Risk Scenario

Stabbed in the Back

Internal perpetrators show a company just what it doesn’t know about cyber risk management.
By: | October 15, 2016 • 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: Opportunity Knocks

Jack Fisk, nice and warm in the comfort of his study in Fort Collins, Colorado, sat and stared at the message in his personal email account inbox. He sat and stared at it for a long time.

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Jack took a sip of herbal tea and a nibble of the lemon cookie at his elbow. Then he went back to staring at the message. There it was in black and white, an offer from a Chinese national — an offer he felt he couldn’t refuse.

As a lead engineer with Super Diamond, a manufacturer of mining and drilling equipment, Jack was an integral part of a team that developed one of the most effective drilling bits ever made. The bit, used in gold mining and deep-sea oil extraction, was helping to push Super Diamond into record-breaking revenue territory.

There was only one problem and it was a very big one, for Jack at least. Super Diamond’s top line was breaking records, but Jack Fisk felt left out. Where were his millions, he wondered.

Well here they were. He didn’t know how they found him, but they found him.

The deal was this. Hand over some of Super Diamond’s top-secret product information and receive a seven-figure reward.

As Jack considered the offer, he felt entirely justified in taking it. It was his creativity and knowledge, more than anyone else’s, which led to the product breakthrough. He was sure of it. He knew it in his gut.

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Here’s what Jack didn’t know. Another employee of Super Diamond, an IT executive based in Mumbai, was looking at a very similar email. This employee, Vijay Bhakta, enjoyed super-user status within Super Diamond’s computer networks, with access to all of its servers.

The Chinese had done their homework. Jack, married with two children, lived a pretty straight life. The lure of a big paycheck was more than enough for him.

Vijay enjoyed a riskier lifestyle. Money was a good motivator for him, but just as compelling were the offers of drugs and prostitutes the Chinese were dangling in front of him.

In approaching Vijay, the Chinese were after more than product information. They wanted access to Super Diamond’s customer list and information on its entire product line, not just the drilling bits that Jack helped develop.

Both executives, unbeknownst to the other, took the bait.

For the next 18 months, Jack used the time-honored method of downloading proprietary information onto a thumb drive, walking out the door with it, and painstakingly sending it to his Chinese contact using his personal email address in the quiet comfort of his study at home.

The Bitcoin payments from the Chinese, amounting to $2.7 million in 18 months, arrive faithfully. Jack uploads his company’s precious trade secrets just as faithfully.

Vijay is introduced to a hacker who, armed with the IT exec’s user information and passcodes, invades Super Diamond’s system at will over the same time period.

Vijay is also faithfully compensated, with cash drops and services meeting his other needs, under the terms of his agreement with the Chinese.

At the end of 18 months, fully exploiting their two points of entry, the Chinese own the keys to the Super Diamond kingdom. They know how to make a number of Super Diamond’s products and they know exactly who to sell them to and at what price.

Part Two: A Chilling Recognition

Super Diamond’s risk manager, Cathleen Sunbury, is enjoying an invigorating game of tennis with a friend on a sunlit court in San Diego, when she gets an urgent text from the company’s COO.

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“Please get to the office, ASAP,” says the message. “Urgent.”

A chill runs through Cathleen.

“Uh oh,” she says, as she and her friend grab a water break courtside.

“What is it?” her friend says.

“I don’t know what it is, but it doesn’t look good,” Cathleen says. “I gotta go.”

“Is this because I was winning?” her friend asks.

That would normally be a funny jibe between friends. It’s not today.

At the office, other company executives share with Cathleen what they know. Sales in several of Super Diamond’s key Asian markets have suddenly softened.

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There is also an indication that the company suffered an IT breach, but the extent of it is difficult to ascertain. Whoever broke in did a great job of covering their tracks. What was accessed and what was taken appear to be unknowns. The company’s IT department is at a loss.

“I know who to call,” Sunbury says, banking on a conversation she had with a former higher-up in the FBI who now works for a cyber forensics firm in Philadelphia.

The Super Diamond CEO and CFO initially balk at the forensic firm’s price tag.

