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Risk Insider: Greg Bangs

Social Engineering Schemes: 3 Ways to Mitigate Risk of Big Losses

By: | June 19, 2018 • 2 min read
Gregory W. Bangs is chief underwriting officer of global crime at XL Catlin. Over the last 30 years, he’s been underwriting insurance and developing new products in the U.S., U.K., Hong Kong and France. He can be reached at [email protected]

One of the oldest forms of crime — the con — is causing massive losses for businesses and individuals. The basic tactic in these increasingly sophisticated schemes is social engineering, in which criminals persuade victims to help the fraudsters obtain access, data or money.

Topping the list in financial losses in the Federal Bureau of Investigation’s 2017 Internet Crime Report is what the FBI calls “business email compromise/email account compromise.” In 2017, BEC/EAC incidents took $676.2 million from 15,690 victims. “Confidence fraud/romance,” was second on the list, generating $211.4 million in losses from 15,372 victims.

The FBI and other federal authorities in June announced the culmination of a six-month coordinated operation to stop international BEC schemes. Operation WireWire resulted in 74 arrests, the seizure of $2.4 million and the recovery of $14 million in fraudulent wire transfers.

Since the FBI’s Internet Crime Complaint Center began tracking BEC/EAC, victims have reported losses totaling more than $3.7 billion. Because many crimes go unreported, these numbers on social engineering fraud may be only the tip of the iceberg.

Social engineering fraud tends to fall into three main categories, each of which can harm a business’s balance sheet and reputation:

Vendor impersonation. Vendor impersonation has become a frequent loss as fraudsters persuade victims to divert recurring payments to new bank accounts or pay bogus invoices. These scams succeed when unsuspecting recipients don’t verify details or check existing records.

Executive impersonation. Less common than vendor impersonation but with much higher stakes, executive impersonation is a highly sophisticated con game, often using data stolen through phishing or other means to earn trust and create plausible scenarios, such as a foreign subsidiary’s acquisition requiring the release of funds. Common elements in these scams include urgency and pressure to avoid displeasing senior management. Numerous companies have been defrauded of tens of millions of dollars through this crime.

Since the FBI’s Internet Crime Complaint Center began tracking BEC/EAC, victims have reported losses totaling more than $3.7 billion. Because many crimes go unreported, these numbers on social engineering fraud may be only the tip of the iceberg.

Client impersonation. These losses have tended to be smaller, but they also are rising. The scams typically target professional services firms and involve overpayments by fake but official-looking checks. Fraudsters ask the firm to remove their retainer and send back the remainder.

Fraud risk mitigation

Variants exist for nearly all types of social engineering, and criminals adapt their tactics, but businesses can mitigate the risk. Three key elements are:

  • The first line of defense is training employees to recognize potential frauds, whether phishing emails or calls from someone purporting to be a vendor, client or company executive.
  • Creating a convenient way to report suspicious activity, such as sending dubious emails to a folder the IT department investigates, can reduce the chance that employees will inadvertently help criminals.
  • Computer security solutions continue to improve. For example, some tools let corporate systems set apart Internet browsers in a “sandbox” so malware cannot infect the network. Two-factor authentication with a time-sensitive passcode sent to a user’s cell phone reduces the risk of fraudsters obtaining access to data with only a computer password.

Social engineering attacks are likely to continue, but smart risk management can help businesses stay ahead of the criminals.

More from Risk & Insurance

More from Risk & Insurance

2018 Risk All Stars

Masters of Risk

The concept of risk mastery and ownership, as displayed by the 2018 Risk All Stars, includes not simply seeking to control outcomes but taking full responsibility for them.
By: | September 14, 2018 • 3 min read

People talk a lot about how risk managers can get a seat at the table. The discussion implies that the risk manager is an outsider, striving to get the ear or the attention of an insider, the CEO or CFO.

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But there are risk managers who go about things in a different way. And the 2018 Risk All Stars are prime examples of that.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Goodyear’s Craig Melnick had only been with the global tire maker a few months when Hurricane Harvey dumped a record amount of rainfall on Houston.

Brilliant communication between Melnick and his new teammates gave him timely and valuable updates on the condition of manufacturing locations. Melnick remained in Akron, mastering the situation by moving inventory out of the storm’s path and making sure remediation crews were lined up ahead of time to give Goodyear its best leg up once the storm passed and the flood waters receded.

Goodyear’s resiliency in the face of the storm gave it credibility when it went to the insurance markets later that year for renewals. And here is where we hear a key phrase, produced by Kevin Garvey, one of Goodyear’s brokers at Aon.

“The markets always appreciate a risk manager who demonstrates ownership,” Garvey said, in what may be something of an understatement.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Dianne Howard, a 2018 Risk All Star and the director of benefits and risk management for the Palm Beach County School District, achieved ownership of $50 million in property storm exposures for the district.

With FEMA saying it wouldn’t pay again for district storm losses it had already paid for, Howard went to the London markets and was successful in getting coverage. She also hammered out a deal in London that would partially reimburse the district if it suffered a mass shooting and needed to demolish a building, like what happened at Sandy Hook in Connecticut.

2018 Risk All Star Jim Cunningham was well-versed enough to know what traditional risk management theories would say when hospitality workers were suffering too many kitchen cuts. “Put a cut-prevention plan in place,” is the traditional wisdom.

But Cunningham, the vice president of risk management for the gaming company Pinnacle Entertainment, wasn’t satisfied with what looked to him like a Band-Aid approach.

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Instead, he used predictive analytics, depending on his own team to assemble company-specific data, to determine which safety measures should be used company wide. The result? Claims frequency at the company dropped 60 percent in the first year of his program.

Alumine Bellone, a 2018 Risk All Star and the vice president of risk management for Ardent Health Services, faced an overwhelming task: Create a uniform risk management program when her hospital group grew from 14 hospitals in three states to 31 hospitals in seven.

Bellone owned the situation by visiting each facility right before the acquisition and again right after, to make sure each caregiving population was ready to integrate into a standardized risk management system.

After consolidating insurance policies, Bellone achieved $893,000 in synergies.

In each of these cases, and in more on the following pages, we see examples of risk managers who weren’t just knocking on the door; they were owning the room. &

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Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, clarity of vision and passion.

See the complete list of 2018 Risk All Stars.

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