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.

Partner

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.

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.

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 dreynolds@lrp.com.

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.