Risk Scenario

Undercut

A social engineering cyber attack results in a massive loss of medical records, a reputational hit and a merger gone bad.
By: | October 20, 2015 • 7 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.

Engineer This

This was so much easier than hacking a system by harnessing software technology and using multiple computers and proxy servers. Still, it took a little bit of phone work.

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A member of SubPrime OverKill, a group of financially motivated hackers going by the acronym SPOK, called the headquarters of Atlas Health Systems on the morning of Monday, July 1.

“Hi,” the hacker said in a friendly voice, when an operator answered the phone. “Can I please have the name of your head of Information Technology?”

“I’m not authorized to give that out,” the national hospital system operator said.

“OK,” the hacker said and hung up before the operator could ask him why he was calling.

It took him six more calls to get what he needed. He didn’t get the name of the head of IT, but he finally got the name of someone else in that department.

The hacker’s next call was to that office.

“Keith Duvall, please,” the hacker said in a much sterner voice when Duvall’s assistant answered.

“Who may I say is calling please?” Duvall’s assistant said.

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Partner

“This is Special Agent Frank Dermont of the Federal Bureau of Investigation’s Cyber Security Bureau. We’ve confirmed that your computer system has been hacked and we need to access it immediately,” the hacker said.

The ruse was working so far. The assistant got flustered.

“Well, Keith’s not in right now, he’s…he’s in Kansas City,” she said.

“We need his username and password! Your system is under attack right now and crucial life-saving machinery in your hospitals’ neo-natal and intensive care units could be shut off within minutes,” the hacker said.

“Give me the username and password now or face obstruction of justice charges!” the hacker said.

“Wait, wait just a second, I have it here,” the assistant said, the thought of infants and the critically ill dying by the dozens overwhelming her.

The flustered assistant then gave the phony FBI agent a super administrator password and username.

And SPOK was in the hen house.

Over the next four months, unknown to hospital administrators, the hackers siphoned off hundreds of thousands of medical records from the large hospital system’s computer system.

At $80 per medical record, the thieves were making millions selling the records on the black market. And no one within the Atlas Health System administration had any notion of what they were up to.
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Merging Blind

Two months after the hack, Dale Reed, director of risk management for a smaller hospital system, The Magnolia Group, received information that Atlas was planning to buy Magnolia and merge the two hospital systems.

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There was already plenty on Reed’s plate. The demands of the Affordable Care Act and the escalating number of cyber attacks on not only health insurers, but health care providers, was causing him great concern.

“Now this,” Reed said as he looked over an email from the Magnolia Group CFO, outlining the ways in which the terms of the Atlas deal were projected to impact various departments.

The good news for Reed was that it appeared his job was safe.

The challenge for Reed was that he was going to have to work hand in hand with the IT professionals and risk management team at Atlas in building a secure information technology system.

The deal was set to close in November and the C-suites with both hospital groups were expecting the systems to be fully integrated and secure by the end of the year.

“Don’t expect to see much of me,” Reed told his wife. “I’ve got some long work days ahead of me.”

In mid-October, as the merger moved closer to becoming a reality, Reed sought clearance for and obtained permission from higher-ups to begin conversations with the IT and risk management departments at Atlas to discuss systems integration and security.

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In conversations with Atlas officials, Reed took away two things that concerned him. One, it appeared Atlas did not use a two-factor authorization system to gain access to the hospital’s IT system.

If a hacker chose to target Atlas, Reed thought, all they’d have to do is get an IT administrator’s username and a password and they were in.

Two, in discussions with Atlas’ risk management department, it appeared that a cyber-attack incident response plan, while being developed, was not yet in place at Atlas.

Working late one night in the office, Reed deduced that he couldn’t be passive. He needed to take steps to make sure the combined hospital system’s IT system was not only integrated but secure.

The Atlas/Magnolia merger closed as expected Nov. 16. The Magnolia name would go away and the system would keep the name Atlas.

The following day Reed asked for and received permission to hire an IT audit firm that he’d worked with before to examine the Atlas system, which was now in the process of being integrated with the Magnolia system.

The audit team was two days into its three-month contract when Reed got a call from the audit team’s chief examiner.

“The Atlas Health System network was breached back in July,” the examiner said.

“What?” was all Reed could say.

“We estimate hundreds of thousands of medical records have been stolen by a group that goes by the acronym SPOK. They might have taken as many as a million records.”

“You’ve got to be kidding me,” Reed said.

“We’re not kidding you, Dale,” the examiner said. “And it looks like some former Magnolia Group records might already have been lifted,” the examiner said.

The news that Atlas was four months into a massive cyber attack and that close to a million records were pilfered was of course very painful for Keith Duvall and his superiors in the IT department and treasury.

