Entries tagged with “Cyber Risks”.


The recent disclosure of a major data breach at retailer Home Depot has once again put the spotlight on the increasing vulnerability of businesses to cyber threats and the need for cyber insurance.

But companies are uncertain of how much insurance coverage to acquire and whether their current policies provide them with protection, according to a new report by Guy Carpenter.

It speculates that one of the roots of the uncertainty stems from the difficulty in quantifying potential losses because of the dearth of historical data for actuaries and underwriters to model cyber-related losses.

Furthermore, traditional general liability policies do not always cover cyber risk, Guy Carpenter says.

It notes that in the United States, ISO’s revisions to its general liability policy form consist primarily of a mandatory exclusion of coverage for personal and advertising injury claims arising from the access or disclosure of confidential information.

Though still in its infancy the cyber insurance market potential is vast, Guy Carpenter reports. It cites Marsh statistics estimating that the U.S. cyber insurance market was worth $1 billion in gross written premiums in 2013 and could reach as much as $2 billion this year.

The European market is currently a fraction of that, at approximately $150 million, but could reach as high as EUR900 million by 2018, according to some estimates.

Guy Carpenter also warns that cyber attacks are now top of mind for governments, utilities, individuals, medical and academic institutions and companies of all sizes, noting:

Because of increasing global interconnectedness and explosive use of mobile devices and social media, the risk of cyber attacks and data breaches have increased exponentially.”

Cyber attacks also present a set of aggregations/accumulations of risk that spread beyond the corporation to affiliates, counterparties and supply chains, it adds.

Check out the I.I.I. paper on this topic: Cyber Threats: The Growing Risk.

Companies large and small appear to have been targeted in what is being described as the largest known data breach to date.

As first reported by The New York Times, a Russian crime ring amassed billions of stolen Internet credentials, including 1.2 billion user name and password combinations and more than 500 million email addresses.

The NYT said it had a security expert not affiliated with Hold Security analyze the database of stolen credentials and confirm its authenticity.

The records, discovered by security experts Hold Security, include confidential material gathered from 420,000 websites, ranging from household names to small Internet sites.

According to Hold Security’s own report, the hackers didn’t just target large companies. They targeted every site that their victims visited:

With hundreds of thousands of sites affected, the list includes many leaders in virtually all industries across the world, as well as a multitude of small or even personal websites.”

The NYT said so far the criminals have not sold many of the records online, but appear to be using it to send spam on social networks.

If ever there was a reason to research – and buy – cyber insurance, this would be it.

In its recently published paper Cyber Risks: The Growing Threat, the Insurance Information Institute (I.I.I.) notes that reliance on traditional insurance policies is not enough, as companies face growing liabilities in this fast-evolving area.

Following the Target data breach and other high profile breaches, the I.I.I. said the number of specialist cyber insurance policies is increasing, and that insurance has a key role to play as companies and individuals look to better manage and reduce their potential financial losses from cyber risks.

It cited data from broker Marsh showing a 21 percent increase in the number of clients purchasing cyber insurance from 2012 to 2013. That growth is accelerating in 2014.

Meanwhile, a new report from PwC US and the Investor Responsibility Research Center Institute (IRRCi) indicates that while companies must disclose significant cyber risks, those disclosures rarely provide differentiated or actionable information.

According to the report’s authors:

The consequences of poor security include lost revenue, compromised intellectual property, increases in costs, impact to customer retention, and can even contribute to C-level executives leaving companies.”

It suggests that investors focus on corporate preparedness for cyber attacks, and then engage with highly-likely targets to better understand corporate preparedness and to demand better and more actionable disclosures (though not at a level that would provide a cyber-attacker a roadmap to make those attacks).

No industry sector is immune from cyber threats, and a round-up of recent headlines and reports underscores the increasing risk and cost businesses face.

Just this week, U.S. Treasury Secretary Jacob Lew urged financial institutions and firms to redouble their efforts against cyber threats and said information-sharing and collaboration among businesses and with government is key.

Speaking at a conference in New York, Secretary Lew noted that the consequences of cyber incidents are serious and our cyber defenses are not yet where they need to be:

Far too many hedge funds, asset managers, insurance providers, exchanges, financial market utilities, and banks should and could be doing more. In particular, it is imperative that firms collaborate with government agencies and with other firms. Disclosing security breaches is often perceived as something that could harm a firm’s reputation. This has made many businesses reluctant to reveal information about cyber incidents. But this reluctance has to be put aside.”

Secretary Lew noted that some banks are already spending as much as $250 million a year to strengthen their cyber security. (Note: this is a cost borne by businesses).

Meanwhile, a new report from the New York attorney general’s office revealed that the number of reported data security breaches in the state more than tripled between 2006 and 2013, with some 22.8 million personal records of New Yorkers exposed in nearly 5,000 data breaches.

The cost to the public and private sectors in New York? In 2013 alone, upward of $1.37 billion, according to the report’s findings.

The Insurance Information Institute’s (I.I.I.) newly updated report Cyber Risks: The Growing Threat (of which I am a co-author) sheds light on the specialist cyber insurance policies developed by insurers to help businesses and individuals protect themselves from the cyber threat.

Market intelligence suggests that the types of specialized cyber coverage being offered by insurers are expanding rapidly in response to this fast-growing market need.

I.I.I. facts and stats on identity theft and cyber security are available here.

U.S. businesses are losing more financially from cybercrime, compared to their global peers, but are generally less aware of the cost, according to PWC’s 2014 Global Economic Crime Survey.

As cybercrime continues to increase in volume, frequency and sophistication, PWC’s findings suggest that U.S. organizations are more at risk of suffering financial losses in excess of $1 million due to cybercrime.

According to the study, some 7 percent of U.S. companies lost $1 million or more, compared to just 3 percent of global organizations.

In addition, 19 percent of U.S. organizations lost $50,000 to $1 million, compared to 8 percent of global respondents.

PWC doesn’t elaborate on the reasons for this discrepancy, but other studies have noted that the types and frequencies of attacks vary from country to country.

U.S. companies are also more likely to experience the most expensive types of cyber attacks, such as malicious insiders, malicious code, and web-based incidents, the research suggests.

Despite having more to lose, some 42 percent of U.S. companies were unaware of cybercrime’s cost to their organizations, compared to 33 percent of global respondents, according to PWC.

Yet, overall U.S. companies appear to have a greater understanding of the risk of cybercrime than their global peers.

PWC notes that U.S. organizations’ perception of the risks of cybercrime exceeded the global average by 23 percent.

Also, 71 percent of U.S. respondents indicated their perception of the risks of cybercrime increased over the past 24 months, rising 10 percent since 2011.

Hat tip to CNBC.com which reports on this story here.

Some 5,128 executives from 99 countries responded to the survey, of which 50 percent were senior executives of their respective companies. Some 35 percent represented listed companies and 54 percent represented organizations with more than 1,000 employees.

Cyber security and data breaches remain front and center on the Congressional radar as the Senate Commerce Committee today holds a hearing on protecting consumers from data breaches.

The witness list includes John Mulligan, vice president and chief financial officer at Target, and Dr. Wallace Loh, president, University of Maryland. There’s an insurance industry witness too, with Peter Beshar, executive vice president and general counsel, Marsh & McLennan giving testimony.

Recent data breaches at Target and the University of Maryland highlight the fact that organizations across many different business sectors are vulnerable to cyber attacks.

The February 18, 2014 UMD data breach compromised an estimated 309,079 student, faculty and staff records, including names, birth dates, university ID numbers and social security numbers.

The massive 2013 data breach at Target during the holiday season exposed the financial and personal information of as many as 110 million consumers.

A report released yesterday by the U.S. Senate Commerce, Science and Transportation Committee suggests that Target missed a number of opportunities to prevent the massive data breach. Hat tip to Reuters via Huffington Post which reports on the findings here.

The Senate staffers report, titled “A Kill Chain Analysis of the 2013 Target Data Breach” says key points at which Target apparently failed to detect and stop the attack include:

● Target gave network access to a third-party vendor, a small Pennsylvania HVAC company, which did not appear to follow broadly accepted information security practices. The vendor’s weak security allowed the attackers to gain a foothold in Target’s network.

