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2016 Most Dangerous Emerging Risks

The Fractured Future

Is our world coming apart at the seams?
By: | April 4, 2016 • 5 min read

Clipped genetic codes and broken bridges; fragmented communication; electricity networks so vulnerable to interference it’s a wonder we still have the lights on.

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As we developed our list of Most Dangerous Emerging Risks for 2016, images of fissures and fractures surfaced again and again.

In this issue, we examine four emerging, dangerous risks. We define a Most Dangerous Emerging Risk as a risk with the potential to cause widespread losses, but for which insurance coverage may be in a nascent stage of development.

On one front, we look at our tendency to self-curate media sources to the degree that informed, official statements get overlooked. Look no further than the phenomenon of parents bypassing vaccinations for their children, fed by an erroneous correlation between inoculation and autism.

We all fear terror attacks. We all worry about cyber hacks. Combine the two and you get the possibility that a cyber attack on our grid could cascade into widespread business interruption and public
disarray for months on end.

On another front, we pronounce a day of reckoning due to a shortfall in both the political will and the resources to maintain our country’s infrastructure. The thousands of children exposed to lead in Flint’s drinking water and the 90,000 metric tons of methane released from a gas well in Porter Ranch, Calif., provide foreboding data points.

Another emerging concern is our new ability to cut and paste DNA strands, and the potential that gene-edited products could hit store shelves before the risk is adequately measured.

We all fear terror attacks. We all worry about cyber hacks.

Combine the two and you get a dangerous emerging risk, the possibility that a cyber attack on our grid could cascade into widespread business interruption and public disarray for months on end.

We spoke to a number of industry experts to create the 2016 Most Dangerous Emerging Risks list; carriers, brokers and vendors were consulted.

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The spirit of this exercise is to foster a dialogue in the risk management community about what insurance products might be useful and what risk mitigation strategies companies should be considering right now.

As the years unfold, we see companies and public entities reacting to emerging risks and taking steps to mitigate them. What follows is a list of some risks we’ve written about in the past and measures being taken to mitigate those risks. &

Mitigating Dangerous Emerging Risks

Since 2011, Risk & Insurance® identified and reported on the Most Dangerous Emerging Risks. Here is a look at how some of those risks are now being addressed.

2011: Social Media Threats

hackEmployee and customer posts to Facebook, Twitter and other social media harm corporate reputations. Companies invested in analytical and monitoring tools and created crisis management plans to respond to critical or brand-damaging posts. Some companies fought back using legal means. One car dealership in Massachusetts obtained a $700,000 attachment on the real estate holdings and bank accounts of individuals who posted defamatory statements about the company online.

2011: Rising Sea Levels

floodClimate change is resulting in rising sea levels and increased inland flood risk. Local governments are responding to climate change by analyzing specific threats and taking action. In Boston and New York, wastewater treatment plants will be constructed nearly two feet higher than the plants they are replacing. In the San Francisco Bay area, the region is considering a limit on development near the water and the construction of levees and sea walls to keep the sea from encroaching.

2012: Typhoons

typhoonThe semiconductor industry face supply chain risks because many of its crucial suppliers in the straits of Taiwan are vulnerable to Pacific storms. More companies established relationships with alternative suppliers not located in the same geographic areas or countries. Korea, China and Japan have all become manufacturing locations competing with Taiwan. In addition, some companies are considering reshoring operations to the United States.

2012: Agroterrorism

cowsWe wrote about the potential for terrorists to introduce disease into the U.S. cattle population, decimating ranchers and food suppliers. Food production plants have installed security padlocks and fencing, while milk producers and transporters have security on trucks that will let the company know if the product has been accessed. In 2013, the Food and Drug Administration upgraded its Food Defense Mitigation Strategies Database to provide food processors and distributors with a tool to protect food against intentional contamination. The tool provides a range of preventive measures companies can take to better protect their facilities, personnel and products.

2012: The Pharma-Water Syndrome

waterHormonal and developmental imbalances in juveniles are a sign that drinking water is adulterated with discarded medications. Some municipalities are testing fish and water samples to determine the amount of chemicals in the water. Many local governments created drug take-back programs that allow residents to drop off unused medications, and the Environmental Protection Agency issued guidelines to discourage hospitals and nursing homes from flushing unused drugs down drains or toilets.

2013/2015: Concussions

brainIn 2013, the potential liability resulting from concussions spread from the National Football League to all professional contact sports. In 2015, the exposure reaches athletes of all ages, from college down to community sports leagues. Ivy League coaches are eliminating tackling at practices to prevent concussions while some high school districts have eliminated football from their sports schedules.

