High Net Worth

High Net Worth Households are at High Risk for Cyber Attacks: Cyber Monitoring Protection is Now in Play

High Net Worth individuals and households are increasingly buying cyber monitoring services.
By: | June 1, 2018 • 6 min read

Two of the most dynamic trends in insurance today are emerging cyber risks and the growth of the high net worth category. But until recently, the space where these trends meet has been underserved. This at a time when cyber risk for high net worth families is intensifying.

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“As hackers and cyber crime increases, the high net worth are going to become more of a target,” said Kurt Thoennessen, vice president of Ericson Insurance Advisors.

For insurance purposes, given their assets, high net worth families have exposures at least the size of many small companies.

“The ultra high net worth are both people and also a series of mini businesses,” said Martin Hartley, executive vice president and chief operating officer of PURE group of insurance companies.

“There are foundations… family offices. There are homes in different countries, there are multiple lines in the U.S. with… access to various networks.”

But while their attack surfaces can be similar, the risks they face can be quite different, and the nature of those risks is changing.

“Generally speaking ID theft has been the most prevalent of the cyber threats to the high net worth space at this point, but I think that’s going to change,” said Ericson’s Theonnessen.

Hartley agrees. “The social engineering or targeting of wealthy folks is very, very specific spearfishing, looking at transactions that are happening, identifying people who are wealthy or neighborhoods that are wealthy, and going after them,” he said.

One of the most devastating is an increasingly familiar social engineering attack, in which bad actors using various cyber and non cyber means insinuate themselves into correspondence involving financial transactions, disguising themselves as legitimate participants in the transaction and inducing other parties, either high net worth individuals or their approved subordinates, such as personal assistants, to send funds, sometimes millions of dollars, to illegitimate destinations.

Since an authorized person made the transaction, banks generally won’t accept liability, nor is it covered by most traditional cyber policies, which tend to focus on identity theft, data breach and cyber bullying. To the extent that it is covered, limits have historically been well below the levels of likely damage.

But a new generation of family cyber coverages is stepping up to fill this gap, with higher limits, fraud coverages, and innovative partnerships with cyber monitoring firms to help reduce risk.

“There is coverage for it through some of these new cyber products that are coming out,” said Thoennessen. “But there’s only three to my knowledge, with others being developed feverishly to get them out there, because there’s so much buzz around this topic.”

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Perhaps the most innovative of the three is Starling, from PURE.

“This is not a cyber product per se. This is a fraud product,” said Hartley.

“The reality of today is that most stuff takes place online or involving the transfer of data, that’s just life. So the product is fraud; it happens to take up both the traditional form and what is more commonly taking place online.”

Starling offers limits up to $1 million to members who enroll in an active monitoring program through a partnership with a company called Rubica.

“You put an app on your phone, on your laptop, on all your endpoint devices. It creates a V.P.N. connection through our operations center, where we can keep your traffic secure,” explains Frances Dewing, Rubica’s co-founder and CEO.

Rubica checks all traffic against open source and proprietary blacklists of potentially problematic servers, but more importantly, they also monitor against any anomalous behaviors.

“If we see something that doesn’t look like you, it’s just traffic that could be not necessarily on the blacklist, but it’s unlikely part of your normal pattern, we flag it and we have a human team of experts look at what that is and determine if it’s safe or not,” said Dewing.

Kurt Thoennessen, vice president, Ericson Insurance Advisors

“In order for us to put out a high limit of insurance for our members, we need some assurance that they’re taking appropriate steps to protect their cyber world… And that’s where Rubica comes in,” said Hartley.

The offering has been very popular. “We’ve got about half of our eligible membership who are choosing to purchase the coverage. And about half who are not,” says Hartley. “So that’s a pretty remarkable success.”

“PURE is an innovator,” said David R. Russell, Sr. Vice President and National Sales Leader, Marsh Private Client Services. “They do an exceptionally good job of identifying gaps in the space and how to bring a more robust solution to clients.”

Chubb and AIG are also offering cyber coverage for High Net Worth families.

