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Risk Scenario

Midnight Blitz

On Cyber Monday, skilled hackers diminish an online retailer's credibility in mere minutes.
By: | November 13, 2014 • 8 min read
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

The Citadel

The October 2015 cover of the trade publication Retailer’s World featured a picture of Paul Vitez, general counsel for cloud host Va-Voom!, which rewrote the book on online shopping, making a billionaire of its founder, Teddy Houck.

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In glowing prose, the author of the Retailer’s World cover story related Vitez’ impressive academic record at Haverford College, his background in finance and his role in earning for Va-Voom! the nickname of “The Citadel” for its innovative, committed approach to cyber security.

Employing the “prison, not a castle” approach to cyber security, Vitez and Va-Voom! created “honey- pots” within the Va-Voom! system, decoys which looked like they contained important data but were not actually part of the internal network.

Moving much more swiftly than its competitors, Va-Voom! also spent millions to implement chip and pin credit card technology on its credit cards, a much more secure way to store sensitive financial and personal information than the traditional magnetic strip.

Again with an eye toward short-term investment in operations and a goal of long-term success, Vitez was given carte blanche by Teddy Houck and the Va-Voom! board of directors to spend top dollar for information technology talent that had honed their skills in the high-stakes environments of the CIA and the Department of Defense.

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From an information technology policy perspective, Va-Voom! was a demanding place to work. Under Vitez’ direction, the use of data encryption was heavily enforced. It also had a strict company policy barring employees from connecting personal devices to any computer equipment owned by Va-Voom! or to its network.

In 2014 and 2015, one by one, major retailers — even banking institutions — were hit by cyber attacks that undermined the public’s faith in those companies, doing serious mid- to long-term damage to their reputations. Retailers that learned only too well the degree to which they were vulnerable to attack found in Va-Voom! a business partner they felt they could trust.

Rather than being dampened by cyber fears, the trend of cyber attacks in 2014 and early 2015 actually increased the number of retailers that wanted to do business with Va-Voom!

The company’s insurance program was something of an anomaly, considering its position in the industry. Starting with a substantial retention, Va-Voom! carried property and professional liability coverage for its employees.

The company considered but never purchased coverage that would substantially indemnify the hundreds of retailers and other service providers that used its services, were Va-Voom! to be the victim of a cyber-security incident. It carried third-party liability insurance, but not as much as you would think a company of its size would carry.

“Really?” Vitez memorably said during a meeting with Steve Francis, the company’s chief risk officer and company CFO Maribel Kelly, when the subject of cyber security indemnification was broached by Va-Voom!’s broker, himself no slouch when it came to these matters.

With an eye to the merciless whims of stock market investors, Vitez and Kelly sided against Steve Francis when he argued that the cost of the premium, though it would put a slight dent in the company’s bottom line on a quarterly basis, was well worth the expense.

“Nobody manages this risk better than we do,” Vitez said, crossing his arms across his chest.

“We can and do own this risk,” he said.

Steve Francis looked at Vitez across the table but didn’t say what he was thinking. What he was thinking was, “You just bit off way more than you can chew, Mr. Haverford.”

The Blitz

Just before midnight on Nov. 30, 2015, the Monday after Thanksgiving, known in retailing as Cyber Monday, a highly sophisticated and well-coordinated cyber-attack began, erasing Va-Voom!’s considerable credibility in a matter of minutes.

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Here’s how it unfolded.

At five minutes to midnight, the websites of 10 of the largest retailers that sold on the Va-Voom! site went down. The retailers were so in the dark about what had happened to them that it took hours to put together that the source of the attack was coming from within Va-Voom!’s vaunted information technology system.

Precisely at midnight, unidentified hackers used the stolen e-mail addresses of the 10 retailers’ customers to send Trojan Horses to the personal computers of millions of online shoppers.

The customers didn’t need to click on the e-mails or download attachments to empower the Trojan Horses. After a mere half hour in their inboxes, the e-mails activated a cyber-locking mechanism that shut the users out of their own computers. The only visible content on their screen was the logo of the retailer whose customer information was stolen.

Angry consumers, shut out of their personal computers, pick up their handheld devices to vent their frustration in instant messages and Tweets aimed at the retailers whose logos were frozen on their now-useless computer screens.




Several of the affected companies went public within hours with their conviction that the Trojan Horses that caused so much havoc emanated from the Va-Voom! network.

“Are you seeing this?” said David Cohen, the equally miffed general counsel for one of the retailers, on a phone call with his law school buddy Paul Vitez, as they tried to sort out the hell that had broken loose.

“Yes I’m seeing it,” said Vitez.

Vitez, normally a man of action, but temporarily flummoxed, became as passive as any teenager with a handheld device in their hand as he sat, scrolling through the Tweets and Facebook posts that were savaging the retailers and Va-Voom!

“What are you doing?” Cohen said impatiently when Vitez fell silent.

“Are you playing with your iPhone? We have a serious situation here, Paul!” Cohen said.

“I’m not playing with my iPhone!” Vitez shouted back before putting down his mobile device and trying to regain control of his emotions.

“I know we have a problem David, I know we do,” Vitez said.

But all Vitez could do beyond that was run his hands through his hair, temporarily at a loss as to exactly what to do next.

On the afternoon of December 1, the New York Times published an online story, featuring quotes attributed to Wall Street analysts from the technology and retail sectors, estimating that damage to home computers and lost online retail sales from the coordinated and ongoing cyber attack could potentially exceed $1 billion.

Black Monday and Beyond

In the aftermath of what history and newspaper editors and writers would record as “Black Monday,” Vitez and the rest of the Va-Voom! team tried to take stock of their losses and rally themselves into a recovery. They had a very hard and very expensive road ahead of them.

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Paul Vitez had used the millions accorded to him to create Va-Voom’s “prison, not a castle” approach to cyber defense and he had employed that money in an admirable and innovative fashion.

But it was in a meeting with chief risk officer Steve Francis, CFO Marabel Kelly and Va-Voom!’s technology and general liability broker Brandon Fikes that Paul Vitez came to a better, albeit painful understanding about the best allocation of capital in the quest to manage risk.

The most immediate pain that Va-Voom! was feeling were notices from five attorneys general that investigations into the Black Monday breach were underway.

‘Well, the good news is that your regulatory defense is covered, as is your first party business interruption,” Fikes said.

“Great,” Vitez said. “What else?”

Steve Francis glanced at Vitez out of one corner of his eye. He felt the pain of the losses to the company as badly as anyone, but he couldn’t help but take a bit of perverse pleasure in the discomfort of Vitez, whose arrogance, in Francis’ estimation, was going to have significant consequences, consequences that could be measured in millions of dollars.

“The rest is somewhat of a mixed bag, unfortunately,” Fikes said.

“Go on,” said Vitez who shot Francis a quick sharp look, causing Francis to turn away quickly, lest his inner thoughts become outwardly visible.

“You had some third party liability coverage, but I don’t think it’s going to be enough to cover the losses of your business partners, not to mention the shoppers whose personal computers were damaged by this event,” Fikes said.

“How much …” Vitez managed to get out before Steve Francis stepped in.

“We could have multiples of millions in exposure here, Paul,” Francis said.

Vitez shot Francis another look but Francis diplomatically kept his mouth shut.

“I don’t think we’re ever going to get to the bottom of where this attack came from and who launched it,” said the CFO, Marabel Kelly.

“What’s your advice, Brandon, about spending money on forensics?” she asked.

“I think you spend it for a couple of reasons,” Fikes said.

“One, the cost is covered by insurance. But that’s not the best reason. The best reason is that you can use forensics to learn from the event and hopefully prevent anything else as bad as this going forward,” he said.

“All right,” Kelly said. “What else?”

“There’s reputation,” Steve Francis offered.

“Some say you can put a price on it, some say you can’t,” said Fikes.

“But one thing is for sure,” he said. “You had no coverage in place for that in any event.”

There was a pause, as the significance of that statement sunk in. In the extended, painfully awkward silence, Marabel Kelly shuffled the paperwork in front of her and shifted in her seat, visibly perturbed.

Within two weeks of that difficult conversation, the pain intensified for Paul Vitez and Va-Voom! Class action lawsuits were filed on behalf of the millions of home-computer owners who alleged pain and suffering in connection with the hassle of credit card replacement and property loss from their now-useless computers.

The 10 retailers affected, now known colloquially and to their ongoing irritation as the Black Monday Ten, also filed suit.

With Va-Voom!’s uninsured losses building from the millions to the tens of millions, Paul Vitez, once a magazine cover boy, resigned his position.