● Target appears to have failed to respond to multiple automated warnings from the company’s anti-intrusion software that the attackers were installing malware on Target’s systems.

● Attackers who infiltrated Target’s network with a vendor credential appear to have successfully moved from less sensitive areas of Target’s network to areas storing consumer data, suggesting Target failed to properly isolate its most sensitive network assets.

● Target appears to have failed to respond to multiple warnings from the company’s anti-intrusion software regarding the escape routes the attackers planned to use to exfiltrate data from Target’s network.

The report analyzes what has been reported to date about the Target data breach, using the “intrusion kill chain” framework, an analytical tool introduced by Lockheed Martin security researchers in 2011, and widely used by information security professionals today.

This analysis suggests that Target missed a number of opportunities along the kill chain to stop the attackers and prevent the massive data breach.”

Check out an I.I.I. whitepaper on cyber risks and insurance here.

Emerging risks that risk managers expect to have the greatest impact on business in the coming years could be on the cusp of a changing of the guard, according to an annual survey released by the Society of Actuaries.

It found that the risk of cyber attacks and rapidly changing regulations are of growing concern to risk managers around the world, and may be slowly replacing the risk of oil price shock and other economic risks which were of major concern just six years ago.

Some 47 percent of risk managers saw cyber security as a significant emerging risk in 2013, up seven points from 40 percent in 2012.

The SOA noted that this perceived risk predates recent cyber security events (read: the December 2013 Target breach) that have opened up new corporate data security vulnerabilities. The online survey of 223 risk managers was conducted in October 2013.

Regulatory framework/liability regimes was also perceived to be an emerging risk of impact by 23 percent of risk managers, an increase of 15 points from just eight percent in 2012.

The survey noted that as the regulatory framework takes shape post-financial crisis, risk managers are currently trying to implement voluminous and changing regulations on short time frames with: limited additions to staff; and regulators who often have limited understanding of risk tools.

Just 33 percent of risk managers said economic risks – such as oil price shock, devaluing of the U.S. dollar, and financial volatility – will have the greatest impact over the next few years, versus an all-time high of 47 percent in 2009.

In fact, the economic risk category is at an all-time low in 2013, the SOA said.

Hat tip to The Wall Street Journal’s CFO Report which reported on the survey here.

Two months after Target announced a massive data breach in which hackers stole 40 million debit and credit card accounts from stores nationwide and the rising costs related to the incident are becoming clear.

Costs associated with the Target data breach have reached more than $200 million for financial institutions, according to data collected by the Consumer Bankers Association (CBA) and the Credit Union National Association (CUNA).

Breaking out the numbers, CBA estimates the cost of card replacements for its members have reached $172 million, up from an initial finding of $153 million. CUNA has said the cost to credit unions has increased to $30.6 million, up from an original estimate of $25 million.

So far, cards replaced by CBA members and credit unions account for more than half (54.5 percent) of all affected cards.

In a press release, CBA notes that the combined $200 million cost does not factor in costs to financial institutions other than credit unions or CBA members, nor does it take into account any fraudulent activity which may have occurred or may occur in the future:

Fraudulent activity would push the cost of the Target data breach to the industry much higher, as consumers would not be held liable.”

A post over at the Wall Street Journal Corporate Intelligence blog points out that cyber attacks like these continue to be a drain on the wider economy.

It cites a study backed by computer security firm McAfee that last year estimated the total cost of cybercrime and cyber espionage to the United States at up to $100 billion each year.

Meanwhile, legal experts caution that companies need to take stock in the wake of the Target breach and make sure they have adequate insurance in place.

A post by Emily R. Caron in Media, Privacy and Beyond published by law firm Lathrop & Gage notes that fortunately Target appears to have a lot of insurance in place.

It cites reports suggesting that between cyber coverage and directors and officers (D&O) coverage, Target has $165 million in total limits, after self-insuring the first $10 million. (Hat tip to @LexBlogNetwork for highlighting this article)

However, The New York Times recently reported that total damages to banks and retailers could exceed $18 billion according to estimates by Javelin Strategy & Research.

