Business Interruption Risk

Severed Communications

Businesses face risks from undersea data cable vulnerabilities.
By: | August 3, 2016 • 7 min read

Crisscrossing the ocean floor, undersea optical fiber data cables are an essential component of an increasingly interconnected world, quietly carrying massive amounts of data communications between the Earth’s landmasses.

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But they are not invulnerable. Individual cables are severed or damaged dozens of times each year, most commonly by fishing boat anchors, but also by storms, scrap collectors and even shark bites.

The U.S. and other major markets, like Europe and Japan, are served by numerous cables, providing enough redundancy that traffic from a single damaged cable is rerouted before end users even notice. Wider outages, however, can have more far-reaching effects.


VIDEO: IDG.TV follows along as undersea data cables are manufactured and then loaded aboard a ship to place them in the ocean.

That’s why in October 2015, when Russian ships were observed lurking near undersea data cables, U.S. military and intelligence officials were concerned about possible sabotage.

Some experts, however, see that as unlikely.

“Cables during peacetime are protected by law under the provisions of the United Nations Convention on the Law of the Sea,” said Keith Schofield, general manager of the International Cable Protection Committee, representing the submarine cable community of interest.

Attempted sabotage, he said, would likely be detectable and stopped before any significant harm could be done to trunk cable routes.

“Before 10 or 20 percent of them were affected, owners would realize that something pretty serious was happening and could respond appropriately.”

Sean Donahue, assistant vice president and underwriter, XL Catlin

Sean Donahue, assistant vice president and underwriter, XL Catlin

Sean Donahue, an assistant vice president and underwriter specializing in cyber and technology at XL Catlin, agreed.

“These commercial cables have too much intrinsic value,” Donahue said. “Anybody who may have that sort of capability, such as Russia … would be hurting their own self-interest.”

Seismic activity, however, has been known to damage enough cables to cause wide service interruptions and service degradation, even in areas with ample cable connections.

A 2006 earthquake in Taiwan severed several undersea cables, causing major disruptions in Asia and ripple effects that interrupted phone service to Europe. Smaller incidents can have far reaching impacts, as well.

In 2013, a string of separate cable cuts in Egypt caused widespread data slowdowns in large portions of Africa and Asia.

And a single cut off of Northern Ireland in 2015 sparked headlines claiming it had “sent broadband into meltdown.”

When cables are cut, rerouted data can overwhelm unaffected networks, causing slowdowns even for those not directly affected. Smaller countries with less redundancy — and the companies doing business with them — can suffer substantial repercussions from such events.

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Even in the U.S., outages involving multiple cables could cause data traffic to be rerouted to undersea cables on the opposite side of the country, potentially triggering domestic slowdowns along the way.

As businesses become increasingly dependent on fast data communications, even minor slowdowns can impede business. For web-centric and cloud-based companies, as well as content providers, such slowdowns could be a serious problem.

According to TeleGeography, a data cable industry research firm, Google and Bing report that minor lags lead to decreased click-throughs and search result views, and “Amazon has claimed that every 100 milliseconds of latency reduces its sales by 1 percent.”

High-frequency trading companies sometimes own dedicated data cables, but others are dependent on the same networks as the rest of us, and if those networks slow down, it hampers performance and costs them money.

Built with Redundancy

The undersea cable industry goes to great lengths to ensure uninterrupted service.

Peter Jamieson, chair, European Subsea Cable Association

Peter Jamieson, chair, European Subsea Cable Association

“The systems are built with redundancy in mind,” said Peter Jamieson, chair of the industry group European Subsea Cable Association.

“You should always aim to have at least two cables from each operator so that if you lose one cable … you automatically switch onto the other one. The redundancy is built into the network on the global network as well.”

Excess capacity is also built into the system. Most cables were originally built to handle optical data traffic in a single wavelength, but they now use a technique called Dense Wave Division Multiplexing (DWDM), which handles many wavelengths.

“We are now getting potentially 400 times the capacity on one optical fiber than what you probably got 15 to 20 years ago,” Jamieson said.

Routing protocols ensure that in the case of a service interruption, data instantaneously finds alternate routes.  And the different cable owners work together in various consortia to operate roughly 60 cable-repair ships throughout the world, which are on call to ensure that any damage is repaired quickly. Repairs generally take a minimum of four days to complete.

R8-16p47-48_8Cables.indd

But according to Helen Thompson, director of commercial marketing at Esri, a software company specializing in geographic information systems, it is not inconceivable that the individual smart systems meant to ensure seamless rerouting could have unexpected results — much the way automated trading programs can produce dramatic and unexplained lows or highs in financial markets.

“Those individual response plans come together and aggregate in such a way that they themselves might have an impact,” Thompson said.

“It’s like the butterfly effect. … That’s increasingly the nature of connectivity and a consequence of the very widespread, multi-point-of-touch communications network that we rely on.”

While DWDM vastly increased capacity on data cables, demand and usage have been steadily catching up as businesses and individuals demand and depend on more and more data.

A company called Hibernia Express recently laid a pair of superfast transatlantic cables, the first new cables in 13 years. More may be on the way.

“The content people want to have their own fibers right now,” said Jamieson.

“Can you prove that you would have made X amount of dollars versus Y amount of dollars because of a degraded service?” — Sean Donahue, assistant vice president and underwriter, at XL Catlin

“So the Facebooks, Googles, Amazons and Microsofts of this world … they want to have their own fiber to control their own traffic on cable, so they are driving a lot of new systems as well.”

It is a sign of how seriously data-driven businesses take their dependence on fast, dependable transmission infrastructure.

As data usage skyrockets, Thompson cautioned against taking network resiliency and capacity for granted.

“We could be in a situation where ‘out of sight, out of mind’ [and] all these things are running at 99 percent capacity, and we’re one point … away from total failure.

“We don’t know. I’m not suggesting that is the case, but it behooves us to provide evidence that we have redundancy and resilience in the systems that we’ve become reliant on. We increasingly are engineering our future to be more dependent on them.”

Smart houses, self-driving cars, and other web-dependent gadgets and systems will not only add to data traffic, but to the list of systems that could malfunction in the case of outages and slowdowns, opening new areas of risk for homeowners, as well.

Protecting Data Flows

Traditional business interruption coverage focuses on perils like flood and fire, power outages and physical infrastructure failures.

Helen Thompson, director of commercial marketing, Esri

Helen Thompson, director of commercial marketing, Esri

“But, when we move to businesses where data is a utility, we have a different sort of business interruption, and that is going to be increasingly important to service-based economies,” said Thompson.

“We think about site liability and data breaches, but what I think we’re going to start moving to more and more is providing business interruption insurance around data.”

Cloud coverage insurance is still a rarity, but probably not for long. “Many more companies should think about cloud computing insurance,” she said.

“It will become a vital part of what’s included in business interruption insurance.”

Businesses should know their providers’ contractual obligations and dependent business interruption coverage in case of outages, as spelled out in the service level agreement, she said.

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“More and more major businesses are expecting that as part of their service level agreement,” Thompson said.

“I think that will become an integral part of the transfer of risk and liability.  If you’re completely dependent upon the web and the cloud to do business, and you don’t protect yourself with a service agreement on the cloud provider, you’re going to be subject to claims from other people.  So, that discussion with your insurance provider should be absolutely central.”

Even with coverage, however, calculating business interruption losses, especially for traders and other market-dependent businesses, can be extremely difficult, particularly during incidents that may themselves be roiling the markets.

“Can you prove that you would have made X amount of dollars versus Y amount of dollars because of a degraded service?” Donahue asked. “There’s a lot of moving parts to that scenario.” &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Scenario

A Recall Nightmare: Food Product Contamination Kills Three Unborn Children

A failure to purchase product contamination insurance results in a crushing blow, not just in dollars but in lives.
By: | October 15, 2018 • 9 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.

PART ONE: THE HEAT IS ON

Reilly Sheehan, the Bethlehem, Pa., plant manager for Shamrock Foods, looks up in annoyance when he hears a tap on his office window.

Reilly has nothing against him, but seeing the face of his assistant plant operator Peter Soto right then is just a case of bad timing.

Sheehan, whose company manufactures ice cream treats for convenience stores and ice cream trucks, just got through digesting an email from his CFO, pushing for more cost cutting, when Soto knocked.

Sheehan gestures impatiently, and Soto steps in with a degree of caution.

“What?” Sheehan says.

“I’m not sure how much of an issue this will be, but I just got some safety reports back and we got a positive swipe for Listeria in one of the Market Streetside refrigeration units.”

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Sheehan gestures again, and Soto shuts the office door.

“How much of a positive?” Sheehan says more quietly.

Soto shrugs.

“I mean it’s not a big hit and that’s the only place we saw it, so, hard to know what to make of it.”

Sheehan looks out to the production floor, more as a way to focus his thoughts than for any other reason.

Sheehan is jammed. It’s April, the time of year when Shamrock begins to ramp up production for the summer season. Shamrock, which operates three plants in the Middle Atlantic, is holding its own at around $240 million in annual sales.

But the pressure is building on Sheehan. In previous cost-cutting measures, Shamrock cut risk management and safety staff.

Now there is this email from the CFO and a possible safety issue. Not much time to think; too much going on.

Sheehan takes just another moment to deliberate: It’s not a heavy hit, and Shamrock hasn’t had a product recall in more than 15 years.

“Okay, thanks for letting me know,” Sheehan says to Soto.

“Do another swipe next week and tell me what you pick up. I bet you twenty bucks there’s nothing in the product. That swipe was nowhere near the production line.”

Soto departs, closing the office door gingerly.

Then Sheehan lingers over his keyboard. He waits. So much pressure; what to do?

“Very well then,” he says to himself, and gets to work crafting an email.

His subject line to the chief risk officer and the company vice president: “Possible safety issue: Positive test for Listeria in one of the refrigeration units.”

That night, Sheehan can’t sleep. Part of Shamrock’s cost-cutting meant that Sheehan has responsibility for environmental, health and safety in addition to his operations responsibilities.

Every possible thing that could bring harmful bacteria into the plant runs through his mind.

Trucks carrying raw eggs, milk and sugar into the plant. The hoses used to shoot the main ingredients into Shamrock’s metal storage vats. On and on it goes…

In his mind’s eye, Sheehan can picture the inside of a refrigeration unit. Ice cream is chilled, never really frozen. He can almost feel the dank chill. Salmonella and Listeria love that kind of environment.

Sheehan tosses and turns. Then another thought occurs to him. He recalls a conversation, just one question at a meeting really, when one of the departed risk management staff brought up the issue of contaminated product insurance.

Sheehan’s memory is hazy, stress shortened, but he can’t remember it being mentioned again. He pushes his memory again, but nothing.

“I don’t need this,” he says to himself through clenched teeth. He punches up his pillow in an effort to find a path to sleep.

PART TWO: STRICKEN FAMILIES

“Toot toot, tuuuuurrrrreeeeeeeeettt!”

The whistles of the three lifeguards at the Bradford Community Pool in Allentown, Pa., go off in unison, two staccato notes, then a dip in pitch, then ratcheting back up together.

For Cheryl Brick, 34, the mother of two and six-months pregnant with a third, that signal for the kids to clear the pool for the adult swim is just part of a typical summer day. Right on cue, her son Henry, 8, and his sister Siobhan, 5, come running back to where she’s set up the family pool camp.

Henry, wet and shivering and reaching for a towel, eyes that big bag.

“Mom, can I?”

And Cheryl knows exactly where he’s going.

“Yes. But this time, can you please bring your mother a mint-chip ice cream bar along with whatever you get for you and Siobhan?”

Henry grabs the money, drops his towel and tears off; Siobhan drops hers just as quickly, not wanting to be left behind.

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“Wait for me!” Siobhan yells as Henry sprints for the ice cream truck parked just outside of the pool entrance.

It’s the dead of night, 3 am, two weeks later when Cheryl, slumbering deeply beside her husband Danny, is pulled from her rest by the sound of Siobhan crying in their bedroom doorway.

“Mom, dad!” says Henry, who is standing, pale and stricken, in the hallway behind Siobhan.

“What?” says Danny, sitting up in bed, but Cheryl’s pregnancy sharpened sense of smell knows the answer.

Siobhan, wailing and shivering, has soiled her pajamas, the victim of a severe case of diarrhea.

“I just barfed is what,” says Henry, who has to turn and run right back to the bathroom.

Cheryl steps out of bed to help Siobhan, but the room spins as she does so.

“Oh God,” she says, feeling the impact of her own attack of nausea.

A quick, grim cleanup and the entire family is off to a walk-up urgent care center.