Forty-nine states and the District of Columbia enacted strong youth sports concussion safety laws.

2014: Drone Hacking

dronesDevastation could occur if terrorists hacked drones and aimed them at airplanes or other targets. Police in the Netherlands joined forces with Guard From Above to use trained eagles to snatch rogue drones in mid-air. European aerospace conglomerate Airbus uses a combination of radars, infrared cameras and direction finders to identify possible rogue drones. A UK start-up called Open Works Engineering launched an anti-drone net bazooka that can capture a rogue drone in a net and deliver it intact via a combination of a compressed-gas-powered smart launcher and an intelligent programmable projectile.

BlackBar

2016’s Most Dangerous Emerging Risks

01b_cover_story_crackCrumbling Infrastructure: Day of Reckoning Our health and economy are increasingly exposed to a long-documented but ignored risk.

01c_cover_story_leadCyber Grid Attack: A Cascading Impact The aggregated impact of a cyber attack on the U.S. power grid causes huge economic losses and upheaval.

01d_cover_story_vaccineFragmented Voice of Authority: Experts Can Speak but Who’s Listening? Myopic decision-making fostered by self-selected information sources results in societal and economic harm.

01e_cover_story_dnaGene Editing: The Devil’s in the DNA Biotechnology breakthroughs can provide great benefits to society, but the risks can’t be ignored.

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

More from Risk & Insurance

More from Risk & Insurance

Cyber Resilience

No, Seriously. You Need a Comprehensive Cyber Incident Response Plan Before It’s Too Late.

Awareness of cyber risk is increasing, but some companies may be neglecting to prepare adequate response plans that could save them millions. 
By: | June 1, 2018 • 7 min read

To minimize the financial and reputational damage from a cyber attack, it is absolutely critical that businesses have a cyber incident response plan.

“Sadly, not all yet do,” said David Legassick, head of life sciences, tech and cyber, CNA Hardy.

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In the event of a breach, a company must be able to quickly identify and contain the problem, assess the level of impact, communicate internally and externally, recover where possible any lost data or functionality needed to resume business operations and act quickly to manage potential reputational risk.

This can only be achieved with help from the right external experts and the design and practice of a well-honed internal response.

The first step a company must take, said Legassick, is to understand its cyber exposures through asset identification, classification, risk assessment and protection measures, both technological and human.

According to Raf Sanchez, international breach response manager, Beazley, cyber-response plans should be flexible and applicable to a wide range of incidents, “not just a list of consecutive steps.”

They also should bring together key stakeholders and specify end goals.

Jason J. Hogg, CEO, Aon Cyber Solutions

With bad actors becoming increasingly sophisticated and often acting in groups, attack vectors can hit companies from multiple angles simultaneously, meaning a holistic approach is essential, agreed Jason J. Hogg, CEO, Aon Cyber Solutions.

“Collaboration is key — you have to take silos down and work in a cross-functional manner.”

This means assembling a response team including individuals from IT, legal, operations, risk management, HR, finance and the board — each of whom must be well drilled in their responsibilities in the event of a breach.

“You can’t pick your players on the day of the game,” said Hogg. “Response times are critical, so speed and timing are of the essence. You should also have a very clear communication plan to keep the CEO and board of directors informed of recommended courses of action and timing expectations.”

People on the incident response team must have sufficient technical skills and access to critical third parties to be able to make decisions and move to contain incidents fast. Knowledge of the company’s data and network topology is also key, said Legassick.

“Perhaps most important of all,” he added, “is to capture in detail how, when, where and why an incident occurred so there is a feedback loop that ensures each threat makes the cyber defense stronger.”

Cyber insurance can play a key role by providing a range of experts such as forensic analysts to help manage a cyber breach quickly and effectively (as well as PR and legal help). However, the learning process should begin before a breach occurs.

Practice Makes Perfect

“Any incident response plan is only as strong as the practice that goes into it,” explained Mike Peters, vice president, IT, RIMS — who also conducts stress testing through his firm Sentinel Cyber Defense Advisors.

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Unless companies have an ethical hacker or certified information security officer on board who can conduct sophisticated simulated attacks, Peters recommended they hire third-party experts to test their networks for weaknesses, remediate these issues and retest again for vulnerabilities that haven’t been patched or have newly appeared.

“You need to plan for every type of threat that’s out there,” he added.

