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 Report: Entertainment

On With the Show

Entertainment companies are attractive and vulnerable targets for cyber criminals.
By: | December 14, 2017 • 7 min read

Recent hacks on the likes of Sony, HBO and Netflix highlight the vulnerability entertainment companies have to cyber attack. The threat can take many forms, from the destruction or early release of stolen content to the sabotage of broadcast, production or streaming feeds.

Brian Taliaferro, entertainment and hospitality specialist, JLT Specialty USA

“Cyber attacks are becoming the biggest emerging threat for entertainment companies, bringing risk to reputations, bottom lines and the product itself,” said Brian Taliaferro, entertainment and hospitality specialist, JLT Specialty USA.

For most entertainment firms, intellectual property (IP) is the crown jewel that must be protected at all costs, though risk profiles vary by sub-sector. Maintaining an uninterrupted service may be the biggest single concern for live broadcasters and online streaming providers, for example.

In the case of Sony, North Korea was allegedly behind the leak of stolen private information in 2014 in response to a film casting leader Kim Jong Un in what it considered an unfavorable light.

This year, Netflix and HBO both faced pre-broadcast leaks of popular TV series, and Netflix last year also had its systems interrupted by a hack.

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Online video game platforms are also ripe for attack, with Steam admitting that 77,000 of its gamer accounts are hacked every month.

The list goes on and will only get more extensive over time.

Regardless of the platform, any cyber attack that prevents companies from producing or distributing content as planned can have huge financial implications, particularly when it comes to major releases and marquee content, which can make or break a financial year.

“People and culture are the biggest challenges but also the keys to success.” — David Legassick, head of life science, technology and cyber, CNA Hardy

The bottom line, said David Legassick, head of life science, technology and cyber, CNA Hardy, is that these firms have a combination of both assets and business models that are inherently open to attack.

“Vulnerabilities exist at every point in the supply chain because it’s all tech-dependent,” he said, adding that projects often run on public schedules, allowing criminals to time their attacks to maximize impact.

“The combination of IP, revenue and reputation risk make entertainment a hot sector for cyber criminals.”

Touch Point Vulnerabilities

Film, TV, literary and music projects invariably involve numerous collaborators and third-party vendors at every stage, from development to distribution. This creates multiple touchpoints through which hackers could gain access to materials or systems.

According to Kyle Bryant, regional cyber manager, Europe, for Chubb, there is nothing unique about the type of attack media companies suffer — usually non-targeted ransomware attacks with a demand built in.

“However, once inside, the hackers often have a goldmine to exploit,” he said.

He added targeted attacks can be more damaging, however. Some sophisticated types of ransomware attack, for example, are tailored to detect certain file types to extract or destroy.

“NotPetya was designed to be non-recoverable. For a media company, it could be critical if intellectual property is destroyed.”

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As entertainment companies have large consumer bases, they are also attractive targets for ideological attackers wishing to spread messages by hijacking websites and other media, he added.

They also have vast quantities of personal information on cast and crew, including celebrities, which may also have monetary value for hackers.

“It is essential to identify the most critical information assets and then put a value on them. After that, it is all about putting protection in place that matches the level of concern,” Bryant advised.

As with any cyber risk, humans are almost always the biggest point of vulnerability, so training staff to identify risks such as suspicious messages and phishing scams, as well as security and crisis response protocols, is essential. Sources also agree it is vital for entertainment companies to give responsibility for cyber security to a C-suite executive.

“People and culture are the biggest challenges but also the keys to success,” said Legassick.

“Managing the cyber threat is not a job that can just be left to the IT team. It must come from the top and pervade every aspect of how a company works.”

David Legassick, head of life science, technology and cyber, CNA Hardy

Joe DePaul, head of cyber, North America, Willis Towers Watson, suggested entertainment companies adopt a “holistic, integrated approach to cyber risk management,” which includes clearly defining processes and conducting background checks on the cyber security of any third party that touches the IP.

This includes establishing that the third parties understand the importance of the media they are handling and have appropriate physical and non-physical security at least equal to the IP owner in place. These requirements should also be written into contracts with vendors, he added.

“The touchpoints in creating content used to be much more open and collaborative, but following the events of the last few years, entertainment firms have rapidly introduced cyber and physical security to create a more secure environment,” said Ryan Griffin, cyber specialist, JLT Specialty USA.

“These companies are dealing with all the issues large data aggregators have dealt with for years. Some use secure third-party vendors, while others build their own infrastructure. Those who do business securely and avoid leaks can gain an advantage over their competitors.”

Quantification Elusive

If IP is leaked or destroyed, there is little that can be done to reverse the damage. Insurance can cushion the financial blow, though full recovery is very difficult to achieve in the entertainment space, as quantifying the financial impact is so speculative.

As Bill Boeck, insurance and claims counsel, Lockton, pointed out, there are only “a handful of underwriters in the world that would even consider writing this risk,” and sources agreed that even entertainment firms themselves struggle to put a monetary value on this type of exposure.

“The actual value of the IP taken isn’t generally going to be covered unless you have negotiated a bespoke policy,” said Boeck.

“If you’re in season five of a series with a track record and associated income stream, that is much easier, but putting a value on a new script, series or novel is difficult.”

Companies for whom live feeds or streaming are the primary source of revenue may find it easier to recoup losses. Determining the cost of a hack of that sort of service is a more easily quantifiable business interruption loss based on minutes, hours, ad dollars and subscription fees.

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Brokers and insurers agree that while the cyber insurance market has not to date developed specific entertainment products, underwriters are open for negotiation when it comes to covering IP. The ball is therefore in the insured’s court to bring the most accurate projections to the table.

“Clients can get out of the insurance market what they bring to the equation. If you identify your concerns and what you want to get from insurance, the market will respond,” said Bryant.And according to Griffin, entertainment companies are working with their brokers to improve forecasts for the impact of interruptions and IP hacks and to proactively agree to terms with underwriters in advance.

However, Legassick noted that many entertainment firms still add cyber extensions to their standard property policies to cover non-physical damage business interruption, and many may not have the extent of coverage they need.

Crisis Response

Having a well-planned and practiced crisis response plan is critical to minimizing financial and reputational costs. This should involve the input of experienced, specialist third parties, as well as numerous internal departments.

Ryan Griffin, cyber specialist, JLT Specialty USA

“The more business operation leaders can get involved the better,” said Griffin.

Given the entertainment industry’s highly public nature, “it is critically important that the victim of a hack brings in a PR firm to communicate statements both outside and within the organization,” said Boeck, while DePaul added that given that most cyber attacks are not detected for 200-plus days, bringing in a forensic investigator to determine what happened is also essential.

Indeed, said Griffin, knowing who perpetrated the attack could help bring the event to a swifter and cheaper conclusion.

“Is it a nation state upset about the way it’s been portrayed or criminals after a quick buck? Understanding your enemy’s motivation is important in mitigating the damage.”

Some hackers, he noted, have in the past lived up to their word and released encryption keys to unlock stolen data if ransoms are paid. Inevitably, entertainment firms won’t always get so lucky.

Given the potentially catastrophic stakes, it is little surprise these firms are now waking up to the need for robust crisis plans and Fort Knox-level security for valuable projects going forward. &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected]