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2018 RIMS

Risk Executives Must Keep Up with the Pace of Disruptive Technology

This year's Excellence in Risk Management report reveals a gap between awareness of new technologies and the ability to employ them strategically.
By: | April 13, 2018 • 4 min read

While risk managers don’t need to know everything there is to know about disruptive technologies such as AI, Blockchain and the Internet of Things, they do need to understand the full scope of opportunities and challenges these innovations present for the organizations they serve.

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As the pace of change moves ever-faster, it’s time for risk professionals to “lean in” to those changes and help their companies stay on the cutting edge. That’s a key takeaway of the Excellence in Risk Management Report XV: Maintaining Relevance Amid Technology Disruption, published by Marsh and the Risk and Insurance Management Society.

The report shed light on the gap that exists between the awareness of disruptive technologies and the implementation of processes to deal with them from a risk management perspective, said Brian Elowe, chief client officer, North America, Marsh.

“Risk management doesn’t appear to be keeping pace with the implications and the associated risks that are emerging from advances in applications of technology and digital capabilities,” he said.

In fairness, he said, the pace of change is extreme. But the report is a call to action for the risk community to meet that pace.

The report is based on nearly 450 responses to an online survey and a series of focus groups with leading risk executives conducted between January and March of 2018.

“Get involved, help drive the conversation. Not just about the risks and what to do about them, but also how risk management can help the organization understand all of the potential opportunities.” — Brian Elowe, chief client officer, North America, Marsh

Overall, survey respondents felt they didn’t have the expertise to act as strategic advisors on disruptive technologies. Of those using these technologies, less than half felt their level of understanding was at a strategic level.

At least 29 percent of respondents said their organizations were using AI, and another 18 percent were actively exploring its use. Yet of those using it, only 12 percent knew what it was being used for.

Blockchain was being used by 11 percent of organizations, yet only 3 percent of risk professionals knew the specifics of how it was being implemented.

Of those that did know, 70 percent were using Blockchain for supply chain management, while 50 percent were using it for payments and settlements and 30 percent for claims management.

Use of the Internet of Things is more widespread. At least 59 percent said their organizations used or planned to use IoT. Still — 25 percent were unsure of the specifics of how it was being used.

It’s incumbent upon risk professionals to reach out within their organization to get a better handle on which technologies are being used in their organizations and how they are being used. Those who don’t do so run the risk of being left out of decision making. Worse, they may fail to foresee risks or develop adequate strategies to mitigate them.

Only 14 percent strongly agreed their organizations have a clear process for identifying and addressing the risks of new technology before it’s implemented. Nearly half were unclear about their technology risk management process.

Time to Get in Step

While there may still be a steep learning curve on new technologies, risk professionals are more confident than ever on their grasp of cyber risks and cyber coverage.

At least 78 percent said they grasp how the legal liability of cyber risks would affect their organizations. Only 5 percent were still unsure.

Additionally, 75 percent said they understood how their insurance coverage would apply to cyber claims, while only 7 percent did not.

The cyber market also saw a high level of satisfaction with claims outcomes. While only 20 percent reported having cyber claims in the past 36 months, 76 percent of them were satisfied or extremely satisfied.

Overall claims satisfaction was high across several lines, including product liability (79 percent), workers’ compensation (76 percent), general liability (78 percent), auto liability (78 percent), and professional and financial liability (74 percent).

That said, it’s worth paying attention to the fact that 40 percent of respondents said they would consider switching carriers or other advisors based on their ability to provide innovations in the claims arena. Another 43 percent said they wouldn’t rule out such a move.

Asked what area of the claims management process needed the most improvement, 62 percent wanted to see a reduction in the overall claims costs. Also at the top of the wish list for at least a third of respondents: Closing old claims, integrating technology innovations and simplifying the claims process.

To help move their organizations to the next level and stay on track with developing technology, the report advises risk professionals devote extra time to educating themselves on emerging technologies. Risk executives can deliver value to their organizations by providing higher-level insights and analytics related to emerging risks.

Think creatively about the application of new technology in terms of managing risks as well as improving claims management.

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“Risk management is becoming more involved in the strategic direction of organizations,” said Elowe. “Instead of just responding to risks that are coming at the organization, we see more advanced risk management operation actually getting involved in strategic planning and becoming an exporter of knowledge to product development areas and other areas in terms of risks that need to be managed or mitigated.”

Risk executives now understand their role as an enabler of their company’s business, he said, and this is an area where they can demonstrate it.

“Get involved, help drive the conversation,” said Elowe. “Not just about the risks and what to do about them, but also how risk management can help the organization understand all of the potential opportunities.” &

Michelle Kerr is associate editor of Risk & Insurance. She 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]