security breach can include anyone gaining unauthorized access to a company’s systems and/or data. A network breach may or may not result in a privacy beach, in which an unauthorized person gains access to personal identifiable information (PII) like credit card numbers, Social Security numbers, addresses or other sensitive data. A network breach can cause business interruption, data loss or even an extortion event.

Possible theft of PII triggers a host of extra expenses. All 50 states now require businesses to report cyber breaches involving PII to affected individuals as well as regulators. An organization may need to conduct forensic investigation to determine what — if anything— was accessed or stolen. Affected companies may also offer ongoing credit monitoring services to affected customers if financial information was divulged.

“In states with notification requirements, data owners are legally obligated to notify an individual if their private information has been breached or thought to be accessed in an unauthorized manner,” Shepherd said.

“Many small businesses believe this obligation falls to their third-party data processors, such as payment processors handling credit card data, or outsourced accounting functions administering payroll, for example. But that is not the case. Care of that data remains the responsibility of the business that collected it.”

Cyber extortion in the form of ransomware has grown increasingly common as a way for thieves to make off with small sums. Many companies would rather pay an affordable ransom and regain system access quickly than battle with an unknown assailant.

Denial of service attacks can cause financial harm via business interruption and lost income.

Third-party liability also enters the picture if the data belonging to a vendor or other business associate is unlawfully accessed, stolen or corrupted.

“An affected third party could file a claim against you if your network is determined to be the source of malware or the entry point for a cyber thief, thus enabling the compromise of the third party’s network,” Shepherd said.

Business owners should also keep in mind that paper trails are as important to safeguard as digital ones.

“People also tend to forget that cyber risk extends to paper files as well as electronic. Data is data,” Shepherd said. “Physical documents that contain sensitive information are still an exposure. Failing to properly store and/or dispose of that paper may open a company up to the same liability as if a computer system gets hacked.”

More often than not, carelessness on the part of employees — rather than a malicious hacker — is the cause of network security failure. Unwittingly clicking on a link or attachment within a phishing email, for example, can plant malware without any overt indication. Mobile devices used for work can be stolen or lost. Papers casually tossed in the trash are easy targets for theft.

“Understanding where cyber risk comes from is the first step of risk mitigation,” Shepherd said.

Developing a Risk Management Strategy

Once a business pinpoints where its exposure lies, it can take specific steps to strengthen vulnerabilities. Encrypting data renders it useless to a cyber thief. Storing sensitive documents in a locked cabinet and enforcing proper disposal protocols reduces the risk that they’ll fall into the wrong hands. Installing firewalls and dual-authentication processes can enhance network security.

But advancing technology and increasingly sophisticated hackers make it nearly impossible to build ironclad defenses against cyber risk. This is why adequate cyber insurance is critical in helping small companies stay up and running in the aftermath of a breach.

Parsing through the insurance options available, though, can be difficult even for large corporations with more cyber expertise. Lots of overlap exists among current products on the market. General liability, E&O and fidelity products may have some cyber component built in but may not offer all the coverages a company needs. Still, some small businesses can find it costly to purchase a standalone cyber policy.

“There are many policy variations, and there’s no single form on the market that will cover every cyber peril,” Shepherd said. “The appropriate solution depends on the nature of your exposure.”

A pizzeria, for example, can still make pies and accept cash payments if their point-of-sale system goes down, so its management team is less concerned about business interruption expenses. A manufacturer, on the other hand, may suffer a total lapse in operations if their industrial network is compromised. A consulting firm is likely to have staff working remotely and may need specific coverage for mobile devices more so than a clothing boutique. But the boutique will transact a larger volume of credit card data and may be more concerned with breach notification and remediation costs.

Expertise to Craft Custom Solutions

Insurers with expertise in cyber risk can offer the tailored solutions that small businesses need.

Great American offers a modular policy format with a menu of insuring agreements, including security breach liability and expenses, cyber extortion threats, funds transfer fraud, replacement or restoration of electronic data, and public relations expenses, among others.

“A Great American policy includes the third-party liability exposure inherent in many network security and privacy breaches as well as the first-party exposure like breach notification, investigation and credit monitoring expenses,” Shepherd said. “We also have separate coverage available for public relations services to help an organization mitigate reputational damage in the event they experience negative publicity following a breach.”

Great American policyholders also have access to a web portal offering informational resources like whitepapers, as well as breach calculators and referrals for security, forensic investigation and legal firms.

Great American has focused its cyber expertise on the needs of small- to medium-sized companies, underwriting businesses with up to $250 million in annual revenue.

“Every organization has a cyber risk exposure, but we’re not looking to underwrite everyone. We’re dedicated to the unique needs of small- and mid-size organizations,” Shepherd said. “We will continue to educate and serve this sector as the risk and exposures evolves.”

To learn more, visit https://www.greatamericaninsurancegroup.com/for-businesses/product-details/alternative-markets/cyber-risk.

Great American Insurance Group, 301 E. Fourth St., Cincinnati, OH 45202. Policies are underwritten by Great American Insurance Company, Great American Assurance Company, Great American Alliance Insurance Company, Great American Insurance Company of New York, Great American Security Insurance Company, and Great American Spirit Insurance Company, authorized insurers in all 50 states and the DC.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Great American Insurance Group. The editorial staff of Risk & Insurance had no role in its preparation.




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Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]