2015 Most Dangerous Emerging Risks

Corporate Privacy: Nowhere to Hide

Companies can no longer expect to conduct business out of the gaze of prying eyes.
By: | April 8, 2015 • 6 min read

SCENARIO: In a small apartment in Atlanta, Pete scanned the hardware in front of him. His fingers flew as he deftly navigated multiple windows. A former defense contractor employee, Pete possessed a highly specialized set of skills.

He knew how to hack into almost anything, from network servers and credit card databases, to VoIP phone systems and video conferencing systems. An encryption expert, he knew how to exploit every weakness and sniff out every back door. Pete never met a digital lock he couldn’t pick.

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Pete’s talents — and his reputation for discretion — kept him in demand, especially in certain circles.

His latest gig was gathering intel on Odyssey International for one of Odysseys’ top competitors, especially an inside track on any mergers or acquisitions Odyssey might have up its sleeve.

Pete pulled up his files for several key Odyssey execs and smiled smugly. People like Garry Buchanan made Pete’s job way too easy.

An encryption expert, he knew how to exploit every weakness and sniff out every back door. Pete never met a digital lock he couldn’t pick.

Odyssey’s U.S. head of new business development, Buchanan was tech-obsessed. From the moment Buchanan hopped into his Tesla Model S and engaged the autopilot until he arrived at work, Pete could peek at every email, calendar entry and company report. Buchanan’s smartphone let Pete keep track of him out of the car too, whether he was picking up a latte or checking in for a flight.

Accessing Odyssey’s network was a little tougher than Pete expected — its security was more sophisticated than most. But, like most companies, it spent more time protecting its customer and finance data. Its email server was far less secure. Its phone system was barely protected at all.

Around 8:15 a.m., Pete’s system alert let him know that Buchanan was on the phone. It sounded like Odyssey was researching a potential acquisition.

Pete tapped the screen to record the call and sent an encrypted file to the man who’d hired him.

Buchanan’s flight to London arrived on time. He’d checked into his hotel and stayed there all night. But Pete was drumming his fingers on his desk, aggravated. There were meetings on Buchanan’s calendar. But with whom? There was no data.

There had been a few vague email references, but nothing that had given Pete a clear picture of what was up. Buchanan seemed to be deliberately keeping the details under wraps.

“We’ll see about that,” said Pete, firing up more hardware. He checked the time and calculated the time difference. Buchanan would probably be leaving the hotel soon.

He’d found Buchanan’s Uber account the day before and guessed he’d be using the service. Sure enough, he’d already been picked up. “Gotcha,” said Pete, gaining unauthorized access to Uber’s “God View” and tracking the car’s route.

Ten minutes later, Buchanan walked into a café and was seated at a table out front. Pete watched in real time as Buchanan took a moment to take in the London scenery while waiting for his breakfast companions.

“Bless those Brits,” thought Pete. “And their millions upon millions of CCTVs.”

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Buchanan’s two guests arrived a few minutes later. Pete was pleased to have a good angle on both of them. He locked on their faces and dragged the images into his facial recognition program. He got a match on both and searched their records. One was a visiting fellow at the University of Cambridge in the department of engineering. Interesting.

Pete kept digging. An hour later, Pete had enough data on both of them to get a picture of what Buchanan was up to and why Odyssey wanted this little excursion to be kept under wraps.

Time for another file upload to his new corporate benefactor. This info was hot.

“I should’ve charged him twice as much,” Pete thought ruefully as he sent his customer the information on his competitor’s latest move.

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ANALYSIS: There are no more secrets. The lesson brought home by WikiLeaks and later by Edward Snowden is that privacy is a quaint notion of a bygone era. We are in, as it has been dubbed, the “Golden Age of Spying.”

Everyone now knows that the U.S. National Security Agency (NSA) has access — on a massive scale — to chat logs, stored data, voice traffic, file transfers, phone records, email and social networking data. It can also access web chats, Internet searches, text messages … the list goes on.

