An Electrifying Threat
Energy and the natural resources industry face especially grim cyber threats.
“If there is a cyber attack, you can’t see or touch that attacker so your ability to quickly respond may or may not be successful,” said Norma Krayem, a senior policy adviser at the Patton Boggs law firm and co-chair of the firm’s homeland security, defense and technology transfer practice group.
“I think the likelihood of such an attack absolutely exists,” she said. “I think the question becomes more about who, when and why.”
According to Symantec, a data security company, the energy sector “has become a major focus for targeted attacks and is now among the top five most targeted sectors worldwide.”
The threats may come from competitive spying, corporate espionage, cyber criminals, hacktivism, disgruntled employees and state-sponsored disruptions, it said.
A bad result doesn’t even necessarily have to begin with bad intent, said Cliff Lancaster, senior risk analyst at Hartford Steam Boiler Inspection and Insurance Co. (HSB).
At the Davis–Besse Nuclear Power Station in Ohio, for example, the network became infected with a worm that shut it down for five hours in 2003 because a software consultant had created a shortcut for his own convenience that bypassed the firewall, he said.
Possible Widespread Devastation
As security measures increase, employees and vendors may be ever more tempted to bypass procedures, just to more easily get their work done.
Between July 2012 and June 2013, 16 percent of all cyber attacks each day targeted companies in the energy sector, according to Symantec. Only the government or public sector had more targeted attacks.
And should the energy delivery system be disrupted, that threatens the country’s finance, transportation, health care, water supply and emergency services systems — all of which depend on reliable energy.
— Norma Krayem, senior policy adviser, Patton Boggs
Electric grid vulnerabilities that lead to power disruptions are estimated to cost the U.S. economy between $119 billion to $188 billion each year, according to a 2013 report on grid vulnerability by Rep. Edward J. Markey, D-Mass., and Rep. Henry A. Waxman, D-Calif.
“Power disruptions today generally do not lead to insured losses,” said Robert Hartwig, president of the Insurance Information Institute.
“However, it seems only a matter of time before a major cyber attack leads to the type of damage covered by standard property and liability policies,” he said.
“As we look at what hackers have been able to do in terms of infiltrating presumed secure systems — even entities like the Department of Defense — it seems there must be vulnerabilities in the systems associated with major infrastructure in this country, whether it’s electric, water, transportation or communications.”
Complex Risk Management
The degree to which computer technology and networking are integral to the energy sector in an operational sense makes it a particularly complex risk-management challenge, said John Kerns, executive managing director of Beecher Carlson Financial Services.
“There was a question posed to us by a client earlier this year: What if there were a denial-of-service attack or virus that shut down the gas pipelines coming into Chicago in the middle of winter. Homes went cold and people went to the hospital or even died. There was no physical damage, but clearly there was a serious impact, and loss,” he said.
The challenges are not confined to traditional energy markets either, said Charles Long, vice president of renewable energy and green technology at William Gallagher Associates. “Many computers are covered under a basic commercial package, and wind farms have separate coverage. If there is a lightning strike, that is surely covered. If data just failed, that can be covered by E&O, but data corruption or a virus, that kind of thing is very much still under consideration.”
Fred Podolsky, executive vice president, executive risk, Alliant Insurance Services, said that “only a small fraction,” maybe 10 percent of U.S. based utility companies have bought cover, and most of the policies that have been purchased relate to data breach exposures.
Some companies, however, have “woken up and are looking for cover” to help them repair their power-generation network and computer systems should they be damaged, or to protect them from other service interruption or customer liability issues, he said.
But many utilities refuse to provide underwriters with sufficient information to get the coverage they need, he said.
The main reason? “It’s just a pure confidentiality concern. IT folks are just so fearful to release any information to anyone having to do with their security procedures, though pressure is building from risk management and others in the C-suite to address these exposures,” Podolsky said.
While protecting the actual control systems of energy companies is a high priority that is audited by the federal government, the smart grid — that measures and creates a more efficient distribution of electricity based on use — is vulnerable, said HSB’s Lancaster.
If false data were injected into that system, it could potentially cause turbine generators to speed up when they shouldn’t. “If you can get it spinning at the wrong speed,” he said, “it can just shake itself to death.”
Once a turbine or transformer is damaged, there is a limited amount of replacement equipment.
And once a turbine or transformer is damaged, there is a limited amount of replacement equipment, he said. “If you are able to damage many pieces of equipment at once, it would take a lot of time to fix it because you have to build and rebuild lots of equipment,” Lancaster said.
Krayem said the connectivity of entities that distribute electric power, for example, means there could be “cascading failures” throughout the country.
“You have this patchwork of systems that are being cobbled together, a lot of them are legacy systems, and they are not necessarily all at the same level of security,” she said.
According to KPMG, which cited data from the U.S. Department of Homeland Security, the “constant barrage of cyber attacks” on water and energy companies “usually take the form of cyber espionage or denial-of-service attacks against industrial-control systems.”
Inadequate Security Controls
The consultancy also noted that a survey by The Centre for Strategic and International Studies in 2010, found that critical infrastructure, including power grids, industrial control networks and oil refineries “are not adequately prepared to defend themselves.”
Video: Dissecting Stuxnet
The most famous of all attacks on an energy system occurred in Iran when unknown forces — believed to be the United States and Israel — created the Stuxnet worm, specially designed to target Iran’s specific industrial control system and reprogram it so that the nuclear centrifuges spun out of control and damaged themselves while the displays indicated normal functioning.
Most notably, Stuxnet spread using a USB drive, infecting networks that were unreachable by the Internet.
Another disturbing attack occurred in 2012, when a cyber attack hit Saudi Aramco, one of the largest oil producers in the world. The disruption, which continued for two weeks, disabled more than 30,000 of the company’s workstations.
The virus, later named “Shamoon,” was the first significant cyber attack on a commercial target to cause real damage. It is also the most destructive attack the private sector has experienced to date, said Malcolm Marshall, global leader for information protection at KPMG, based in London.
Marshall said that “one senior oil-industry executive to whom I spoke shortly after the Shamoon incident told me, ‘Well, there goes our worst-case scenario.’ ”
That same month, Rasgas, in Qatar, was hit by the same virus and forced to bring its entire network off line.
In 2011, hackers were able to install malware and “evidence of a sophisticated threat actor” was found in the U.S. energy sector, according to the U.S. Government Accountability Office.
An Active Market
Marshall noted that, in the aggregate, the global oil and gas industry “is effectively self-insured, but cyber security is an active and growing commercial market, especially in the U.S. It seems likely that will become an economic necessity.”
Kerns at Beecher Carlson said, “We are seeing multiple policies responding to these threats. Those include dedicated cyber policies, D&O coverage, and in the energy sector, even general liability policies are responding.”
That said, he added that “the insurance market is looking aggressively at cyber risk, and is putting on new exemptions, restrictions, and limits. The gray areas are still some GL, bodily injury, and third-party injury. Mostly, we are seeing GL carriers not willing to pick up many risks. That leaves owners and brokers to see what the cyber market is willing to do.
“There is capacity to address business interruption, but we are having to press on bodily injury and property damage as they relate to cyber,” he said.
Complete coverage on the inevitable cyber threat:
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