Risk Report: Financial Services

Beware the Human Element in Banking Cyber Risk

The financial sector is not alone in seeking to identify how employees fall for cyber phishing scams.
By: | July 30, 2018 • 6 min read

In 2016, all it took was one cleverly worded email for cyber thieves to bilk the Belgian bank Crelan out of more than $75 million.

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The phishing scam, in which schemers fabricated a demand-for-funds email that looked like it came from the company’s CEO, was one of thousands of cyber-attacks that buffet banks every day.

Financial institutions can invest millions in cyber defenses, but it’s now known that most cyber losses are the result of human error. In the Crelan case, tens of millions in funds were erroneously transferred in response to a phony demand email, never to be seen again.

The Human Element

Efforts are now underway to address the human element of cyber risk in finance to improve company cultures and reduce the chances an employee will be fooled into transferring money to a fraudulent recipient.

“All organizations face a challenge,” said Josh Ladeau, the global head of technology E&O and cyber, Aspen Insurance.

“For the revenue-producing areas of an organization, there is typically a tug of war between ease of doing business and the thoughtful implementation of security controls; by default these concepts often run counter to each other, not just within financial institutions, and that creates natural friction when trying to culturally integrate security consciousness,” he said.

Adeola Adele, director of integrated cyber solutions and thought leadership, Willis Towers Watson

Addressing the human element of cyber risk, how cultures and individuals can be both a company’s worst cyber security weakness or its most stalwart defender, is an area of concentration for Adeola Adele, director of integrated cyber solutions and thought leadership, Willis Towers Watson (WTW).

Adele and her colleagues are leading client meetings intended to break down the walls between human resources, risk management, compliance and information security staffers, pursuing how traditional human resources strengths like training and testing can be brought into an alliance with risk management.

“I do believe that there is an appetite there for HR to become more involved in this issue,” she said.

When the insurance brokerage Willis merged with the human capital specialist Towers Watson in early 2016, one of the stated goals of company leaders was to put Towers Watson’s human resource experience to work in the field of risk management.

Adele said WTW is now using employee engagement surveys as a tool to measure cyber security weakness.

“We did a human element study a couple of years ago and one of the things that we found was organizations that lack a focus on the customer experience are more likely to suffer a breach,” she said.

Departments Put Stock in Collaborating

The “customer experience,” Adele explained, includes such things as how well companies respond to customer complaints, how they service customers, how their products speak to their customers, how they solicit customer feedback and “in the context of cyber security, that would include the measures they have in place to protect customer data,” she said.

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Adele said WTW is also using analytical tools to assess incoming talent on how well it will be able to perform in the area of cyber security, in the context of a severe shortage in the areas of engineering and data science.

“We know that many financial institutions have not done this type of analysis,” she said. “We are helping organizations address this issue, because if they don’t hire someone with the right expertise they are potentially leaving themselves really vulnerable.”

“It is really the combination of upfront training and trying to mitigate the human error component of things, with thoughtful strategies around identification and response, because there has almost become an expectation, from a cyber perspective that things are going to happen.” — Jackie Quintal, financial institutions practice leader, Aon

Jackie Quintal, a financial institutions practice leader at Aon, said she too is seeing a trend toward putting human resources, risk management and other disciplines together to create cultural change around cyber security — not only in financial services but also across industry sectors.

“It is really the combination of upfront training and trying to mitigate the human error component of things, with thoughtful strategies around identification and response, because there has almost become an expectation, from a cyber perspective that things are going to happen,” she said.

James Burns, cyber product leader, CFC Underwriting

James Burns, the cyber product leader for London-based specialty insurer CFC Underwriting, said some of the most frequent losses his team sees are triggered by cyber phishing.

“Companies spend a lot of money on cyber defenses, which is important but might not count for much when an employee sees an email and clicks on it,” Burns said.
He said he does see much more collaboration between HR and risk management these days.

“Again, banks are not alone here,” Burns said. “We frequently see situations where the risk management folks are not talking to the IT department, because for so many years, they didn’t have to,” he said.

“There has been some progress made, but there is much more that needs to be done, certainly in the accounts that we have seen,” Burns said.

The Need for Cultural Shift

Burns’ colleague Neil Beaton, head of a new financial institutions practice at CFC Underwriting, said he believes cultural issues in banking make employees susceptible to phishing.

“One of the things for financial services in particular is that they are hierarchical organizations, and if somebody says to do something, there is a tendency to just follow orders,” he said.

“In those situations, if somebody sees a note from their superior they tend to act on it. What you need is for someone to turn around and say, ‘Am I really supposed to be doing this?’”

“When you start to have those execs in the room, that leads to broader and wider acceptance from the underwriting community to support the risk, whether it be from an underwriting standpoint or a risk mitigation standpoint.” — Michael O’Connell, financial institutions practice leader, Willis Towers Watson

Michael O’Connell, financial institutions practice leader, WTW, and former underwriter with AIG, said in his meetings with underwriters, evidence that internal discussions are underway at some companies to break down silos between HR, information security and risk management is well-received by insurers.

“When you start to have those execs in the room, that leads to broader and wider acceptance from the underwriting community to support the risk, whether it be from an underwriting standpoint or a risk mitigation standpoint,” he said.

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Aspen’s Ladeau added some organizations are differentiating themselves from their competitors in the degree to which they are training and collaborating internally to make employees a stronger piece of cyber resiliency and security.

“Cyber security is becoming an area for competitive differentiation,” said Ladeau. “The cyber risk working groups that were traditionally defensive are now bringing in the production folks and driving corporate adherence.”

“I think there are some financial institutions that have embraced that,” he continued. “When you sit in on these underwriting calls there is a marked difference in philosophies, so it’s not a one-size-fits-all answer,” he said.

Ladeau said at least one regional bank as well as a major card brand are now referencing their embrace of cyber security in their marketing, attempting to associate it with their brand.

“Whoever can figure that out first is going to be well-positioned because the issue isn’t going away.” &

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

More from Risk & Insurance

More from Risk & Insurance

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

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“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

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“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

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“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.