The vice president of the forensic firm, who led key cyber investigations for the FBI before entering the private sector, snorts in derision.

“Your company is horrible at this,” the forensics VP says.

“Your IT department has no idea what happened and it will take them months to figure it out,” he says.

“It’s looking like you have an internal perpetrator, possibly more than one. How much longer can you afford to wait to determine what’s going on?”

The phrase “possibly more than one” overwhelms any resistance on the part of the CFO and the CEO. They sign on the dotted line with the forensics firm.

The forensic firm gets right to work. To connect the dots they pull records from a number of departments, including Human Resources and Security.

They also have their own cyber security specialist take a look at the Super Diamond network to see who might have compromised it.

It takes the forensics firm two days to come up with two names: Jack Fisk and Vijay Bhakta.

Part Three: Gone, Gone, Gone

Jack Fisk and Vijay Bhakta are dismissed and face criminal charges. As painful as that is for company executives, that’s the easy part.

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What comes next for Cathleen Sunbury in her role as risk manager is far more painstaking, and far more painful.

The forensics team is able to match up human resources records, including data on when Vijay Bhakta and Jack Fisk were in the office, against data on computer use, including when an outside device was connected to Jack Fisk’s computer.

That left no doubt that the product information and additional company information that was taken from Super Diamond was the work of inside perpetrators.

The “good” news is that Super Diamond executives now understand what happened. The bad news is that their insurance policies are inadequate to cover the loss.

Determining the value of what was taken, including the cost of lost sales, is difficult, but Super Diamond executives settle on a figure of $200 million.

The company’s cyber breach policy, though, covers an occurrence in the event of a breach from an outside hacker. Bhakta and Fisk are internal perpetrators, and thus the company is not covered, its carrier says.

Compounding the pain, Super Diamond shareholders file suit against Super Diamond executives and board members. The shareholders argue that the board and the C-suites failed to take adequate measures to protect proprietary company information.

The company’s E&O and D&O policies respond to the costs of the lawsuits. But the company faces punishing premium increases for both E&O and D&O coverage going forward.

Sales are depressed, due to the theft of key intellectual property, and getting good cyber coverage at a reasonable price is flat-out impossible.

Super Diamond settles for a premium increase to cover both external and internal hacks that is 400 percent more than it faced the previous year.

Worn out by the process of determining the loss and trying to get coverage for a company that is bleeding money; Cathleen Sunbury resigns.

“I don’t know who we’re going to get to replace you,” the CEO says.

“I don’t know either,” Sunbury says, meaning no disrespect but feeling utterly defeated.

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

Super Diamond’s Cathleen Sunbury might still have her job and her company would be in much better shape had she partnered with Swiss Re Corporate Solutions.

Swiss Re, in addition to offering cyber insurance coverage that would have covered an internal perpetrator incident such as the one detailed in “Stabbed in the Back,” would also advise Sunbury and her fellow executives at Super Diamond on being much better prepared to defend against and respond to it.

Having a forensics team, a crisis (breach) communications partner and the right law firm lined up ahead of time would have saved the company a lot of time and trouble. Swiss Re offers all of that as part of its coverage.

In just one example, imagine the costs that Super Diamond will incur if it has to go after Vijay Bhakta and Jack Fisk in civil court, or what it’s going to spend defending itself against shareholder lawsuits.

Swiss Re Corporate Solutions would have paid for Super Diamond’s legal defense, compensated it for lost revenue, and paid for data reconstitution and additional legal costs as part of its CyberSolutions product.

The lost sales in Asia that Super Diamond experiences when Jack Fisk sells its intellectual property to a Chinese national would also be covered under that policy.

On the front end, Swiss Re Corporate Solutions would work with Super Diamond to identify which of its mining or drilling technologies were most valuable; in other words, naming the “crown jewels” that the company absolutely could not afford to lose control of. That would also involve ascertaining where those “jewels” are stored and who has access to them.

The upfront work would also include the services of experts with IBM who can conduct penetration tests of the company’s IT systems.

In essence, companies everywhere need to understand that any gap in its preparedness or ability to respond creates liability. There is not only the initial liability of a loss or a penetration, there is the multiplying liability of shareholders, or regulators, holding the company responsible for its negligence.