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Risk & Insurance® partnered with XL Group to produce this scenario. Below are XL Group’s recommendations on how to prevent the losses presented in the scenario. These “Lessons Learned” are not the editorial opinion of Risk & Insurance®.

1. Have a crisis management response plan in place – The consequences of a cyber-attack are too expensive and too damaging for companies not to have a clear idea how they are going to respond in the event their services, or the services of their business partners are interrupted.

2. Understand your risk profile – Different companies have different cyber-risk profiles depending on their industry. Understanding your cyber-risk profile and working in conjunction with an agent and underwriter to map out the best coverage is a crucial step in avoiding being underinsured or paying too much for coverage you don’t need.

3. You are next – The realm of cyber-security and cyber-attacks is one area where an “it can’t happen here” mentality could be catastrophic. The chilling fact of the matter is that the most well-financed companies with the most sophisticated cyber defenses are vulnerable.

4. Get help – Whether it be through your insurance coverage or some other funding mechanism, find and connect with the consultants you need to help you understand the threat and how you can protect yourself. This risk environment is changing day by day and no one can afford to be content with the status quo.

5. Enforce your IT policies – Having sensible IT policies in place to minimize the potential for an attack is not enough. Companies must be proactive in seeing that employees take seriously company rules and standards on data encryption, and the use of personal devices in the workplace or in connection with company networks.

Additional Partner Resources

XL Group Cyber Product Sheet

John Coletti, Underwriting Manager of Cyber Liability, discusses cyber coverage options.




Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Cyber Resilience

No, Seriously. You Need a Comprehensive Cyber Incident Response Plan Before It’s Too Late.

Awareness of cyber risk is increasing, but some companies may be neglecting to prepare adequate response plans that could save them millions. 
By: | June 1, 2018 • 7 min read

To minimize the financial and reputational damage from a cyber attack, it is absolutely critical that businesses have a cyber incident response plan.

“Sadly, not all yet do,” said David Legassick, head of life sciences, tech and cyber, CNA Hardy.

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In the event of a breach, a company must be able to quickly identify and contain the problem, assess the level of impact, communicate internally and externally, recover where possible any lost data or functionality needed to resume business operations and act quickly to manage potential reputational risk.

This can only be achieved with help from the right external experts and the design and practice of a well-honed internal response.

The first step a company must take, said Legassick, is to understand its cyber exposures through asset identification, classification, risk assessment and protection measures, both technological and human.

According to Raf Sanchez, international breach response manager, Beazley, cyber-response plans should be flexible and applicable to a wide range of incidents, “not just a list of consecutive steps.”

They also should bring together key stakeholders and specify end goals.

Jason J. Hogg, CEO, Aon Cyber Solutions

With bad actors becoming increasingly sophisticated and often acting in groups, attack vectors can hit companies from multiple angles simultaneously, meaning a holistic approach is essential, agreed Jason J. Hogg, CEO, Aon Cyber Solutions.

“Collaboration is key — you have to take silos down and work in a cross-functional manner.”

This means assembling a response team including individuals from IT, legal, operations, risk management, HR, finance and the board — each of whom must be well drilled in their responsibilities in the event of a breach.

“You can’t pick your players on the day of the game,” said Hogg. “Response times are critical, so speed and timing are of the essence. You should also have a very clear communication plan to keep the CEO and board of directors informed of recommended courses of action and timing expectations.”

People on the incident response team must have sufficient technical skills and access to critical third parties to be able to make decisions and move to contain incidents fast. Knowledge of the company’s data and network topology is also key, said Legassick.

“Perhaps most important of all,” he added, “is to capture in detail how, when, where and why an incident occurred so there is a feedback loop that ensures each threat makes the cyber defense stronger.”

Cyber insurance can play a key role by providing a range of experts such as forensic analysts to help manage a cyber breach quickly and effectively (as well as PR and legal help). However, the learning process should begin before a breach occurs.

Practice Makes Perfect

“Any incident response plan is only as strong as the practice that goes into it,” explained Mike Peters, vice president, IT, RIMS — who also conducts stress testing through his firm Sentinel Cyber Defense Advisors.

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Unless companies have an ethical hacker or certified information security officer on board who can conduct sophisticated simulated attacks, Peters recommended they hire third-party experts to test their networks for weaknesses, remediate these issues and retest again for vulnerabilities that haven’t been patched or have newly appeared.

“You need to plan for every type of threat that’s out there,” he added.