When it became known that it was the IT department’s very own super administrator username and password that were used to breach the system, the head of Atlas IT resigned.

Dale Reed had taken the initiative and hired the IT audit team that found the breach. Now he would have the added responsibility of cleaning up the mess. Or trying to.
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Pain. No Gain.

The next day, Reed was back on the phone, this time with the IT audit team’s chief examiner and his insurance broker.

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“These aren’t like credit card numbers,” the broker was saying, as Reed felt sharp anxiety pains in his abdomen.

“It could take months to figure out what services, pharmaceutical, whatever, are being ordered with this stolen information. This medical information can go for $80 per record on the black market, it’s much more valuable than a credit card number and much harder to shut down,” the broker said.

The next morning’s newspaper told Reed and the rest of the Atlas executives a story they never thought they would read and would never want to read again.

SPOK sold information about the embarrassing medical conditions of a number of regional business, political and other public sector leaders to unscrupulous bloggers and those details were published online.

Examples included a local school superintendent with a sexually transmitted disease, the CEO of a local company who had bariatric surgery but didn’t want the information publicly disclosed, and the wife of a local pastor who was suffering from complications from breast implants.

“Did you see this?” came the panicked email from the Atlas CFO, including a link to the story.

“Saw it,” was Reed’s only response.

A class action lawsuit soon followed. The plaintiffs alleged that the combined company failed to conduct ample due diligence into the vulnerabilities of its IT system.

The reputational damage from the lost and sold medical records spurred Atlas executives to accelerate planned upgrades to their IT system. Millions in IT expenditures they’d expected to spread over 10 years were compressed to a two-year spend.

Add to that the notification costs and legal expenses connected to the breach and the defense of the class actions, and it became painfully clear that Magnolia and Atlas should never have merged at all.
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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®.

Even the best-trained employees click on 2% of spam phishing emails. Once a hacker has access to your network, the ramifications are endless. The monetary costs of a breach can be in the billions of dollars, but losses aren’t just financial. After a cyber attack, companies face reputational and legal consequences, as well.

In our increasingly digitized world, computer hacks aren’t just the stuff of fiction. They’re a very real part of doing business. And almost all companies – large or small, public or private – are at risk. So when an attack does occur, you don’t want to be alone. You want a teammate you can depend on to mitigate your losses.

Swiss Re Corporate Solutions understands the threats you’re facing. That’s why we’ve enlisted the very best partners to help you protect your business after a breach. Our on-call vendors are elite forensics firms, law firms, breach notification firms, and call centers, so you can rest easy when the worst happens.

Swiss Re Corporate Solutions means knowledge, experience, financial and global reach. Let our experts create customized solutions that are right for your business. Visit www.swissre.com/cyber.




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

More from Risk & Insurance

More from Risk & Insurance

Property

Insurers Take to the Skies

This year’s hurricane season sees the use of drones and other aerial intelligence gathering systems as insurers seek to estimate claims costs.
By: | November 1, 2017 • 6 min read

For Southern communities, current recovery efforts in the wake of Hurricane Harvey will recall the painful devastation of 2005, when Katrina and Wilma struck. But those who look skyward will notice one conspicuous difference this time around: drones.

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Much has changed since Katrina and Wilma, both economically and technologically. The insurance industry evolved as well. Drones and other visual intelligence systems (VIS) are set to play an increasing role in loss assessment, claims handling and underwriting.

Farmers Insurance, which announced in August it launched a fleet of drones to enhance weather-related property damage claim assessment, confirmed it deployed its fleet in the aftermath of Harvey.

“The pent-up demand for drones, particularly from a claims-processing standpoint, has been accumulating for almost two years now,” said George Mathew, CEO of Kespry, Farmers’ drone and aerial intelligence platform provider partner.

“The current wind and hail damage season that we are entering is when many of the insurance carriers are switching from proof of concept work to full production rollout.”

 According to Mathew, Farmers’ fleet focused on wind damage in and around Corpus Christi, Texas, at the time of this writing. “Additional work is already underway in the greater Houston area and will expand in the coming weeks and months,” he added.

No doubt other carriers have fleets in the air. AIG, for example, occupied the forefront of VIS since winning its drone operation license in 2015. It deployed drones to inspections sites in the U.S. and abroad, including stadiums, hotels, office buildings, private homes, construction sites and energy plants.

Claims Response

At present, insurers are primarily using VIS for CAT loss assessment. After a catastrophe, access is often prohibited or impossible. Drones allow access for assessing damage over potentially vast areas in a more cost-effective and time-sensitive manner than sending human inspectors with clipboards and cameras.