By partnering with Swiss Re Corporate Solutions and picking up its CyberSolutions product, Super Diamond would have bolstered its risk mitigation and vastly improved the efficiency of its response.

No company is safe from a cyber penetration; the record is clear on that.  But experts say many companies have a lot of ground to make up to become more vigilant and better coordinated to bounce back when an incident occurs.

No entity can do this on its own. Pick the right partner(s).




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

More from Risk & Insurance

More from Risk & Insurance

Risk Manager Focus

Better Together

Risk managers reveal what they value in their brokers.
By: | June 1, 2017 • 11 min read

Michael K. Sheehan, (left) Managing Director, Marsh and Grant Barkey, Director of Risk Management, Motivate International Inc.

Ask a broker what they can do for you and they will tell you. But let’s ask the risk manager.

What do risk managers really need in a broker? And what do the best brokers do to help risk managers succeed in their jobs?

Chet Porembski, system vice president and deputy general counsel, OhioHealth Corp.

Risk managers say it’s a broker who helps them look knowledgeable and prepared to their bosses. It’s someone who sweeps in like a superhero with an ingenious solution to a difficult problem.

Risk managers want to see brokers bring forth better products year after year. They want a broker who shows up at renewal time with new ideas, not just a rubber stamp.

Great brokers embed with the risk management team and learn everything they can about the company and its leaders. They help risk managers prepare and keep tabs throughout the year on changes at the organization with an eye towards planning the future.

“There’s the broker that sees themselves as just a hired ‘vendor,’ or I should say, somebody that basically just does the job at hand,” said Chet Porembski, system vice president and deputy general counsel at OhioHealth Corp.

“And then there’s the broker that views themselves very much as a business partner.  They truly bring added value to the relationship.”

These brokers look at the tough issues the risk manager is facing and bring in the resources to try to help their client in ways even the client might not have thought about yet. They also do advanced planning that makes the risk manager’s job easier when a problem arises.

“That’s the kind of broker I want.” Porembski said.

And that’s the kind of broker many risk managers need more than ever.

“The only way that the relationship is going to be successful is if you build a tremendous amount of trust.” — Frances Clark, director of risk management and insurance, Sentara Healthcare

That’s because risk managers are under increasing pressure these days. They carry more weight as corporations shrink their departments to cut costs.

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Climate change, cyber threats and geopolitical shifts are turning what were once unthinkable losses into risks that are almost commonplace. And this is all happening in an under-insured risk environment, according a study by PwC entitled Broking 2020: Leading from the Front in a New Era of Risk.

Thankfully there are good brokers out there, risk managers say, who can bring more value to a client today than ever before and help ease that fear.

Brokers — the traditional intermediary in the risk transfer chain — do in fact have a tangible and growing role in developing viable and innovative solutions for the risk manager, according to PwC’s study.

They are the “global risk facilitation leaders.”

“[Whatever] organizations are doing in the short term — be this dealing with market instability or just going about day to-day business — they need to be looking at how to keep pace with the sweeping social, technological, economic, environmental and political (STEEP) developments that are transforming the world,” PwC said in the report.

Advisors That Are Getting It Done

Cyber risks are just one growing challenge that all organizations grapple with.

Frances Clark, director of risk management and insurance at Sentara Healthcare, remembers when her broker first suggested that she hold a leadership tabletop cyber drill.

Clark said her broker kept saying, “I know this is going to be a painful experience, but you are going to come out so much better in the long run.”

Frances Clark, director of risk management and insurance, Sentara Healthcare

Her broker was right, and went so far as to help arrange a system-wide drill that included representatives from the legal, finance, security, communications, marketing and medical teams.

They reviewed the many ways a cyber attack can happen and then practiced a response.

“We benefitted greatly from that exercise,” Clark said.

When Doctors on Demand developed a telemedicine app to offer mental health services through mobile devices, the company ran up against insurance limitations across state lines. All states require that the physician giving the advice be licensed in the same state where the patient is located.

The concern was for patient encounters where the patient actually crossed state boundaries during the encounter, due to the utilization of a mobile phone. The patient may have started with a properly licensed physician in the original state, but then crossed into a neighboring state where the physician was not licensed.

Larry Hansard, a regional managing director at Arthur J. Gallagher & Co., and a 2017 Power Broker®, worked to secure medical professional liability coverage without the traditional licensure exclusions placed on medical professionals by insurance carriers.

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The initiative he helped develop actually changes how health care can be delivered to patients. It allows the emerging telemedicine sector to now offer services around the world.

Two-thirds of the risk managers in the PwC Broker 2020 survey labeled their brokers as “trusted advisors.” But the same survey found that some participants see their broker as more of a straightforward service provider rather than as a source for solutions.

The survey results indicate there is plenty of room for brokers to bring more value to clients.

OhioHealth’s brokers meet each year with OhioHealth’s risk management team to review insurance coverages.  And when the health system holds quarterly risk management retreats, the brokers attend. They bring with them education and insights on a broad range of topics, from property insurance markets to cyber solutions.

Porembski’s brokers also collaborate with the risk managers when there’s an upcoming presentation on risk issues to senior management. Sometimes the brokers help prepare the presentation, he said.

“We end up looking exceptionally good to our senior leaders and our board,” he said.

Involving the broker in interactions with leaders outside the traditional risk management team has benefits beyond selling products, he said. It extends the relationship circle.

Clark tries not to think of her brokers as outside vendors just providing a service. She wants them to be as committed and knowledgeable about the organization as she is.

“The only way that the relationship is going to be successful is if you build a tremendous amount of trust,” Clark said.

“You have to be completely open and honest about everything, no matter how bad it is, or how bad it may look to the market or underwriters.”

“Once you establish that trusting relationship, I think everything else falls into place,” she adds.

Sentara underwent significant growth recently, acquiring five hospitals in about six years. The expansion required a vast amount of integration on insurance programs and a merger of risk management departments and claims.

Clark said her brokers rolled up their sleeves and expertly navigated her through the consolidation.

“I can’t reiterate enough how most risk managers don’t know how to deal with an M&A unless you’ve gone through it.”

She said she wouldn’t have been able to manage the risk of the mergers without her broker’s counsel.

Grading the Broker

Mike Lubben, director of global risk management at Henry Crown & Co. in Chicago, sets standard expectations of his insurance brokers: know the exposures, understand how a risk manager has to sell ideas internally and understand the urgency of requests.

He lets his brokers know his expectations with regular report cards, complete with letter grades. And he isn’t shy about giving out Fs.

  • How did the broker service the EPLI coverage?
  • Did the broker provide expertise and coverage analysis?
  • Was there anything creative?
  • Did the broker recommend new endorsements based on the previous exposure?
  • Did the broker recommend any risk mitigation programs?
  • How well did he communicate and help with presentations?

“A good broker will think this is fantastic,” Lubben said.

This method starts the conversation. It helps Lubben establish long relationships with some stellar brokers.  But if the broker misses the mark, Lubben can have a talk with them about ways to do better in the future. Some brokers he has sent away.

Recently a broker failed on what Lubben calls “blocking and tackling,” the basics like returning phone calls within one day and responding promptly to emails.

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Lubben gave him an “F” on those subjects and told him why. The broker still didn’t improve his game and was eventually replaced.

For many people, insurance can seem very routine from renewal to renewal. But a really good broker will break from routine and come back with some kind of enhancement or improvement.

If the renewal is flat with no change in premium, then Clark says she’ll ask, “What are you going to do for me this year?”

The best brokers are always striving for better, she said.

“Without the brokering community, you would be hard pressed to do your job. I really appreciate what the brokers do, they bring a level of expertise that we can’t possibly have on all lines of coverage.” — Mike Lubben, director of global risk management at Henry Crown & Co.

Motivate International Inc., which operates more than half of the bike share fleets in North America, went through a recent renewal.

Their broker, Marsh, explored more than 10 options with different strategies and programs. In the end, after all of that, they decided the expiring coverage was the best fit.