In addition the NYT noted that nearly 70 lawsuits have already been filed against Target, many of them seeking class-action status.

As Caron notes in her article at Media, Privacy & Beyond, there is a big gap between $165 million and $18 billion.

Check out I.I.I. facts + statistics on ID theft and cyber security.

Recent breaches of customer data at retailer Target and banking giant Barclays are making headlines and underscore the growing risk to businesses from data breaches.

Of course, there’s a personal impact too.

The just-released 2014 Identity Fraud Report by Javelin Strategy & Research reveals that data breaches are now the greatest risk factor for identity fraud.

In 2013, one in three consumers who received notification of a data breach became a victim of fraud, up from one in four in 2012, the report found.

Some 46 percent of consumers with breached debit cards in 2013 became fraud victims in the same year, compared to only 16 percent of consumers with a social security number breached.

Other key takeaways from the report are that the overall incidence of fraud has increased even though the amount stolen has decreased.

The number of identity fraud victims increased by more than 500,000 to 13.1 million people in 2013, the second highest number since the study began. However, the dollar amount stolen fell to $18 billion, down from $21 billion in 2012.

This reflects more aggressive actions from financial institutions, identity theft protection providers and consumers, Javelin Strategy said.

There has also been a dramatic increase in account turnover fraud in the past year. According to the findings, account takeover fraud accounted for 28 percent of all identity fraud in 2013, a new record for the second year in a row.

Fraudsters also increasingly turned to eBay, PayPal and Amazon with the stolen information to make purchases.

Check out I.I.I. information on identity theft and cyber security here.

The fallout continues in the wake of the massive data breach at Target in which hackers stole 40 million debit and credit card accounts from stores nationwide between November 27 and December 15.

USA Today reports that so far three class-action lawsuits have been filed in the wake of the incident, seeking more than $5 million in damages. Two of the cases were filed in California and one in Oregon.

The same USA Today article reports that the Attorney General in at least four states – Connecticut, Massachusetts, New York and South Dakota – have asked Target for information about the breach, in what is regarded as the first step to a possible multi-state investigation into the breach.

Meanwhile, the Krebs on Security blog which broke the story of the Target breach last Wednesday December 18, reports that card accounts stolen in the breach are flooding the underground markets. Check out the latest reports here and here.

For anyone who shopped at Target during the breach period, the New York Times has a helpful Q&A on what you should do.

While latest studies indicate U.S. companies continue to improve their preparation for and response to a data breach, the security breach at Target highlights the vulnerability of major companies to this threat.

Both the organizational cost of a data breach and the cost per lost or stolen record declined last year, according to the 2013 Cost of a Data Breach study by the Ponemon Institute and Symantec.

The organizational cost of a breach declined from $5.5 million to $5.4 million and the cost per record from $194 to $188.

The Ponemon report also noted that while the cost of a data breach can vary widely because of the types of threats and data protection laws, the financial consequences are serious worldwide.

Check out I.I.I. facts and statistics on identity theft and cyber security.

The percentage of companies buying cyber liability insurance is increasing substantially, according to an annual survey jointly produced by Advisen and Zurich.

For the first time in the three years that the survey has been administered, more than half of respondents claim to purchase cyber liability insurance.

In response to the question “Does your organization purchase cyber liability insurance?” some 52 percent responded yes, compared to 44 percent in 2012, and 35 percent in 2011.

Only 38 percent said their organization did not purchase this protection, down from 50 percent in 2012 and 60 percent in 2011.

Of those companies that do purchase coverage, some 72 percent have done so for more than three years. This represents a 10-point increase from 2012 suggesting that when organizations purchase the coverage they see enough value to renew it year after year.

Even those companies that have not bought cyber coverage are thinking about it.

Half (53 percent) of survey respondents that do not currently buy cyber insurance are considering purchasing it in the next year – a 28 percentage point increase from 2012.

Advisen notes:

This is an indication of the continued shift in the cyber insurance marketplace, from a product that was interesting but not a necessity to one that is becoming a must have.”

Check out a recent I.I.I. paper on cyber risks.