Part One: Who Kicked the Door In?

Executives with Sweet Life are in a self-congratulatory mode.

Having just plunked down $15 million for a new, just-in-time processing and shipping system, the company leadership feels poised for even greater success.

Sweet Life began its existence in a guest house on an estate in upstate New York owned by the parents of company founder Josh Saltwood.

Starting with a then-unknown Kombucha product, the company grew, selling Kombucha, coconut water and a menu of flavored sparkling water sourced from unquestionably pure springs.

Walk into almost any tony yoga studio along the Atlantic seaboard and you would see some bottle or can with the Sweet Life label on it.

“I want to congratulate everyone involved in this effort,” Saltwood tells his assembled leadership team during a celebratory, well-lubricated meal at one of the best vino-centric restaurants in the Finger Lakes.

Smiles all around, except for Anne Margate, the company’s chief risk officer. Saltwood notices her mood and lifts a wine bottle in her direction as if to offer her more.

She waves the bottle off, and bends her head back down to her BlackBerry, typing feverishly.

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Saltwood just shakes his head.

“She worries too much,” he says to himself.

Two days later comes a jolt of reality for Saltwood in the form of a phone call from his CIO.

“We’ve got a breach. Doesn’t look too extensive but we’re moving to identify any lost data and isolate the problem,” the CIO says.

“Alright, keep me posted if you think it’s going to get uglier. I especially want to know if any customer data gets compromised,” Saltwood says.

“Roger, Wilco,” says the CIO.

It’s uglier than either Saltwood or his CIO could possibly know.

What’s hit Sweet Life is a cyber worm that goes by the name of “Purple Moray.” The name of the worm reveals its intent.

The worm carries a payload that is designed to search out and destroy — just like its ravenous sea eel namesake — programmable logic computers that control machine processes, the very thing that Sweet Life just purchased as part of its $15 million manufacturing upgrade.

Purple Moray is also equipped with a rootkit component, making its passage through Sweet Life’s information technology systems virtually impossible to detect. Try as they might, Sweet Life’s IT team feels like it is not seeing the whole picture.

Sweet Life’s CIO picks up the phone and calls a forensics team he knows in Rochester.

“Yep,” says the CEO of the forensics team when he picks up the phone. He’s eating potato chips as he talks.

“Yeah, hi Mark,” says the CIO, who has known the forensics CEO since high school.

“Whatcha’ got?” Mark says, crunching a chip.

“Are you eating?” the CIO says agitatedly.

“I’m hungry. What is it?” Mark says.

The CIO shakes off his irritation.

“We need you to come down here. We’ve had a breach and we’re not sure of the extent of it,” the CIO says.

“We’ll be there this afternoon.”

Part Two: Gut-Wrenching Pain

The CIO initially fails to tell Anne Margate what’s going on. Sweet Life is a bit of an old boy’s club — though all the top brass is under 40 — and Anne is not a member of the club.

But she makes a point of finding out what’s going on within the company regardless. It’s when the Rochester forensics team shows up that she gets wind of what’s happened.

“When were you going to tell me about this?” she asks the CIO.

“I … ,” he manages to get out before she cuts him off.

“We need to tell our insurance broker,” she says. “I’ll send you an invite.”

“Which is more than you did for me,” she says to herself under her breath as she walks away.

“OK to summarize,” the broker says on the call, “we need a full list of any customers affected, then move to notify those customers. And keep the forensic work going.”

The next day the chief of operations comes into work to find that Sweet Life’s spanking new manufacturing system is down, all the way down.

“All the computers are dead, boss,” says one of the line foremen.

Anne Margate, who is now fully engaged in the recovery attempt, barges into the company lunch room.

There she finds Mark, the forensics guy, and two of his teammates settling down to a lunch of pepperoni pizza and a very large meatball sub.

“What’s going on?” she says.

“We’re having lunch,” Mark says.

“I know that, I mean with our manufacturing process,” she says.

Mark pauses to wipe some red sauce off of his chin.

“You’re, who again?” he says.

“I’m the risk manager,” she says, trying to control her anger.

“Oh,” he says. “What’s happened is that your operations have been attacked by a cyber worm. It’s called Purple Moray. It’s disabled the programmable logic computers that control your machine processes,” he says.

“Are they merely disabled or destroyed?” she says.

“We’re getting to that,” says Mark. “As soon as we finish lunch.”

Sweet Life’s broker, exercising an abundance of caution, contacts the company’s property carrier to notify it that Sweet Life may have a claim against this policy as well.

“It looks like the damages are far more extensive than we thought,” Anne Margate says on a call with Saltwood and the company’s property underwriters.

