Cyber risk is a major and fast-increasing threat to businesses with cyber-crime alone costing the global economy approximately $445 billion a year. A new generation of cyber risks is appearing and evolving fast.
The threats are moving beyond the established ones involving data breaches, privacy issues and reputational damage and moving to operational damage, business interruption and even potentially catastrophic losses.
This new generation of cyber risk is more complex: future threats will come from intellectual property theft, cyber extortion and the impact of business interruption (BI) following a cyber-attack or from operational or technical failure; a risk which is often underestimated.
In a new report – A Guide to Cyber Risk: Managing The Impact of Increasing Interconnectivity – specialist insurer Allianz Global Corporate & Specialty (AGCS) examines the latest trends in cyber risk and emerging perils around the globe.
“Awareness of BI risks and insurance related to cyber and technology is increasing. Within the next five to 10 years BI will be seen as a key risk and a major element of the cyber insurance landscape,” says Georgi Pachov, cyber expert in AGCS’s global property underwriting team.
Ships at Risk
In June 2013, a radio navigation research team from The University of Texas at Austin was able to successfully spoof an $80 million private yacht using the world’s first openly acknowledged GPS spoofing device. Spoofing is a technique that creates false civil GPS signals to gain control of a vessel’s GPS receivers.
Unlike GPS signal blocking or jamming, spoofing triggers no alarms on the ship’s navigation equipment. To the ship’s GPS devices, the team’s false signals were indistinguishable from authentic signals, allowing the spoofing attack to happen covertly.
“This type of attack could lead a vessel off course and result in a grounding, collision or similar serious marine incident,” says Captain Andrew Kinsey, Senior Marine Risk Consultant at AGCS. “Choke point transits are just one of numerous areas where vessels are vulnerable, shoal areas could be even more of a hazard because the Mate on watch may not have a good radar return to back up his GPS position with. Examples such as this spoofing attack should reinforce in Bridge Watch Keepers the old adage: The prudent mariner will not rely solely on any single aid to navigation or a single source of information when fixing the position of his vessel.”
Connectivity Creates Risk
Increasing interconnectivity of everyday devices and growing reliance on cloud technology and real-time data at personal and corporate levels, known as the ‘Internet of Things’, creates further vulnerabilities. Some estimates suggest that a trillion devices could be connected by 2020, while it is also forecast that as many as 50 billion machines could be exchanging data daily.
Kinsey cites an example that indicates ports are among the entities at risk: Drug traffickers recruited hackers to breach IT systems that controlled the movement and location of containers. The attack on the port of Antwerp is thought to have taken place over a two-year period from June 2011. Prosecutors say a Dutch-based trafficking group hid cocaine and heroin among legitimate cargoes, including timber and bananas shipped in containers from South America.
The organized crime group allegedly used hackers based in Belgium to infiltrate computer networks in at least two companies operating in the port of Antwerp. The breach allowed hackers to access secure data giving them the location and security details of containers, meaning the traffickers could send in lorry drivers to steal the cargo before the legitimate owner arrived.
Workers were first alerted to the plot when entire containers began to disappear from the port without explanation. Drug smugglers planted an extraordinary array of ingeniously disguised remote access devices as part of the long term breach.
While there have been some very large data breaches, the prospect of a catastrophic loss is becoming more likely, but exactly what it will look like is difficult to predict. Scenarios include a successful attack on the core infrastructure of the internet, a major data breach or network outage for a cloud service provider, while a major cyber-attack involving an energy or utility company could result in significant outage of services, physical damage or even loss of life in future.
Responding to Cyber Risk
The AGCS report highlights steps companies can take to address cyber risk. Insurance can only be part of the solution, with a comprehensive risk management approach being the foundation for cyber defense. “Once you have purchased cyber insurance, it does not mean that you can ignore IT security. The technological, operational and insurance aspects of risk management go hand in hand,” explains Jens Krickhahn, expert for cyber and fidelity at AGCS Central & Eastern Europe.
Cyber risk management is too complex to be the preserve of a single individual or department, so AGCS recommends a think-tank approach to tackling risk whereby different stakeholders from across the business collaborate to share knowledge.
In this way, different perspectives can be challenged and alternative scenarios considered: for example, these might include the risks posed by corporate developments such as mergers and acquisitions or by the use of cloud-based or outsourced services. In addition, cross-company involvement is essential to identify key assets at risk and, most importantly, to develop and test robust crisis response plans.
The industry is Taking Action
In April of 2015 a round table of international shipping associations comprising BIMCO, ICS, Intercargo and INTERTANKO met to develop standards and guidelines to address the major cyber security issues faced by the shipping industry. “Protection against malicious attacks on computer based systems onboard ships is now hitting the top of the agenda for shipping organizations in all corners of the world,” the group said in a release.
Angus Frew, secretary general of BIMCO, said: “The standards under development are intended to enable equipment manufacturers, service personnel, yards, owners and operators, as well as crew, to ensure their shipboard computer based systems are managed securely – and kept up-to-date to protect against the ever-growing threat from exploitation by criminals.”
The IMO will need to act on the standards and guidelines developed in order to see that they are universally adopted within the maritime industry.
Tougher Regulatory Regimes
Increasing awareness of cyber exposures as well as regulatory change will propel the future rapid growth of cyber insurance, says AGCS. With fewer than 10 percent of companies currently purchasing cyber-specific policies, AGCS forecasts that cyber insurance premiums will grow globally from $2 billion per annum today to over $20 billion over the next decade, a compound annual growth rate of over 20 percent.
“Growth in the U.S. is already underway as data protection regulations help focus minds, while legislative developments and increasing levels of liability will see growth accelerate in the rest of the world,” says Nigel Pearson, who is globally responsible for cyber insurance at AGCS.
“There is a general trend towards tougher data protection regimes, backed with the threat of significant fines in the event of a breach.” Hong Kong, Singapore and Australia are among those looking at, or already enforcing, new laws. Even if the European Union fails to agree its planned pan-European data protection rules, tougher guidelines on a country-by-country basis can be expected.
Allianz also predicts that the scope of cyber insurance must evolve to provide broader and deeper coverage, addressing business interruption and closing gaps between traditional coverage and cyber policies. While cyber exclusions in property and casualty policies are likely to become commonplace, standalone cyber insurance will continue to evolve as the main source of comprehensive cover. There is growing interest among the telecommunications, retail, energy, utilities and transport sectors as well as from financial institutions.
Education – both in terms of businesses’ understanding of exposures and underwriting knowledge – must improve if insurers are to meet growing demand. In addition, as with any other emerging risk, insurers also face challenges around pricing, untested policy wordings, modeling and risk accumulation.
The report is available here.