“Chubb’s Masterpiece homeowner and personal liability policy addresses several cyber risks including: digital content coverage; unauthorized charge reimbursements; document recovery; coverage for allegations of unintentional online libel, slander or invasion of privacy; and, coverage to help you recover from identity theft,” says Patrick Thielen, Senior Vice President, Chubb’s North America Cyber Practice.

Launched earlier this year, Chubb’s new cyber endorsement is currently available in 18 states, with more on the way.

“Most clients can purchase maximum annual limits ranging from $25,000 to $250,000, and in some cases, we can offer higher limits,” said Thielen.

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Chubb offers its clients complimentary cyber vulnerability analysis by the Ackerman Group, and through a partnership with Norton, the opportunity to protect personal information on connected devices with a secure, high-performance Wi-Fi router.

AIG’s Family CyberEdge was launched in January 2017. “At the time, this coverage was the first comprehensive personal cyber insurance product to become available in the market,” said Anna Brusco, Vice President, New Product Development, AIG Private Client Group.

Family Cyber Edge offers coverage up to $250,000, but, Brusco adds, “We will continue to evaluate our coverage limits as we gauge our clients’ appetite.”

AIG partners with K2 Intelligence, a global investigative and consulting firm to help assess and remediate clients’ vulnerabilities, and with Cyberscout to monitor, mitigate, and manage against identity theft.

“In the event a personal computing device is breached such as through a social engineering scheme, we would provide assistance with restoring data and cleaning devices and would cover those costs,” says Brusco. “Family CyberEdge acts as a complement to another insurance coverage provided by AIG Private Client Group that provides coverage for financial loss as a result of fraud committed digitally.”

While PURE’s Starling is the only product that requires participation in cyber monitoring to be eligible for coverage — and only at the $1 million limit — Hartley doesn’t think it will be alone for long.

Anna Brusco, vice president, New Product Development, AIG Private Client Group

“I’m sure that there will be an evolution that more insurance products will have requirements around the standards you maintain in terms of cyber hygiene,” he said.

With the growth of the high net worth sector, demand for such products is almost certain to grow. “There’s 51 million Americans right now that have a million dollars in investable assets, which is kind of the tier at which high net worth is defined,” said Jason Hogg, Leader of Aon Cyber Solutions and Chief Executive Officer, Stroz Friedberg. “And that’s growing on a compound annual growth rate of 8 percent.”

According to Thoennessen, such products are very likely on the way.

“This is a real risk for everybody and so I’m sure [many other companies] will follow suit shortly,” said Thoennessen.

“Verisk, which is a company that develops product policy language and product language for these types of products, announced a month or so ago that they came out with a cyber risk policy for small commercial for all fifty states, and so I’m sure they’ll follow with personal lines products shortly after that.” &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Scenario

A Recall Nightmare: Food Product Contamination Kills Three Unborn Children

A failure to purchase product contamination insurance results in a crushing blow, not just in dollars but in lives.
By: | October 15, 2018 • 9 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.

PART ONE: THE HEAT IS ON

Reilly Sheehan, the Bethlehem, Pa., plant manager for Shamrock Foods, looks up in annoyance when he hears a tap on his office window.

Reilly has nothing against him, but seeing the face of his assistant plant operator Peter Soto right then is just a case of bad timing.

Sheehan, whose company manufactures ice cream treats for convenience stores and ice cream trucks, just got through digesting an email from his CFO, pushing for more cost cutting, when Soto knocked.

Sheehan gestures impatiently, and Soto steps in with a degree of caution.

“What?” Sheehan says.

“I’m not sure how much of an issue this will be, but I just got some safety reports back and we got a positive swipe for Listeria in one of the Market Streetside refrigeration units.”

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Sheehan gestures again, and Soto shuts the office door.

“How much of a positive?” Sheehan says more quietly.

Soto shrugs.

“I mean it’s not a big hit and that’s the only place we saw it, so, hard to know what to make of it.”

Sheehan looks out to the production floor, more as a way to focus his thoughts than for any other reason.