“Drones improve risk analysis by providing a more efficient alternative to capturing aerial photos from a sky-view. They allow insurers to rapidly assess the scope of damages and provide access that may not otherwise be available,” explained Chris Luck, national practice leader of Advocacy at JLT Specialty USA.

“The pent-up demand for drones, particularly from a claims-processing standpoint, has been accumulating for almost two years now.” — George Mathew, CEO, Kespry

“In our experience, competitive advantage is gained mostly by claims departments and third-party administrators. Having the capability to provide exact measurements and details from photos taken by drones allows insurers to expedite the claim processing time,” he added.

Indeed, as tech becomes more disruptive, insurers will increasingly seek to take advantage of VIS technologies to help them provide faster, more accurate and more efficient insurance solutions.

Duncan Ellis, U.S. property practice leader, Marsh

One way Farmers is differentiating its drone program is by employing its own FAA-licensed drone operators, who are also Farmers-trained claim representatives.

Keith Daly, E.V.P. and chief claims officer for Farmers Insurance, said when launching the program that this sets Farmers apart from most carriers, who typically engage third-party drone pilots to conduct evaluations.

“In the end, it’s all about the experience for the policyholder who has their claim adjudicated in the most expeditious manner possible,” said Mathew.

“The technology should simply work and just melt away into the background. That’s why we don’t just focus on building an industrial-grade drone, but a complete aerial intelligence platform for — in this case — claims management.”

Insurance Applications

Duncan Ellis, U.S. property practice leader at Marsh, believes that, while currently employed primarily to assess catastrophic damage, VIS will increasingly be employed to inspect standard property damage claims.

However, he admitted that at this stage they are better at identifying binary factors such as the area affected by a peril rather than complex assessments, since VIS cannot look inside structures nor assess their structural integrity.

“If a chemical plant suffers an explosion, it might be difficult to say whether the plant is fully or partially out of operation, for example, which would affect a business interruption claim dramatically.

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“But for simpler assessments, such as identifying how many houses or industrial units have been destroyed by a tornado, or how many rental cars in a lot have suffered hail damage from a storm, a VIS drone could do this easily, and the insurer can calculate its estimated losses from there,” he said.

In addition,VIS possess powerful applications for pre-loss risk assessment and underwriting. The high-end drones used by insurers can capture not just visual images, but mapping heat, moisture or 3D topography, among other variables.

This has clear applications in the assessment and completion of claims, but also in potentially mitigating risk before an event happens, and pricing insurance accordingly.

“VIS and drones will play an increasing underwriting support role as they can help underwriters get a better idea of the risk — a picture tells a thousand words and is so much better than a report,” said Ellis.

VIS images allow underwriters to see risks in real time, and to visually spot risk factors that could get overlooked using traditional checks or even mature visual technologies like satellites. For example, VIS could map thermal hotspots that could signal danger or poor maintenance at a chemical plant.

Chris Luck, national practice leader of Advocacy, JLT Specialty USA

“Risk and underwriting are very natural adjacencies, especially when high risk/high value policies are being underwritten,” said Mathew.

“We are in a transformational moment in insurance where claims processing, risk management and underwriting can be reimagined with entirely new sources of data. The drone just happens to be one of most compelling of those sources.”

Ellis added that drones also could be employed to monitor supplies in the marine, agriculture or oil sectors, for example, to ensure shipments, inventories and supply chains are running uninterrupted.

“However, we’re still mainly seeing insurers using VIS drones for loss assessment and estimates, and it’s not even clear how extensively they are using drones for that purpose at this point,” he noted.

“Insurers are experimenting with this technology, but given that some of the laws around drone use are still developing and restrictions are often placed on using drones [after] a CAT event, the extent to which VIS is being used is not made overly public.”

Drone inspections could raise liability risks of their own, particularly if undertaken in busy spaces in which they could cause human injury.

Privacy issues also are a potential stumbling block, so insurers are dipping their toes into the water carefully.

Risk Improvement

There is no doubt, however, that VIS use will increase among insurers.

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“Although our clients do not have tremendous experience utilizing drones, this technology is beneficial in many ways, from providing security monitoring of their perimeter to loss control inspections of areas that would otherwise require more costly inspections using heavy equipment or climbers,” said Luck.

In other words, drones could help insurance buyers spot weaknesses, mitigate risk and ultimately win more favorable coverage from their insurers.

“Some risks will see pricing and coverage improvements because the information and data provided by drones will put underwriters at ease and reduce uncertainty,” said Ellis.

The flip-side, he noted, is that there will be fewer places to hide for companies with poor risk management that may have been benefiting from underwriters not being able to access the full picture.

Either way, drones will increasingly help insurers differentiate good risks from bad. In time, they may also help insurance buyers differentiate between carriers, too. &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected]