2017 Most Dangerous Emerging Risks

Cyber Business Interruption

Attacks on internet infrastructure commence, leaving unknown risks for insureds and insurers alike.
By: | April 7, 2017

There are more than a billion websites on the internet but they rely on just a handful of companies to keep them operating.

Confidence in the system’s resilience declined significantly in October 2016, when a massive distributed denial of service (DDoS) attack assaulted Dyn, a company that controls much of the internet infrastructure.

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That DDoS attack, in turn, brought down major sites including Netflix, CNN, Spotify, Airbnb, Twitter and many others in Europe and the U.S.

“At this point we know this was a sophisticated, highly distributed attack involving tens of millions of IP addresses … across multiple attack vectors and internet locations,” said Kyle York, Dyn’s chief strategy officer on Oct. 21.

The attacks originated from Mirai-based botnets via internet-connected DVRs, video cameras and devices. Those attacks substantially disrupted service at the managed DNS (domain name system) infrastructure for about two hours from about 11 a.m. to 1 p.m. GMT, and again from about 4 to 5 p.m. GMT, with residual impact until about 8:30 p.m. on Oct. 21.

Then, to add more uncertainty, came the outages on Feb. 28 connected to Amazon Web Services. Although this was due to human error — apparently a coding error — rather than maliciousness, the result was the same: Companies, large and small, including Netflix, Airbnb, the Securities and Exchange Commission and Expedia, became inaccessible or their sites ran like molasses.

The problem, affecting mostly the East Coast, lasted from about 12:30 p.m. to about 4 p.m. ET.

“I definitely think [internet outages] will continue to happen,” said Nick Economidis, underwriter at Beazley. “I think there are some unknown risks out there.

“We are dealing with new exposures and new risks that we don’t have the background for, and I think there are going to be some surprises. … I think Dyn caught a lot of people’s attention.”

Dan Burke, vice president and cyber product head at Hiscox USA, agreed.

Fred Eslami, senior financial analyst, property and casualty, A.M. Best

“I think this is an attack vector we will continue to see for the foreseeable future, based on the ease in which one can initiate such attacks. … Just the sheer volume of devices that can be compromised and used to launch these attacks — there are such economies of scale in this space that we will continue to see this happen,” he said.

Such broad internet outages affect insureds and insurers alike, and the potential downside could be devastating.

For insureds, it’s the concern that their losses, which could last for months after an outage, will not trigger coverage in their policies. For insurers, it’s the fear of a catastrophic accumulation of cyber exposures.

Low Limits or Lack of Coverage

Steve Bridges, senior vice president of cyber risk and E&O, JLT Specialty USA, said that for many companies, a business interruption loss due to an outage at a cloud partner or ISP would only be covered if caused by a security failure and then only with a sublimit under most cyber policies.

The reason? Fear of risk aggregation, he said. “[Insurers] could have a catastrophic loss across industries and a bunch of different policies,” Bridges said.

“The cyber insurance marketplace is starting to extend contingent/dependent business interruption to include system failure triggers and to offer higher limits, but is wary about the impact of these aggregate loss situations,” he said.

For companies that offer significant CBI coverage, an extended cyber event affecting an ISP or cloud provider could result in them paying huge claims to their insureds resulting from an event affecting a company they didn’t underwrite or insure, Bridges said.

And with the lack of standardization of cyber policies, many insureds are uncertain if they even have coverage.

Plus, insurers have limited experience adjusting cyber BI or CBI claims. There haven’t been that many, and adjusting them is quite different than data breach or privacy claims that have become more common.

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There is a lot of skepticism that companies will be able to successfully resolve a cyber BI or CBI claim should they face a cyber-related disruption, said Adam Thomas, principal with Deloitte’s cyber risk services team, and co-author of “Demystifying Cyber Insurance Coverage.”

“Many insurers have tunnel vision when it comes to writing cyber policies, focusing primarily on marketing cyber products for personally identifiable data hacks and business disruption while not offering insurance for the many other cyber risks that companies face,” the report said.

While some insurers and brokers have worked with insureds to help them understand where exposures exist, Thomas said, uncertainty — primarily due to lack of good data — is common.

He noted that coverage is often ultimately decided by court decisions and there is not yet definitive case law relating to this type of claim.

Burke at Hiscox said that CBI coverage is traditionally found in the policies of larger insureds and is making its way down market to smaller insureds. Some policies may offer sublimited coverage for all service providers, while others may provide coverage only for providers specifically named by the insured.

Regardless, “it has been difficult to prove” a BI or CBI loss, he said.

Often, coverage is not triggered until a designated waiting period, typically eight to 12 hours. Plus, it is difficult even in a property-related BI claim to quantify losses during the event or time of restoration, let alone a cyber BI claim. It requires the expertise of a forensic accountant.

“Because Dyn was down only three hours [during the second attack of the day], there was very little insurance loss,” said Scott Stransky, assistant vice president and principal scientist at AIR Worldwide, although the economic loss was more than $100 million.

“If Dyn had been down for a day, it would not only result in billions in economic loss, but in significant insurance losses,” he said.

Companies face additional insurance issues if their websites don’t soon regain profitability.

Linking the recovery of lost revenue after the site comes back online is a challenge. There are other factors that could explain relatively poor performance, said JLT’s Bridges.

Typically, policies provide 60 to 90 days as the period of restoration, but for some companies, it can arguably be much longer before their customers return and revenue returns to expected levels.

Bigger companies that use cloud services from providers such as Amazon, Google, Rackspace, IBM or Microsoft, may have some leverage to contractually negotiate responsibility for losses over a certain amount, Bridges said. Small companies, not so much.

Risk Aggregation Fears

“I’m not getting a feeling that insurance companies themselves have a good idea of how to aggregate these [cyber] exposures,” said Fred Eslami, senior financial analyst, property and casualty, A.M. Best.

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“It is scary,” he said, noting that when Dyn was attacked, about 70 companies were affected, with service lost for several hours on different occasions in a 24-hour period.

“I’ve been trying to get information on what the damage was, particularly in terms of business interruption,” he said.

“There is no information right now. I hear companies are working on it since October. But it’s apparently a challenging task to come up with an idea of what the damage was.”

Imagine, he said, if the attack lasted 24 hours and affected hundreds of companies. Insurance companies have “no actuarial or results-oriented data they can depend on to do their proper pricing or proper reserving.”

They may face claims from cyber policies as well as general liability, D&O, E&O or policy packages.

A comparable example might be Hurricane Andrew, which struck Florida and Louisiana in 1992 and drove 12 insurance companies out of business, AIR’s Stransky said.

Although many insurers are working to solve the risk aggregation issue, they remain uncertain what percentage of their book uses specific ISPs or cloud providers, he said, and there’s no easy way to determine that.

Adam Thomas, principal, cyber risk services team, Deloitte

Thomas at Deloitte said accumulated risk “is an area that’s been a hot issue for senior management at most insurers. There is a general level of discomfort over how well — or not well — they understand where the cyber-accumulated risk sits.”

“Some insurers may fear being overwhelmed by a sudden aggregation of losses in which a third-party provider or cloud computing vendor that works with a wide swath of businesses gets hacked and leads to service failures for all of its users,” according to Deloitte’s report on demystifying coverage.

“This sort of systemic event could spell chaos for the insurance industry,” it said.

“Insurers should consider implementing more rigorous underwriting policies to start minimizing aggregation risk.”

“The exposure [for insurers],” said Burke at Hiscox, “can aggregate so quickly and be so massive that I think it has the potential to put insurance company balance sheets at risk.”

Some companies, like AIR Worldwide and RMS, are creating models to help insurers understand their exposure.

Stransky said the AIR model analyzes an insurance company’s portfolio to look at the aggregation risk, using specific company policy inclusions and exclusions.

Burke said Hiscox creates its own scenarios and models them with the help of third-party providers.

Lloyd’s issued an oversight framework two years ago that requires all syndicates, including Hiscox and Beazley, to have a “specific risk appetite for exposure to cyber attack across all classes of business.”

Recently, the New York State Department of Financial Services (DFS) released cyber security requirements for all companies that operate in the state that are governed by the DFS. Among other rules, it requires companies to demonstrate the ability to recover from a cyber event and restore normal operations and services.