Hogg agreed that bringing third parties in to conduct tests brings “fresh thinking, best practice and cross-pollination of learnings from testing plans across a multitude of industries and enterprises.”

“Collaboration is key — you have to take silos down and work in a cross-functional manner.” — Jason J. Hogg, CEO, Aon Cyber Solutions

Legassick added that companies should test their plans at least annually, updating procedures whenever there is a significant change in business activity, technology or location.

“As companies expand, cyber security is not always front of mind, but new operations and territories all expose a company to new risks.”

For smaller companies that might not have the resources or the expertise to develop an internal cyber response plan from whole cloth, some carriers offer their own cyber risk resources online.

Evan Fenaroli, an underwriting product manager with the Philadelphia Insurance Companies (PHLY), said his company hosts an eRiskHub, which gives PHLY clients a place to start looking for cyber event response answers.

That includes access to a pool of attorneys who can guide company executives in creating a plan.

“It’s something at the highest level that needs to be a priority,” Fenaroli said. For those just getting started, Fenaroli provided a checklist for consideration:

  • Purchase cyber insurance, read the policy and understand its notice requirements.
  • Work with an attorney to develop a cyber event response plan that you can customize to your business.
  • Identify stakeholders within the company who will own the plan and its execution.
  • Find outside forensics experts that the company can call in an emergency.
  • Identify a public relations expert who can be called in the case of an event that could be leaked to the press or otherwise become newsworthy.

“When all of these things fall into place, the outcome is far better in that there isn’t a panic,” said Fenaroli, who, like others, recommends the plan be tested at least annually.

Cyber’s Physical Threat

With the digital and physical worlds converging due to the rise of the Internet of Things, Hogg reminded companies: “You can’t just test in the virtual world — testing physical end-point security is critical too.”

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How that testing is communicated to underwriters should also be a key focus, said Rich DePiero, head of cyber, North America, Swiss Re Corporate Solutions.

Don’t just report on what went well; it’s far more believable for an underwriter to hear what didn’t go well, he said.

“If I hear a client say it is perfect and then I look at some of the results of the responses to breaches last year, there is a disconnect. Help us understand what you learned and what you worked out. You want things to fail during these incident response tests, because that is how we learn,” he explained.

“Bringing in these outside firms, detailing what they learned and defining roles and responsibilities in the event of an incident is really the best practice, and we are seeing more and more companies do that.”

Support from the Board

Good cyber protection is built around a combination of process, technology, learning and people. While not every cyber incident needs to be reported to the boardroom, senior management has a key role in creating a culture of planning and risk awareness.

David Legassick, head of life sciences, tech and cyber, CNA Hardy

“Cyber is a boardroom risk. If it is not taken seriously at boardroom level, you are more than likely to suffer a network breach,” Legassick said.

However, getting board buy-in or buy-in from the C-suite is not always easy.

“C-suite executives often put off testing crisis plans as they get in the way of the day job. The irony here is obvious given how disruptive an incident can be,” said Sanchez.

“The C-suite must demonstrate its support for incident response planning and that it expects staff at all levels of the organization to play their part in recovering from serious incidents.”

“What these people need from the board is support,” said Jill Salmon, New York-based vice president, head of cyber/tech/MPL, Berkshire Hathaway Specialty Insurance.

“I don’t know that the information security folks are looking for direction from the board as much as they are looking for support from a resources standpoint and a visibility standpoint.

“They’ve got to be aware of what they need and they need to have the money to be able to build it up to that level,” she said.

Without that support, according to Legassick, failure to empower and encourage the IT team to manage cyber threats holistically through integration with the rest of the organization, particularly risk managers, becomes a common mistake.

He also warned that “blame culture” can prevent staff from escalating problems to management in a timely manner.

Collaboration and Communication

Given that cyber incident response truly is a team effort, it is therefore essential that a culture of collaboration, preparation and practice is embedded from the top down.

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One of the biggest tripping points for companies — and an area that has done the most damage from a reputational perspective — is in how quickly and effectively the company communicates to the public in the aftermath of a cyber event.

Salmon said of all the cyber incident response plans she has seen, the companies that have impressed her most are those that have written mock press releases and rehearsed how they are going to respond to the media in the aftermath of an event.

“We have seen so many companies trip up in that regard,” she said. “There have been examples of companies taking too long and then not explaining why it took them so long. It’s like any other crisis — the way that you are communicating it to the public is really important.” &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected] Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]