A bolt of fear runs through Cheryl as the nurse gives her the horrible news.

“Listeriosis,” says the nurse. Sickening for children and adults but potentially fatal for the weak, especially the unborn.

And very sadly, Cheryl loses her third child. Two other mothers in the Middle Atlantic suffer the same fate and dozens more are sickened.

Product recall notices from state regulators and the FDA go out immediately.

Ice cream bars and sandwiches disappear from store coolers and vending machines on corporate campuses. The tinkly sound of “Pop Goes the Weasel” emanating from mobile ice cream vendor trucks falls silent.

Notices of intent to sue hit every link in the supply chain, from dairy cooperatives in New York State to the corporate offices of grocery store chains in Atlanta, Philadelphia and Baltimore.

The three major contract manufacturers that make ice cream bars distributed in the eight states where residents were sickened are shut down, pending a further investigation.

FDA inspectors eventually tie the outbreak to Shamrock.

Evidence exists that a good faith effort was underway internally to determine if any of Shamrock’s products were contaminated. Shamrock had still not produced a positive hit on any of its products when the summer tragedy struck. They just weren’t looking in the right place.

PART THREE: AN INSURANCE TANGLE

Banking on rock-solid relationships with its carrier and brokers, Shamrock, through its attorneys, is able to salvage indemnification on its general liability policy that affords it $20 million to defray the business losses of its retail customers.

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But that one comment from a risk manager that went unheeded many months ago comes back to haunt the company.

All three of Shamrock’s plants were shuttered from August 2017 until March 2018, until the source of the contamination could be run down and the federal and state inspectors were assured the company put into place the necessary protocols to avoid a repeat of the disaster that killed 3 unborn children and sickened dozens more.

Shamrock carried no contaminated product coverage, which is known as product recall coverage outside of the food business. The production shutdown of all three of its plants cost Shamrock $120 million. As a result of the shutdown, Shamrock also lost customers.

The $20 million payout from Shamrock’s general liability policy is welcome and was well-earned by a good history with its carrier and brokers. Without the backstop of contaminated products insurance, though, Shamrock blew a hole in its bottom line that forces the company to change, perhaps forever, the way it does business.

Management has a gun to its head. Two of Shamrock’s plants, including Bethlehem, are permanently shuttered, as the company shrinks in an effort to stave off bankruptcy.

Reilly Sheehan is among those terminated. In the end, he was the wrong person in the wrong place at the wrong time.

Burdened by the guilt, rational or not, over the fatalities and the horrendous damage to Shamrock’s business. Reilly Sheehan is a broken man. Leaning on the compassion of a cousin, he takes a job as a maintenance worker at the Bethlehem sewage treatment plant.

“Maybe I can keep this place clean,” he mutters to himself one night, as he swabs a sewage overflow with a mop in the early morning hours of a dark, cold February.

Bar-Lessons-Learned---Partner's-Content-V1b

Risk & Insurance® partnered with Swiss Re Corporate Solutions to produce this scenario. Below are their recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.®.

Shamrock Food’s story is not an isolated incident. Contaminations happen, and when they do they can cause a domino effect of loss and disruption for vendors and suppliers. Without Product Recall Insurance, Shamrock sustained large monetary losses, lost customers and ultimately two of their facilities. While the company’s liability coverage helped with the business losses of their retail customers, the lack of Product Recall and Contamination Insurance left them exposed to a litany of risks.

Risk Managers in the Food & Beverage industry should consider Product Recall Insurance because it can protect your company from:

  • Accidental contamination
  • Malicious product tampering
  • Government recall
  • Product extortion
  • Adverse publicity
  • Intentionally impaired ingredients
  • Product refusal
  • First and third party recall costs

Ultimately, choosing the right partner is key. Finding an insurer who offers comprehensive coverage and claims support will be of the utmost importance should disaster strike. Not only is cover needed to provide balance sheet protection for lost revenues, extra expense, cleaning, disposal, storage and replacing the contaminated products, but coverage should go even further in providing the following additional services:

  • Pre-incident risk mitigation advocacy
  • Incident investigation
  • Brand rehabilitation
  • Third party advisory services

A strong contamination insurance program can fill gaps between other P&C lines, but more importantly it can provide needed risk management resources when companies need them most: during a crisis.



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