2222222222

Cyber Risks

Preparing a Data Breach Plan

Putting together -- and practicing -- a data breach preparedness agreement can help save costs and reputation.
By: | August 19, 2014 • 5 min read

With the constant threat of cyber security issues, organizations need to create an effective data breach preparedness agreement that has two overriding strategies.

First, establish a comprehensive, coordinated team approach. Having a breach preparedness team can help an organization act quickly when a data breach occurs.

Michael Bruemmer, vice president, Experian Data Breach Resolution

Michael Bruemmer, vice president, Experian Data Breach Resolution

“Acting quickly can help to prevent further data loss, significant fines and costly customer backlash,” said Michael Bruemmer, Austin, Texas-based vice president of Experian Data Breach Resolution, a data breach resolution firm, which is part of the Experian credit bureau.

Second, select an outside counsel as the team leader, he and others recommended.

“Eighty-five percent of the clients we work with have engaged outside counsel because they have the specific expertise in responding to data breaches,” Bruemmer said. “They understand the federal laws; they understand the 47 state laws for notification.”

Another reason to engage outside counsel is to create confidentiality under an attorney-client privilege for the fact-gathering, documentation and communications that occur after a breach, said Daren Orzechowski, New York-based partner at White & Case LLP international law firm.

Advertisement




“The reason that is important — particularly in a situation where a class-action may arise in response to an actual breach, or a governmental investigation — is that the conversation between the outside counsel and the rest of the team can be protected by privilege,” Orzechowski said.

The C-suite should be involved in creating and overseeing a company’s pre-breach agreement, said Bo Holland, founder and CEO of AllClear ID, an Austin, Texas-based data breach response organization.

“Given the high stakes and challenging decisions a breach response calls for, it is imperative to have active engagement from the CEO and other C-level executives to drive a comprehensive response plan across business units from the start,” Holland said.

And, said Bruemmer , when you have a CEO or a chairman second-guessing decisions during a live response event, it always creates problems for the team that’s operationalizing the response.

Costly Mistakes

The stakes in creating effective data-breach preparedness plans are growing higher by the year.

Throughout the world, companies are finding that data breaches have become as common as a cold, but far more expensive to treat, according to the Ponemon Institute in its May 2014 “Cost of Data Breach Study: Global Analysis,” sponsored by IBM.

“Mistakes increase direct response costs, lost sales and significantly inflate the legal and regulatory expenses that follow a poorly executed response.” –Bo Holland, founder and CEO of AllClear ID

The study revealed that the average cost to a company per breach was $3.5 million dollars, which was 15 percent more than the previous year.

Bo Holland, founder and CEO, AllClear ID

Bo Holland, founder and CEO, AllClear ID

Unprepared companies make mistakes that increase breach costs by a factor of three to four times, said Holland.

“Mistakes increase direct response costs, lost sales and significantly inflate the legal and regulatory expenses that follow a poorly executed response,” he said.

“We’ve seen companies with the best intentions make costly mistakes in the first 72 hours of a breach response due to lack of planning and not calling the right partners early enough for help, resulting in uncoordinated decision-making, confusion and higher costs,” he said.

A Team Approach

“There are a lot of components in a pre-breach agreement and given the complexity of what a cyber security event could cover, it’s not just one person or one department that should be involved,” said Bruemmer.

“You have to have executive oversight, the C-suite, IT, HR, the chief information officer, PR, legal compliance, just to name a few that need to be involved and have input not only to the agreement itself but also the plan and the execution of the plan because each has an important role,” he said.

Advertisement




Organizations should also work with data breach partners that have relationships on Capitol Hill to help communicate with and manage regulators, he said.

Orzechowski added: “When you do those projects, and I do a lot of them in my practice, looking proactively, you should get input from the IT professionals, the lawyers, the technologists and the privacy experts,” he said. “And it only makes sense that the same team that builds the plan helps prepare for a problem.”

Another important member of a data breach team is outside public relations counsel, Bruemmer said.

“One of the nice things in working with an outside public relations firm pre-breach is that they’re going to have thought out, ‘What are the eventualities that we need to cover?’ so we’re not reacting to events real time but you have different plans to be able to call on if those circumstances come up,’” he said.

The best thing about these pre-set media plans is that they’ve already been rehearsed, he added. “You find that the good public relations firms not only have good media advice but they have good pre-breach business advice, as well,” he said.

Transferring the Risk

Cyber insurance also plays an important role in pre-breach agreements.

Daren Orzechowski, partner, White & Case

Daren Orzechowski, partner, White & Case

“I think that more organizations have cyber security insurance these days,” said Orzechowski. “So in terms of some of the breach risk that exists, I think the insurance products that are out there are looking to give some kind of control over the liability.”

And, Bruemmer said, most companies (65 percent) that explore cyber insurance are better prepared to create a breach agreement. In addition, companies that have cyber insurance have generally practiced their plan on a quarterly or semi-annual basis, which makes plan execution go more smoothly.

The Ponemon report had a related conclusion: While it has been suggested that having insurance encourages companies to slack off on security, the report noted, “our research suggests the opposite. Those companies with good security practices are more likely to purchase insurance.”

AllClear ID’s Holland noted that while covering the financial risk through cyber policies is important, insurance “does not address the operational risks associated with executing a successful response. Unfortunately, you can’t just buy response competency — you have to prepare your organization.”

Advertisement




“Customer service is the other critical element,” he said. “Poor customer service compounds the damage, whereas good customer service rebuilds the trust.”

The bottom line, the experts said, is that practice makes perfect.

“It’s not just good enough to have an agreement in place, but you need to have practiced that plan,” said Bruemmer.

Steve Yahn was a freelance writer based in New York. He had more than 40 years of financial reporting and editing experience. Comments can be directed to [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

The risk manager for Boyd Gaming Corp. says curiosity keeps him engaged, and continual education will be the key to managing emerging risks.
By: | May 1, 2018 • 4 min read

R&I: What was your first job?

I was trained as an accountant, worked in public accounting and became a CPA. Being comfortable with numbers is helpful in my current role, and obviously, the language of business is financial statements, so it helps.

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

Working in finance in the corporate environment included the review of budgets and the analysis of business expenses. I quickly found the area of benefits and insurance — and how “accepting risk” impacted those expenses — to be fascinating. I asked a lot of questions. Be careful what you ask for — I soon found myself responsible for those insurance areas and haven’t looked back!

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

Advertisement




I have found the risk management community to be a close-knit group, whether that’s industry professionals, risk managers with other companies or support organizations like RIMS and other regional groups. The expertise of the carriers and specialty vendors to develop new products and programs, along with the appropriate education, will continue to be of key importance to companies going forward.

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

As I’m sure many in the insurance field would agree, Hurricanes Katrina and Rita in 2005 changed our world and our industry. It was a particularly intense time and certainly a baptism by fire for people like me who were relatively new to the industry. This event clearly accelerated the switch to the acceptance of more risk, which impacted mitigation strategies and programs.

Bob Berglund, vice president, benefits and insurance, Boyd Gaming Corp.

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

The fast-paced threat that cyber security represents today. Our company, like so many companies, is reliant upon computers, software and IT expertise in our everyday existence. This new risk has forged an even stronger relationship between risk management and our IT department as we work together to address this growing threat.

Additionally, the shooting event in Las Vegas in 2017 will have an enduring impact on firms that host large gatherings and arena-style events all over the world, and our company is no exception.

R&I: What insurance carrier do you have the highest opinion of?

Advertisement




With the various types of insurance programs we employ, I have been fortunate to work with most of the large national and international carriers — all of whom employ talented people with a vast array of resources.

R&I:  How much business do you do direct versus going through a broker?

We use brokers for many of our professional coverages, such as property, casualty, D&O and cyber. We are self-insured under our health plans, with close to 25,000 members. We tend to manage those programs internally and utilize direct relationships with carriers and specialty vendors to tailor a plan that works best for team members.

R&I: Who is your mentor and why?

I have been fortunate to have worked alongside some smart and insightful people during my career. A key piece of advice, said in many different ways, has served me well. Simply stated: “Seek to understand before being understood.”

What this has meant to me is try everything you can to learn about something, new or old. After you have gained this knowledge, you can begin to access and maybe suggest changes or adjustments. Being curious has always been a personal enjoyment for me in business, and I have found people are more than willing to lend a hand, offer information and advice — you just need to ask. Building those alliances and foundations of knowledge on a subject matter makes tackling the future more exciting and fruitful.

R&I: What have you accomplished that you are proudest of?

Our benefit health plan is much more than handing out an insurance card at the beginning of the year. We encourage our team members and their families to learn about their personal health, get engaged in a variety of health and wellness programs and try to live life in the healthiest possible way. The result of that is literally hundreds of testimonials from our members every year on how they have lost weight, changed their lifestyle and gotten off medications. It is extremely rewarding and is a testament to [our] close-knit corporate culture.

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

Advertisement




Some will remember the volcano eruption in Iceland in spring of 2010. I was just finishing a week of meetings in London with Lloyd’s syndicates related to our property insurance placement when the airspace in England and most of northern Europe was shut down — no airplanes in or out! Flights were ultimately canceled for the following five days. Therefore, with a few other stranded visitors like myself, we experimented and tried out new restaurants every day until we could leave. It was a very interesting time!

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

I am originally from Canada, and I played ice hockey from the time I was four years old up until quite recently. Too many surgeries sadly forced my recent retirement.

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

That’s a funny one … I am a CPA working in the casino industry, doing insurance and risk management, so neighbors and acquaintances think I either do tax returns or they think I’m a blackjack dealer at the casino!




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