Specialty: Tech Risks

Data Breaches, Hacks and Brand Damage: Welcome to Technology’s Legacy

Maximizing the benefits of new technologies requires a top-down approach to cyber risk mitigation.
By: | October 12, 2017 • 6 min read

Technology’s evolution is moving so quickly that many organizations are struggling to keep pace. While technology is becoming more complex and powerful, it’s also becoming smaller, cheaper, easier to use and accessible to organizations of all sizes.

Advertisement




Deploying new devices, systems and software solutions can increase competitiveness, but can also create new risks and vulnerabilities. Because most emerging technologies are intricately intertwined through the Internet, the potential for data loss is greater than ever. And susceptibility to hacking is also presenting threats to property, labor and brand.

Analysts and risk managers say organizations will need to tread carefully by making a commitment at the top to assess the risks and limit their exposure with planning and insurance.

New Opportunities With New Risks

Virtually every industry is now being disrupted by technology. 3D printers, artificial intelligence, collaborative robots, the Internet of Things, cloud-based software solutions and data are driving rapid change.

Leslie Chacko, director of Marsh & McLennan Companies’ Global Risk Center, Emerging Technology Program, said technologies that have emerged in the past five years are fundamentally disrupting the way companies operate, transact and interact with their customers.

“We are in what is being widely accepted as the fourth industrial revolution … Most companies are looking to leverage these technologies as part of their strategic imperative of ‘going digital,’ ” Chacko said.

“Many companies will need to re-evaluate their cyber risk exposure as a result of adopting these technologies,” — Leslie Chacko, director, Marsh & McLennan Companies’ Global Risk Center, Emerging Technology Program

Many of these technologies are so new that risk managers don’t yet have enough data to accurately identify and assess such risks. Mike Thoma, VP, chief underwriting officer of global technologies at Travelers, said new technologies can carry additional risk of “bugs and kinks that haven’t been worked out.” But problems can extend beyond simple glitches to include data breaches, hacks, financial loss, brand damage and lawsuits.

“Technology is evolving so quickly. You have to evaluate the ROI to ensure a large [capital expenditure] purchase you’re making today won’t be obsolete. And you have new risks associated with it,” Thoma said.

Sam Friedman, insurance research leader, Deloitte Center for Financial Services

These risks are now emerging in nearly every industry. Mark Locke, senior vice president of manufacturing and government contractors at Chubb, said it’s a big issue for manufacturers deploying robotics and IoT devices.

Whereas manufacturers used to be primarily concerned about fires or accidents, they’re now concerned about hacking, data breaches and a “series of exposures that didn’t even exist 10 years ago,” Locke said.

Many manufacturers made the leap to technology so quickly that their security plans haven’t kept pace. Verizon’s 2017 Data Breach Investigations Report found manufacturing to be one of the top at-risk industries for data breaches.

The medical industry is also facing heightened risk. Insurers and hospitals are collecting more data than ever, and physicians are now using collaborative robots to perform surgical procedures. Sam Friedman, insurance research leader at the Deloitte Center for Financial Services, said such devices can muddy the waters of liability in the event of a patient injury.

Liability could be pegged to the doctor’s decision to use the technology, the manufacturers of the robot, the software developer that wrote the program or improper use by the doctor. “You could have a free-for-all if a patient is injured. Who pays? These types of things need to be resolved by the entity’s risk manager as they start deploying these new technologies,” Friedman said.

Advertisement




New risks are also emerging in the financial services industry where firms are using AI to manage portfolios and select investments. Even in the hands of a small business, a tablet-based POS system or smart device can be a portal to hacking and financial loss.

Aftab Jamil, partner and national leader of the technology practice at BDO USA, said for many organizations, the question shouldn’t be “if” but “when” a liability will arise.

Assessing and Insuring Technology Risks

While the risks presented by new technologies can vary depending on how they’re being used, one shared factor is the threat of hacking. Jamil said many businesses now have access to “huge amounts of unstructured data” and need to balance the flexibility to use it with systems to protect that data.

Virtually any device or piece of technology connected to the Internet can be an access point for hacking. Chacko points to the October 2016 Mirai Botnet attack on unsecured IoT devices as an example of how a device can be exploited to conduct a larger-scale attack. Something as simple as a sensor on a machine, a smart thermostat, POS system or software interface can leave an entire company vulnerable.

“Many companies will need to re-evaluate their cyber risk exposure as a result of adopting these technologies,” Chacko said.

High-profile attacks in recent years encouraged more companies to aim for a greater level of preparedness. Jamil said security starts at the top with the CFO, CIO and business leaders with “real decision-making power” who can commit to understanding the risks and creating action strategies to mitigate those risks.

The risks associated with emerging technologies are also creating demand for new insurance products. Insurers wrote more than $1.35 billion in cyber insurance policies last year, a 35 percent increase over 2015.

More companies are also addressing things like IoT, automation, software solutions and robotics in their policies.

Some experts say there’s a need to blend policies that could include all aspects of a tech liability, including data loss and the potential for property damage and liability.

AIG Group last year released CyberEdge Plus, a stand-alone policy that covers cyber-related bodily injury, property damage, business interruption and product liability.

Friedman said the emerging technologies are evolving so quickly that risk managers “cannot assume anything” and need to continually reassess those risks and how they align with their existing policies. He said insurers can be slow to evolve and often take a “reactive” approach — a reason why businesses need to ensure clarification on new technologies.

Friedman said the first instinct of most insurers is to add it to existing coverage, either in the policy or through an additional rider. Many insurers are starting to see claims related to technology that they haven’t dealt with before.

“It’s an exciting time but you don’t want to take anything for granted … You don’t want an insurer to come back and say ‘Wait a minute — you didn’t say anything about robots in your ROR,’ ” Friedman said.

Advertisement




Thoma recommends companies consult with technology-specific experts when evaluating those technologies. Beyond external risks, he said organizations can encounter internal risks to their processes and operations if they integrate emerging technologies without proper planning. Many organizations start with limited pilot programs to test effectiveness and work out bugs before scaling up.

While analysts, insurers and risk managers contemplate new exposures being created by emerging technologies, nearly all agree that the biggest risk will be falling behind the curve. Jamil said organizations will have to move forward by identifying the right technologies and applications for their businesses, creating plans to mitigate risks and double-checking their policies to ensure exposures are covered.

“Any business should be keeping an eye on these emerging technologies. Those that do not will be at a competitive disadvantage,” Jamil
said. &

Craig Guillot is a writer and photographer, based in New Orleans. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

Advertisement




That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

Advertisement




Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]