Eslami at A.M. Best said the regulation may help to improve the resiliency of insurers to a cyber attack. He noted that the National Association of Insurance Commissioners also requires companies to provide similar information.

It all depends on the elements of coverage, however. “Policy language is not generalized and cannot be applied the same way to all of the companies,” Eslami said.

He said insurance companies that issue cyber policies may want to consider limiting their exposure per industry sector to a certain dollar amount to give them a better handle on potential losses — and their ability to cover those losses.

We are dealing with new exposures and new risks that we don’t have the background for, and I think there are going to be some surprises. … I think Dyn caught a lot of people’s attention.– Nick Economidis, underwriter at Beazley

A.M. Best, he said, has suggested insurers model potential incurred-but-not-reported losses, and put aside a contingency reserve in response.

Right now, a huge natural catastrophe still has a greater potential to impact company solvency, he said. That could change as the frequency and manner of attacks increase, combined with the growth of cyber coverage and the Internet of Things.

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“There is a 100 percent chance we will see something worse than Dyn,” Stransky said. “There’s no way to avoid it.

“In some ways, it’s good it happened,” he said.

“It was a great wake-up call. It got people thinking. It’s a good thing if they are nervous about this. It’s better to be nervous now than scrambling around when a big attack happens as they try to figure out what is going on.

“If they are more prepared, they will be more resilient when something happens.” &

________________________________________________________________

2017 Most Dangerous Emerging Risks

Artificial Intelligence Ties Liability in Knots

The same technologies that drive business forward are upending the nature of loss exposures and presenting new coverage challenges.

 

U.S. Economic Nationalism

Nationalistic policies aim to boost American wealth and prosperity, but they may do long-term economic damage.

 

 

Foreign Economic Nationalism

Economic nationalism is upsetting the risk management landscape by presenting challenges in once stable environments.

 

 

Coastal Mortgage Value Collapse

As climate change drives rising seas, so arises the risk that buyers will become leery of taking on mortgages along our coasts.  Trillions in mortgage values are at stake unless the public and the private sector move quickly.

The late Anne Freedman is former managing editor of Risk & Insurance. Comments or questions about this article can be addressed to [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Scenario

The Betrayal of Elizabeth

In this Risk Scenario, Risk & Insurance explores what might happen in the event a telemedicine or similar home health visit violates a patient's privacy. What consequences await when a young girl's tele visit goes viral?
By: | October 12, 2020
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: CRACKS IN THE FOUNDATION

Elizabeth Cunningham seemingly had it all. The daughter of two well-established professionals — her father was a personal injury attorney, her mother, also an attorney, had her own estate planning practice — she grew up in a house in Maryland horse country with lots of love and the financial security that can iron out at least some of life’s problems.

Tall, good-looking and talented, Elizabeth was moving through her junior year at the University of Pennsylvania in seemingly good order; check that, very good order, by all appearances.

Her pre-med grades were outstanding. Despite the heavy load of her course work, she’d even managed to place in the Penn Relays in the mile, in the spring of her sophomore season, in May of 2019.

But the winter of 2019/2020 brought challenges, challenges that festered below the surface, known only to her and a couple of close friends.

First came betrayal at the hands of her boyfriend, Tom, right around Thanksgiving. She saw a message pop up on his phone from Rebecca, a young woman she thought was their friend. As it turned out, Rebecca and Tom had been intimate together, and both seemed game to do it again.

Reeling, her holiday mood shattered and her relationship with Tom fractured, Elizabeth was beset by deep feelings of anxiety. As the winter gray became more dense and forbidding, the anxiety grew.

Fed up, she broke up with Tom just after Christmas. What looked like a promising start to 2020 now didn’t feel as joyous.

Right around the end of the year, she plucked a copy of her father’s New York Times from the table in his study. A budding physician, her eyes were drawn to a piece about an outbreak of a highly contagious virus in Wuhan, China.

“Sounds dreadful,” she said to herself.

Within three months, anxiety gnawed at Elizabeth daily as she sat cloistered in her family’s house in Bel Air, Maryland.