After she gets off the phone with her property underwriters, Anne Margate has the sickening feeling that in the event of the damages caused by a computer worm of this nature, her cyber, crime and property policies might not be all that well aligned.

Part Three: All Gone

“Can anybody in this company tell me what’s going on with this Purple Moray worm?” Josh Saltwood thunders into the phone from his vacation home in the Hamptons.

“All we’ve been able to do is identify it, we can’t stop it,” says the exhausted CIO.

Sweet Life’s situation is weakening day by day.

In addition to disabling or damaging key pieces of manufacturing equipment, the worm, through a second payload, did access and steal customer data; much more data than the company’s IT department initially understood to be taken.

The company has to inform customers, including the largest natural foods retailer in the country, that although it thought it hadn’t lost their data, it turns out they had.

“We know we told you a week ago that your information was OK, but it’s not OK,” the CIO and Margate tell the retailer on yet another painful call.

“This thing is like some kind of insatiable beast,” says Mark, the forensics guy, as he sits at an in-house Sweet Life computer, an open bag of peppermint bark on the desk.

“You want some bark?” he says to Margate, who is sitting beside him trying to learn as much as she can about cyber hack forensics.

“No thanks,” she says.

“I’ve never seen anything like this,” says Mark.

Over time, the forensics team, working in congress with Sweet Life’s IT team, is able to isolate the Purple Moray malware and remediate some of the damage done to the company’s computer-controlled manufacturing system.

Anne Margate, who worries about everything, finds that her concerns about her insurance policies were somewhat unfounded.

The cyber, crime and property policies all respond, although not to the degree that every loss is covered.

The company’s property coverage was inadequate to cover all of the damage done to the company’s new manufacturing system. The uninsured loss there is more than $5 million.

Sweet Life is facing a daunting task as it deals with a bruised image in the marketplace and strained relationships with its once loyal customers.

Now it also has to improve its cyber security and convince its insurers that it is a good risk going forward. When Josh Saltwood founded Sweet Life, he was one of three licensed retailers selling Kombucha. When Purple Moray struck, there were more than two dozen U.S.-based producers. The burgeoning coconut water market reflects a similar reality.

As Sweet Life tries to claw back to some semblance of success, it faces an initial market share loss of some $10 million annually, and there is no policy that can insure that.

Risk & Insurance® partnered with FM Global to produce this scenario. Below are FM Global’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance®.

While one could argue whether cyber risk is still “emerging,” it’s the new reality, and should be dealt with like any other hazard. So, let’s examine this scenario using a traditional risk management approach. Although cyber is a relatively new exposure, traditional risk management concepts apply: risk identification, assessment and mitigation.

Essentially, any organization is subject to a cyber attack, and it’s not a matter of if, but when it happens. In this case, Sweet Life had just upgraded its processing and shipping system, when a data breach occurred. How the breach actually occurred is not clear, but we do know that it did cause some major damage to the industrial system control computers. Serious business interruption ensued, which had a deleterious affect on the company’s supply chain and market share.

Just how aware was Sweet Life that its IT systems were at risk? Did Anne Margate, the chief risk officer, fully understand the potential exposure? Had she and the chief information officer had any discussions about business risk impact if the systems were compromised? Today’s risk manager has to think well beyond insurance procurement. In this new digital era, the CIO becomes a new and important ally in managing risk.

Potential questions to ask:

• To what extent are your business operations tied to computers, and how reliant are you on these systems to keep your operations running? Do you have a back up plan?
• How secure is your network? How resilient are your email spam filters and malware protection devices?
• Have employees received proper network security training?
• Are measures in place to keep potential intruders from gaining access to your network—internally and externally?

Some pre-emptive actions to consider:

• Determine what information security standard applies to your industry and base your cybersecurity framework on standardized practices.
• Identify and classify data based on business criticality, as well as sensitivity/confidentiality of data.
• Identify critical assets and physical/logical network access points at your facility and determine how access is controlled. Prioritize improvement activities.
• Create and maintain a documented incident response team to respond to cyber events. The plan should be part of a holistic risk management program.
• Test the plan. Tabletop simulation exercises can test the plan and identify restoration timeframes.

Multiple policies, various coverage: In terms of insurance coverage, cyber losses tend to involve multiple carriers. In this case, Sweet Life had three separate policies for cyber, crime and property. Unfortunately, how these policies would respond in the event of a cyber attack had never been fully vetted. As is the case with any insurance coverage, the time to learn about what is covered is an exercise best conducted before the loss actually occurs. If you have multiple carriers, be sure that you and your broker meet with them in advance to understand how the policies will respond and iron out any discrepancies.