Sheehan is jammed. It’s April, the time of year when Shamrock begins to ramp up production for the summer season. Shamrock, which operates three plants in the Middle Atlantic, is holding its own at around $240 million in annual sales.

But the pressure is building on Sheehan. In previous cost-cutting measures, Shamrock cut risk management and safety staff.

Now there is this email from the CFO and a possible safety issue. Not much time to think; too much going on.

Sheehan takes just another moment to deliberate: It’s not a heavy hit, and Shamrock hasn’t had a product recall in more than 15 years.

“Okay, thanks for letting me know,” Sheehan says to Soto.

“Do another swipe next week and tell me what you pick up. I bet you twenty bucks there’s nothing in the product. That swipe was nowhere near the production line.”

Soto departs, closing the office door gingerly.

Then Sheehan lingers over his keyboard. He waits. So much pressure; what to do?

“Very well then,” he says to himself, and gets to work crafting an email.

His subject line to the chief risk officer and the company vice president: “Possible safety issue: Positive test for Listeria in one of the refrigeration units.”

That night, Sheehan can’t sleep. Part of Shamrock’s cost-cutting meant that Sheehan has responsibility for environmental, health and safety in addition to his operations responsibilities.

Every possible thing that could bring harmful bacteria into the plant runs through his mind.

Trucks carrying raw eggs, milk and sugar into the plant. The hoses used to shoot the main ingredients into Shamrock’s metal storage vats. On and on it goes…

In his mind’s eye, Sheehan can picture the inside of a refrigeration unit. Ice cream is chilled, never really frozen. He can almost feel the dank chill. Salmonella and Listeria love that kind of environment.

Sheehan tosses and turns. Then another thought occurs to him. He recalls a conversation, just one question at a meeting really, when one of the departed risk management staff brought up the issue of contaminated product insurance.

Sheehan’s memory is hazy, stress shortened, but he can’t remember it being mentioned again. He pushes his memory again, but nothing.

“I don’t need this,” he says to himself through clenched teeth. He punches up his pillow in an effort to find a path to sleep.

PART TWO: STRICKEN FAMILIES

“Toot toot, tuuuuurrrrreeeeeeeeettt!”

The whistles of the three lifeguards at the Bradford Community Pool in Allentown, Pa., go off in unison, two staccato notes, then a dip in pitch, then ratcheting back up together.

For Cheryl Brick, 34, the mother of two and six-months pregnant with a third, that signal for the kids to clear the pool for the adult swim is just part of a typical summer day. Right on cue, her son Henry, 8, and his sister Siobhan, 5, come running back to where she’s set up the family pool camp.

Henry, wet and shivering and reaching for a towel, eyes that big bag.

“Mom, can I?”

And Cheryl knows exactly where he’s going.

“Yes. But this time, can you please bring your mother a mint-chip ice cream bar along with whatever you get for you and Siobhan?”

Henry grabs the money, drops his towel and tears off; Siobhan drops hers just as quickly, not wanting to be left behind.

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“Wait for me!” Siobhan yells as Henry sprints for the ice cream truck parked just outside of the pool entrance.

It’s the dead of night, 3 am, two weeks later when Cheryl, slumbering deeply beside her husband Danny, is pulled from her rest by the sound of Siobhan crying in their bedroom doorway.

“Mom, dad!” says Henry, who is standing, pale and stricken, in the hallway behind Siobhan.

“What?” says Danny, sitting up in bed, but Cheryl’s pregnancy sharpened sense of smell knows the answer.

Siobhan, wailing and shivering, has soiled her pajamas, the victim of a severe case of diarrhea.

“I just barfed is what,” says Henry, who has to turn and run right back to the bathroom.

Cheryl steps out of bed to help Siobhan, but the room spins as she does so.

“Oh God,” she says, feeling the impact of her own attack of nausea.

A quick, grim cleanup and the entire family is off to a walk-up urgent care center.

A bolt of fear runs through Cheryl as the nurse gives her the horrible news.

“Listeriosis,” says the nurse. Sickening for children and adults but potentially fatal for the weak, especially the unborn.

