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Cyber Risks
Preparing a Data Breach Plan
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
“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.
“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
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.
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
“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.”
“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.