The agency has long had a certain amount of cooperation from major technology companies including Microsoft, Yahoo, Google, Facebook and Apple. Unbeknownst to some, it also engineered a weakness in an encryption standard, allowing back-door access to those companies, and their data.

Problem is, if you leave the back door open, you can’t guarantee that others won’t find their way in.

Now factor in the Internet of Things. Estimates suggest there could be up to 80 billion connected devices in use five years from now — devices that can monitor anything from the climate quality in your delivery trucks to whether the plant in your window needs more sun.

From your digital world to your physical world, everything will be hackable, trackable, visible. Everything will have the potential to be seen by someone you never intended to share it with.

That’s happy news for those set on malfeasance, either to steal corporate secrets or engage in disruption for fun or profit. But it’s troubling for businesses of all sizes as they face the challenge of protecting what they can and managing the rest.

Randy Nornes, executive vice president, Aon Risk Solutions

Randy Nornes, executive vice president, Aon Risk Solutions

“What you’re going to see is a more formalized way of communicating sensitive information and housing sensitive information,” said Randy Nornes, executive vice president with Aon Risk Solutions.

“So if you have key data that creates value for your firm, I think you’re going to see that the fundamental technology architecture that people use to store the really important stuff will be remote and distant, and it won’t be readily accessible through the Internet.”

But it’s the day-to-day actions of conducting business that organizations will have more trouble keeping behind locked doors.

“In a fully transparent world … companies will have to behave as if every action will be reported on the front page of their local paper,” said Nornes’ colleague Paul Kim, co-CBO of Aon Risk Solutions U.S. Retail operations.

Futurist and author David Brin said in a recent interview with “Variety,” that organizations can’t “count on anything staying secret for more than 10 years, that’s delusional on the border of psychosis.

“Get used to the notion that some day, someone is going to hear this conversation or read this document. And live and work as if anybody might be watching now,” Brin added.

Along with those inevitable leaks come serious risks to brand and reputation, which is why reputation risk management will need to develop at least as fast as privacy erodes.

That means using an extremely thorough process of scenario planning, and understanding exactly how any kind of breach, leak or competitive attack could affect the company’s value and its ability to conduct business.

“It’s not something that’s limited to the public relations team; it’s not something that’s limited to a chief communications officer,” said Chris Lukach, president of Anne Klein Communications Group, LLC.

“It’s something that needs to be shared among risk management, legal, HR, operations … . That to me is what makes companies prepared.”

There are multiple points at which hyper-transparency can result in a business loss, and insurance products will no doubt keep evolving to meet those needs. In a case where a release of confidential information might damage a company’s image, for instance, Tokio Marine Kiln is already underwriting a product that goes beyond traditional cyber insurance and helps companies insure against that spectrum of losses.

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Explained Tom Hoad, underwriter at Tokio Marine Kiln, a Lloyd’s syndicate, risk managers have become increasingly sophisticated in the way they think about their exposures.

“[They’re asking], ‘Where are the key performance indicators for the company and what sorts of things can affect our ability to deliver on those things?’ … The preservation of brand equity, is very much at the forefront of that process.”

BlackBar

Complete coverage of 2015’s Most Dangerous Emerging Risks:

Corporate Privacy: Nowhere to Hide. Rapid advances in technology are ushering in an era of hyper-transparency.

04012015_04B_implant_devices_150px_mainImplantable Devices: Medical Devices Open to Cyber Threats. The threat of hacking implantable defibrillators and other devices is growing.

04012015_03_concussions_150px_mainAthletic Head Injuries: An Increasing Liability. Liability for brain injury and disease isn’t limited to professional sports organizations.

04012015_04_vaping_150px_mainVaping: Smoking Gun. As e-cigarette usage rises, danger lies in the lack of regulations and unknown long-term health effects.

04012015_05_aquifer_depletion_150px_main

Aquifer: Nothing in the Bank. Once we deplete our aquifers, there is nothing helping us get through extended droughts.

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Most Dangerous Emerging Risks: A Look Back. Each year since 2011, we identified and reported on the Most Dangerous Emerging Risks. Here’s how we did on some of them.

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]