And very sadly, Cheryl loses her third child. Two other mothers in the Middle Atlantic suffer the same fate and dozens more are sickened.

Product recall notices from state regulators and the FDA go out immediately.

Ice cream bars and sandwiches disappear from store coolers and vending machines on corporate campuses. The tinkly sound of “Pop Goes the Weasel” emanating from mobile ice cream vendor trucks falls silent.

Notices of intent to sue hit every link in the supply chain, from dairy cooperatives in New York State to the corporate offices of grocery store chains in Atlanta, Philadelphia and Baltimore.

The three major contract manufacturers that make ice cream bars distributed in the eight states where residents were sickened are shut down, pending a further investigation.

FDA inspectors eventually tie the outbreak to Shamrock.

Evidence exists that a good faith effort was underway internally to determine if any of Shamrock’s products were contaminated. Shamrock had still not produced a positive hit on any of its products when the summer tragedy struck. They just weren’t looking in the right place.

PART THREE: AN INSURANCE TANGLE

Banking on rock-solid relationships with its carrier and brokers, Shamrock, through its attorneys, is able to salvage indemnification on its general liability policy that affords it $20 million to defray the business losses of its retail customers.

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But that one comment from a risk manager that went unheeded many months ago comes back to haunt the company.

All three of Shamrock’s plants were shuttered from August 2017 until March 2018, until the source of the contamination could be run down and the federal and state inspectors were assured the company put into place the necessary protocols to avoid a repeat of the disaster that killed 3 unborn children and sickened dozens more.

Shamrock carried no contaminated product coverage, which is known as product recall coverage outside of the food business. The production shutdown of all three of its plants cost Shamrock $120 million. As a result of the shutdown, Shamrock also lost customers.

The $20 million payout from Shamrock’s general liability policy is welcome and was well-earned by a good history with its carrier and brokers. Without the backstop of contaminated products insurance, though, Shamrock blew a hole in its bottom line that forces the company to change, perhaps forever, the way it does business.

Management has a gun to its head. Two of Shamrock’s plants, including Bethlehem, are permanently shuttered, as the company shrinks in an effort to stave off bankruptcy.

Reilly Sheehan is among those terminated. In the end, he was the wrong person in the wrong place at the wrong time.

Burdened by the guilt, rational or not, over the fatalities and the horrendous damage to Shamrock’s business. Reilly Sheehan is a broken man. Leaning on the compassion of a cousin, he takes a job as a maintenance worker at the Bethlehem sewage treatment plant.

“Maybe I can keep this place clean,” he mutters to himself one night, as he swabs a sewage overflow with a mop in the early morning hours of a dark, cold February.

Bar-Lessons-Learned---Partner's-Content-V1b

Risk & Insurance® partnered with Swiss Re Corporate Solutions to produce this scenario. Below are their recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.®.

Shamrock Food’s story is not an isolated incident. Contaminations happen, and when they do they can cause a domino effect of loss and disruption for vendors and suppliers. Without Product Recall Insurance, Shamrock sustained large monetary losses, lost customers and ultimately two of their facilities. While the company’s liability coverage helped with the business losses of their retail customers, the lack of Product Recall and Contamination Insurance left them exposed to a litany of risks.

Risk Managers in the Food & Beverage industry should consider Product Recall Insurance because it can protect your company from:

  • Accidental contamination
  • Malicious product tampering
  • Government recall
  • Product extortion
  • Adverse publicity
  • Intentionally impaired ingredients
  • Product refusal
  • First and third party recall costs

Ultimately, choosing the right partner is key. Finding an insurer who offers comprehensive coverage and claims support will be of the utmost importance should disaster strike. Not only is cover needed to provide balance sheet protection for lost revenues, extra expense, cleaning, disposal, storage and replacing the contaminated products, but coverage should go even further in providing the following additional services:

  • Pre-incident risk mitigation advocacy
  • Incident investigation
  • Brand rehabilitation
  • Third party advisory services

A strong contamination insurance program can fill gaps between other P&C lines, but more importantly it can provide needed risk management resources when companies need them most: during a crisis.



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