“Those exercises are very valuable for risk managers,” said Grant Barkey, Motivate’s director of risk management.

“As an innovative company committed to delivering best-in-class services, we believe thorough exploration leads to informed decision-making.”

A good broker understands that a company’s day-to-day operations and a highly effective risk management program have implications for what type of policy should be procured, he said.

Brokers need to partner with risk managers to figure out what those options are, and what the markets are saying and then succinctly relay the information to management.
They also need to have the tact and curiosity to inquire about future plans and figure out what resources might be needed to better serve their client.

When PwC surveyed risk managers, most put their insurance carriers and industry groups ahead of their brokers as the primary source of cyber and supply chain risk solutions; yet these areas are still cited as risk managers’ top concerns.

“Becoming the go-to partners for developing and coordinating innovative and effective solutions in these priority risk areas is at the heart of the commercial opportunity for brokers.” PwC said in its report.

“Yet, our survey suggests that these are important areas where brokers are falling short of the market’s demands and therefore need to adapt.

For example, less than a third of respondents are very satisfied with brokers’ analytical and modelling services across a range of areas.”

When participants were asked how their brokers could be more efficient, respondents put risk analysis at the top of PwC’s survey list. Significantly, more than a third also cited ‘big data’ analysis.

Finding the Right Fit

Paul Kim, Co-CBO of U.S. Retail at Aon Risk Solutions, helps match brokers to risk managers. He keeps in mind that insurance companies tend to sell product, while the clients are looking to manage risks. The right broker assists in mapping risks to existing products and also customizing broad solutions, he said.

“The risk manager’s job has become more complex in the current environment, but there are so many tools available for those individuals to make better informed decisions that truly help protect the overall risk profile of their companies,” Kim said.

Paul Kim, Co-CBO of U.S. Retail, Aon Risk Solutions

That’s why finding the right broker should be first and foremost, he said. Look for an individual with strong industry knowledge, product expertise and market relationships. A strong broker is able to effectively communicate what the risk manager’s goals are to the marketplace to be able to execute and achieve those goals.

“Not every broker can do that,” Kim said.

“Not every broker is the right broker.”

PwC said those brokers who quickly master the art and science of identifying ambiguous threats and then mobilize a broad private/public stakeholder pool to economically manage those risks over time will pull ahead of their competition.

“We’re really generalist,” Lubben said.

“Without the brokering community, you would be hard pressed to do your job. I really appreciate what the brokers do, they bring a level of expertise that we can’t possibly have on all lines of coverage.”

When selecting a broker, the risk manager should also take into account the entire organization behind the broker. Ask about the additional support systems that are available to the broker’s clients.

The company should have a deep bench so when the primary broker is out of the office there’s someone else to rely on who is almost as knowledgeable. The broker organization should also be able to assist you with your budgeting and forecasting from a financial risk perspective.

In PwC’s survey of risk managers, nearly three-quarters want analytics from their broker to help inform their decisionmaking, with concerns over new and emerging risks being a strong driver for this demand.

Clark also thinks it is vitally important for a broker to offer a claims advocate, somebody on the outside, when you are dealing with a carrier on a complicated claim.

“Otherwise you are vulnerable to what the carrier says,” Clark said.

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To lead in this new era of risk, it’s also important that brokers forge close relationships with a broader set of stakeholders that includes governments, academia, specialist risk consultancies and even their industry peers, PwC said in the report.

It’s also going to be important to develop shared databases and research capabilities.

In turn, brokers need to assure this diverse stakeholder group that they are the right party to lead.

Clark, at Sentara Healthcare, said she knows what her risk exposures are today, but she’d like her brokers to anticipate her needs before she does.

“It’s kind of crazy, but amazingly some of them do it,” Clark said.

The broker will also use past experience and industry knowledge to anticipate where policy terms and conditions can be tweaked and improved upon.

“They will, say, advise us that we need to change this policy language, and then a year later you have a claim on that and you thank your lucky stars that they changed it,” Clark said.

“It is amazing to me every time it happens.”  &

Juliann Walsh is a staff writer at Risk & Insurance. She can be reached at [email protected]