Hogg agreed that bringing third parties in to conduct tests brings “fresh thinking, best practice and cross-pollination of learnings from testing plans across a multitude of industries and enterprises.”

“Collaboration is key — you have to take silos down and work in a cross-functional manner.” — Jason J. Hogg, CEO, Aon Cyber Solutions

Legassick added that companies should test their plans at least annually, updating procedures whenever there is a significant change in business activity, technology or location.

“As companies expand, cyber security is not always front of mind, but new operations and territories all expose a company to new risks.”

For smaller companies that might not have the resources or the expertise to develop an internal cyber response plan from whole cloth, some carriers offer their own cyber risk resources online.

Evan Fenaroli, an underwriting product manager with the Philadelphia Insurance Companies (PHLY), said his company hosts an eRiskHub, which gives PHLY clients a place to start looking for cyber event response answers.

That includes access to a pool of attorneys who can guide company executives in creating a plan.

“It’s something at the highest level that needs to be a priority,” Fenaroli said. For those just getting started, Fenaroli provided a checklist for consideration:

  • Purchase cyber insurance, read the policy and understand its notice requirements.
  • Work with an attorney to develop a cyber event response plan that you can customize to your business.
  • Identify stakeholders within the company who will own the plan and its execution.
  • Find outside forensics experts that the company can call in an emergency.
  • Identify a public relations expert who can be called in the case of an event that could be leaked to the press or otherwise become newsworthy.

“When all of these things fall into place, the outcome is far better in that there isn’t a panic,” said Fenaroli, who, like others, recommends the plan be tested at least annually.

Cyber’s Physical Threat

With the digital and physical worlds converging due to the rise of the Internet of Things, Hogg reminded companies: “You can’t just test in the virtual world — testing physical end-point security is critical too.”

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How that testing is communicated to underwriters should also be a key focus, said Rich DePiero, head of cyber, North America, Swiss Re Corporate Solutions.

Don’t just report on what went well; it’s far more believable for an underwriter to hear what didn’t go well, he said.

“If I hear a client say it is perfect and then I look at some of the results of the responses to breaches last year, there is a disconnect. Help us understand what you learned and what you worked out. You want things to fail during these incident response tests, because that is how we learn,” he explained.

“Bringing in these outside firms, detailing what they learned and defining roles and responsibilities in the event of an incident is really the best practice, and we are seeing more and more companies do that.”

Support from the Board

Good cyber protection is built around a combination of process, technology, learning and people. While not every cyber incident needs to be reported to the boardroom, senior management has a key role in creating a culture of planning and risk awareness.

David Legassick, head of life sciences, tech and cyber, CNA Hardy

“Cyber is a boardroom risk. If it is not taken seriously at boardroom level, you are more than likely to suffer a network breach,” Legassick said.

However, getting board buy-in or buy-in from the C-suite is not always easy.

“C-suite executives often put off testing crisis plans as they get in the way of the day job. The irony here is obvious given how disruptive an incident can be,” said Sanchez.

“The C-suite must demonstrate its support for incident response planning and that it expects staff at all levels of the organization to play their part in recovering from serious incidents.”

“What these people need from the board is support,” said Jill Salmon, New York-based vice president, head of cyber/tech/MPL, Berkshire Hathaway Specialty Insurance.

“I don’t know that the information security folks are looking for direction from the board as much as they are looking for support from a resources standpoint and a visibility standpoint.

“They’ve got to be aware of what they need and they need to have the money to be able to build it up to that level,” she said.

Without that support, according to Legassick, failure to empower and encourage the IT team to manage cyber threats holistically through integration with the rest of the organization, particularly risk managers, becomes a common mistake.

He also warned that “blame culture” can prevent staff from escalating problems to management in a timely manner.

Collaboration and Communication

Given that cyber incident response truly is a team effort, it is therefore essential that a culture of collaboration, preparation and practice is embedded from the top down.

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One of the biggest tripping points for companies — and an area that has done the most damage from a reputational perspective — is in how quickly and effectively the company communicates to the public in the aftermath of a cyber event.

Salmon said of all the cyber incident response plans she has seen, the companies that have impressed her most are those that have written mock press releases and rehearsed how they are going to respond to the media in the aftermath of an event.

“We have seen so many companies trip up in that regard,” she said. “There have been examples of companies taking too long and then not explaining why it took them so long. It’s like any other crisis — the way that you are communicating it to the public is really important.” &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected] Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]