It didn’t help matters that her brother, Billy, a high school senior and a constant thorn in her side, was cloistered with her.

She felt like she was suffocating.

One night in early May, feeling shutdown and unable to bring herself to tell her parents about her true condition, Elizabeth reached out to her family physician for help.

Dr. Johnson had been Elizabeth’s doctor for a number of years and, being from a small town, Elizabeth had grown up and gone to school with Dr. Johnson’s son Evan. In fact, back in high school, Evan had asked Elizabeth out once. Not interested, Elizabeth had declined Evan’s advances and did not give this a second thought.

Dr. Johnson’s practice had recently been acquired by a Virginia-based hospital system, Medwell, so when Elizabeth called the office, she was first patched through to Medwell’s receptionist/scheduling service. Within 30 minutes, an online Telehealth consult had been arranged for her to speak directly with Dr. Johnson.

Due to the pandemic, Dr. Johnson called from the office in her home. The doctor was kind. She was practiced.

“So can you tell me what’s going on?” she said.

Elizabeth took a deep breath. She tried to fight what was happening. But she could not. Tears started streaming down her face.

“It’s just… It’s just…” she managed to stammer.

The doctor waited patiently. “It’s okay,” she said. “Just take your time.”

Elizabeth took a deep breath. “It’s like I can’t manage my own mind anymore. It’s nonstop. It won’t turn off…”

More tears streamed down her face.

Patiently, with compassion, the doctor walked Elizabeth through what she might be experiencing. The doctor recommended a follow-up with Medwell’s psychology department.

“Okay,” Elizabeth said, some semblance of relief passing through her.

Unbeknownst to Dr. Johnson, her office door had not been completely closed. During the telehealth call, Evan stopped by his mother’s office to ask her a question. Before knocking he overheard Elizabeth talking and decided to listen in.

PART TWO: BETRAYAL

As Elizabeth was finding the courage to open up to Dr. Johnson about her psychological condition, Evan was recording her with his smartphone through a crack in the doorway.

Spurred by who knows what — his attraction to her, his irritation at being rejected, the idleness of the COVID quarantine — it really didn’t matter. Evan posted his recording of Elizabeth to his Instagram feed.

#CantManageMyMind, #CrazyGirl, #HelpMeDoctorImBeautiful is just some of what followed.

Elizabeth and Evan were both well-liked and very well connected on social media. The posts, shares and reactions that followed Evan’s digital betrayal numbered in the hundreds. Each one of them a knife into the already troubled soul of Elizabeth Cunningham.

By noon of the following day, her well-connected father unleashed the dogs of war.

Rand Davis, the risk manager for the Medwell Health System, a 15-hospital health care company based in Alexandria, Virginia was just finishing lunch when he got a call from the company’s general counsel, Emily Vittorio.

“Yes?” Rand said. He and Emily were accustomed to being quick and blunt with each other. They didn’t have time for much else.

“I just picked up a notice of intent to sue from a personal injury attorney in Bel Air, Maryland. It seems his daughter was in a teleconference with one of our docs. She was experiencing anxiety, the daughter that is. The doctor’s son recorded the call and posted it to social media.”

“Great. Thanks, kid,” Rand said.

“His attorneys want to initiate a discovery dialogue on Monday,” Emily said.

It was Thursday. Rand’s dreams of slipping onto his fishing boat over the weekend evaporated, just like that. He closed his eyes and tilted his face up to the heavens.

Wasn’t it enough that he and the other members of the C-suite fought tooth and nail to keep thousands of people safe and treat them during the COVID-crisis?

He’d watched the explosion in the use of telemedicine with a mixture of awe and alarm. On the one hand, they were saving lives. On the other hand, they were opening themselves to exposures under the Health Insurance Portability and Accountability Act. He just knew it.

He and his colleagues tried to do the right thing. But what they were doing, overwhelmed as they were, was simply not enough.

PART THREE: FALLING DOMINOES

Within the space of two weeks, the torture suffered by Elizabeth Cunningham grew into a class action against Medwell.

In addition to the violation of her privacy, the investigation by Mr. Cunningham’s attorneys revealed the following:

Medwell’s telemedicine component, as needed and well-intended as it was, lacked a viable informed consent protocol.

