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Cyber Risks

Ports Need to Rethink Criminal Activity

Port computer systems are vulnerable to criminal organizations looking to steal, smuggle or commit espionage.
By: | June 6, 2016 • 5 min read

As the marine industry grows more automated, ports and related industries are increasingly vulnerable to cyber disruptions.

In the past, criminals would steal a container on the dock and drive away before anyone noticed. Today’s criminals are global. They don’t have to be in the same country to learn when a container arrives, when it clears inspection, what’s inside it, where it’s stored and when it’s moving out.

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Computer networks changed how ports are run. Ports now use fewer workers on the ground because computers can operate vehicles remotely and GPS-based systems track and move containers semi-autonomously.

The systems may have changed, but criminals continue to try to steal containers, smuggle drugs or engage in espionage.

Ports are the economic engine that drives the economy, said Jayson Ahern, principal at The Chertoff Group and former deputy commissioner of U.S. Customs and Border Protection.

He said they need to be better protected.

“Port operators need to be looking at security in real time and rethink the risks – not just meet the minimum requirement of their governing agencies – and that’s where port operators often fall short,” said Ahern.

“Criminal activity is going to continue. Every time we plug one gap and vulnerability, they go back and adapt and diversify their approach.”

Billions in Losses

About 95 percent of world trade is transported via ship each year, according to the U.S. Department of Homeland Security.

“When we saw the impact of closing ports right after 9/11,” Ahern said, “I saw firsthand what happens when you shut down trade at our borders.”

Following the 2001 attacks, container shipping lost $1 billion each day for months after the United States closed all ports and airports, Ahern said.

More recently, a months-long labor dispute at 29 West Coast ports resulted in work slowdowns and caused billions in losses, according to Vice News. U.S. agriculture lost about $2.5 billion, while manufacturers reported an aggregate of nearly $400 million in losses for each month of the dispute.

A cyber attack could cause the same type of economic damage.

In 2013, computer problems – caused by error, not sabotage – resulted in weeks of problems at the Maher Terminal serving the port of New York and New Jersey, including closing the terminal for up to six hours at a time, according to the “Consequences to Seaport Operations from Malicious Cyber Activity” a report by DHS.

DHS also reported that an organized crime group used hackers to control the movement and location of containers at the Port of Antwerp in Belgium between 2011 and 2013; and crime syndicates penetrated the cargo systems used by Australian Customs and Border Protection in 2012.

Matthew McCabe, senior vice president, FINPRO practice, Marsh

Matthew McCabe, senior vice president, FINPRO practice, Marsh

Not only are ports vital to the economy, they are a national security issue, said Matthew McCabe, senior vice president for network security and data privacy group with the FINPRO practice at Marsh.

“We need to see more cyber security assessments,” Ahern said. “We’re not seeing it happening sufficiently enough around the world. People need to always be asking: ‘What type of monitoring and disruptions of attacks are we seeing?’ ”

A comprehensive plan needs to encompass three areas: physical security, insider threats and cyber risks, Ahern said.

Putting Plans in Place

When Martin McCluney, managing director, U.S. hull and liability practice leader at Marsh, talks to marine clients about cyber risk, he says they weigh whether to retain, manage or transfer risk into the market.

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“We are in conversations with several operators now,” said McCluney.

“We are assisting them in their internal process to evaluate the cost/benefit of any additional insurance that may be necessary.”

Just the mere act of applying for cyber risk insurance normally sets the wheels in motion for businesses to begin a risk assessment of cyber controls, McCabe said.

There is value in going through the planning process and identifying who you would turn to in a time of crisis.

The insurance market is keen to not just provide pure risk transfer but to also provide loss prevention and post-loss advice, McCluney said.

“We ask, ‘How do you recover? What systems do they have in place to prevent and deter attacks?’ And, if systems have been compromised, what is the contingency plan once an attack has impacted them?”

Insureds should review in detail the way their existing marine and property casualty policies would respond to a cyber attack. The task can be complicated because port operators work with many third parties that ship and receive the goods on either side, so operators need to establish minimum codes of compliance with all additional parties.

Marine market policies that cover stevedoring (loading and unloading of vessels in terminal operation) do not consistently include a cyber risk solution.

The client is very likely exposed to risks that are outside the coverage, McCluney said.

For example, if handling equipment shuts down due to a computer problem but hasn’t suffered physical damage, the economic losses may not be covered under a property policy.

To prevent losses in a case like this, operators should consider a cyber program that would be in excess to a property program, or a difference-in-conditions policy that would fill gaps in the coverage, McCluney said.

The core benefit to cyber insurance is you are able to transfer some of the financial damage and coordinate your response plan, so there’s a mechanism ready at a time of crisis, McCabe said.

The growth of cyber insurance over the last three years bears that out. The number of U.S.-based Marsh clients purchasing stand-alone cyber insurance increased 27 percent last year compared with 2014. That followed a 32 percent increase in 2014 over 2013.

Cyber insurance growth is expected to continue apace as port operators understand the potential cyber risks they face, and conduct risk assessments in conjunction with the Maritime Transportation Security Act. The act was written after 9/11 to shore up port protections by requiring vessels and cargo-handling facilities to conduct vulnerability assessments and develop security plans.

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The U.S. Coast Guard made additional cyber strategy recommendations in a June 2015 report.

In that report, the USCG recommended organizations view cyber security as an ongoing process, and regularly re-evaluate mitigation measures and ensure personnel understand and follow good cyber practices.

Organizations should strive to incorporate cyber security into an existing culture of safety, security, and risk management, it said, and identify a senior person responsible for cyber risk management.

Juliann Walsh is a staff writer at 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]