The consultation with Elizabeth, and as it turned out, hundreds of additional patients in Maryland, Pennsylvania and West Virginia, violated telemedicine regulations in all three states.

Numerous practitioners in the system took part in teleconferences with patients in states in which they were not credentialed to provide that service.

Even if Evan hadn’t cracked open Dr. Johnson’s door and surreptitiously recorded her conversation with Elizabeth, the Medwell telehealth system was found to be insecure — yet another violation of HIPAA.

The amount sought in the class action was $100 million. In an era of social inflation, with jury awards that were once unthinkable becoming commonplace, Medwell was standing squarely in the crosshairs of a liability jury decision that was going to devour entire towers of its insurance program.

Adding another layer of certain pain to the equation was that the case would be heard in Baltimore, a jurisdiction where plaintiffs’ attorneys tended to dance out of courtrooms with millions in their pockets.

That fall, Rand sat with his broker on a call with a specialty insurer, talking about renewals of the group’s general liability, cyber and professional liability programs.

“Yeah, we were kind of hoping to keep the increases on all three at less than 25%,” the broker said breezily.

There was a long silence from the underwriters at the other end of the phone.

“To be honest, we’re borderline about being able to offer you any cover at all,” one of the lead underwriters said.

Rand just sat silently and waited for another shoe to drop.

“Well, what can you do?” the broker said, with hope draining from his voice.

The conversation that followed would propel Rand and his broker on the difficult, next to impossible path of trying to find coverage, with general liability underwriters in full retreat, professional liability underwriters looking for double digit increases and cyber underwriters asking very pointed questions about the health system’s risk management.

Elizabeth, a strong young woman with a good support network, would eventually recover from the damage done to her.

Medwell’s relationships with the insurance markets looked like it almost never would. &

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

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

The use of telehealth has exponentially accelerated with the advent of COVID-19. Few health care providers were prepared for this shift. Health care organizations should confirm that Telehealth coverage is included in their Medical Professional, General Liability and Cyber policies, and to what extent. Concerns around Telehealth focus on HIPAA compliance and the internal policies in place to meet the federal and state standards and best practices for privacy and quality care. As states open businesses and the crisis abates, will pre-COVID-19 telehealth policies and regulations once again be enforced?

Risk Management Considerations:

The same ethical and standard of care issues around caring for patients face-to-face in an office apply in telehealth settings:

  • maintain a strong patient-physician relationship;
  • protect patient privacy; and
  • seek the best possible outcome.

Telehealth can create challenges around “informed consent.” It is critical to inform patients of the potential benefits and risks of telehealth (including privacy and security), ensure the use of HIPAA compliant platforms and make sure there is a good level of understanding of the scope of telehealth. Providers must be aware of the regulatory and licensure requirements in the state where the patient is located, as well as those of the state in which they are licensed.

A professional and private environment should be maintained for patient privacy and confidentiality. Best practices must be in place and followed. Medical professionals who engage in telehealth should be fully trained in operating the technology. Patients must also be instructed in its use and provided instructions on what to do if there are technical difficulties.

This case study is for illustrative purposes only and is not intended to be a summary of, and does not in any way vary, the actual coverage available to a policyholder under any insurance policy. Actual coverage for specific claims will be determined by the actual policy language and will be based on the specific facts and circumstances of the claim. Consult your insurance advisors or legal counsel for guidance on your organization’s policies and coverage matters and other issues specific to your organization.

This information is provided as a general overview for agents and brokers. Coverage will be underwritten by an insurance subsidiary of Allied World Assurance Company Holdings, Ltd, a Fairfax company (“Allied World”). Such subsidiaries currently carry an A.M. Best rating of “A” (Excellent), a Moody’s rating of “A3” (Good) and a Standard & Poor’s rating of “A-” (Strong), as applicable. Coverage is offered only through licensed agents and brokers. Actual coverage may vary and is subject to policy language as issued. Coverage may not be available in all jurisdictions. Risk management services are provided or arranged through AWAC Services Company, a member company of Allied World. © 2020 Allied World Assurance Company Holdings, Ltd. All rights reserved.




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