You gotta love this. Experts advise not to worry about computer hackers compromising your company’s data.
Instead, you should be concerned that they’re going to take over your toaster. The risk is imminent. Smart toasters, refrigerators and corporate ventilation systems are among the greatest emerging risks, it seems.
Your freezer is one quick hack away from running amok. Your alarm clock is a silent killer. Mention that to your broker, before his security people come to throw you into the street.
Household wireless networks, on the other hand, have famously weak firewalls. This is why your coffee maker is now a deadly threat.
OK, let’s calm down. The Internet of Things (IoT) is the topic. It’s the wireless network of the future that will, for example, read your refrigerator’s contents, note that you have no milk, and contact your online grocer to order a quart and its delivery.
The IoT will also check how much fuel oil is in your tank and order whatever is needed before winter sets in.
But what if Russian hackers decide it might be amusing if you instead had 8,000 gallons of milk delivered to your fuel oil tank?
Given our total submission to things Internetty, you know that critical infrastructure has been and will further be thrown onto the IoT faster than you can say, “Wait! What if …”
The good news is that much of what has been placed online is protected. Anything can be hacked, but the important stuff is run with a suitable awareness of the risk attached, experts say.
Household wireless networks, on the other hand, have famously weak firewalls. This is why your coffee maker is now a deadly threat.
Cyber-assisted burglary might blossom, since bad guys could suck data from your heating system to tell them you’re not home, and then burgle you senseless. Remotely increasing the room temperature at a data center might eventually burn out a competitor’s servers.
This may all sound a little far-fetched, but I’m quoting (approximately) “Bloomberg,” which quoted (exactly) experts of the highest caliber. Technological systems require updating, and not even the few of us who know how to do that can be bothered. I mean, it’s a blender, right? How bad could it be if I don’t spend three hours trying to find the latest driver updates?
Hackers could send your microwave oven fallacious updates. The damn thing could spend years nuking your dinner while simultaneously serving North Korea without you even knowing.
Note to the insurance industry: Gentlemen, start your models. Hardly anyone writes stand-alone coffee maker insurance (except for extended warranties). The cyber-home opportunity is what Donald Trump would call “yuge.”
Profitability even more so, since — surely — the notion that your mom’s curling iron is working for the KGB seems unlikely, at best.
But remember this: You can’t spell idiot without IoT. &
R&I: What was your first job?
I was working as a paralegal for a N.J. insurance company. They provided free insurance classes conducted by the Insurance Institute of America. I wanted to learn about the business, so I received my certificate in general insurance. That came in handy reviewing the insurance provisions of contracts. Eventually I received my ARM. An opportunity came up at a large gas utility, and I expanded my duties as a paralegal working for the VP of risk management. When he retired, I was offered the position of risk manager.
R&I: How has your experience as a paralegal influenced your risk management career?
[It] has been invaluable to my success as a risk manager. I did everything from litigation, contracts, mergers and acquisitions, to preparing SEC filings. I became well versed in the operations and business risks of a public company from a legal perspective.
R&I: What is the risk management community doing right?
We’re focused on understanding how rapidly the world is changing. Risk managers and carriers are making an effort to understand all the risks commensurate with being global companies. Another major change is that women have become a bigger part of risk management over the past 20 years. In fact, my department is all women.
R&I: What could the risk management community be doing a better job of?
We need to get more people involved in risk management. It’s so much more than just buying insurance. You can be impactful for your company in so many ways as they come to trust and value you.
Another major change is that women have become a bigger part of risk management over the past 20 years.
R&I: What was the best location and year for the RIMS conference and why?
I really loved New Orleans. We’re in the business of dealing with risk and disaster and catastrophe, and the year we were there, it was right after Hurricane Katrina. It was a testimony to risk managers that we wanted to be there. Disaster recovery and continuity are what we’re about.
R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?
Having more women in the field is one. Another is the way the industry has become so multifaceted as well as responsive to emerging risks like cyber. Risk managers are much more involved with their companies’ operations, and it’s become more challenging as we keep abreast of rapidly changing issues.
R&I: What emerging commercial risk most concerns you?
We’re all holding our breath on cyber risk. It’s still so unknowable, and anything can happen that you’re not prepared for, even with the coverage that’s out there. This is an area where we’ll have to wait and see how the risk evolves and how products develop. Apple just learned that the FBI could hack into its phones and I bet they never saw that coming!
R&I: What insurance carrier do you have the highest opinion of?
CNA. I can’t say enough good things about them. We have many unique needs, and they’ve stepped up to partner with us on meeting all of them.
R&I: How much business do you do direct versus going through a broker?
We place all our coverage though our amazing partners, Aon and Lockton.
We’re all holding our breath on cyber risk. It’s still so unknowable, and anything can happen that you’re not prepared for, even with the coverage that’s out there.
R&I: Are you optimistic about the U.S. economy or pessimistic, and why?
Very optimistic. We have a lower unemployment rate than we’ve had in many years and more job creation. And let’s not forget about the gas prices!
R&I: Who is your mentor and why?
My mom was my mentor. My dad died young and she was left raising four kids at the age of 40. She was a businesswoman in the 1960s and taught me the value of standing on my own two feet as a woman. Most importantly, she was the kindest woman I ever met.
R&I: What have you accomplished that you are proudest of?
I’m very proud of my excellent team. I’ve spent a lot of time mentoring them and “boring” them with my business philosophy, but I tell them that if I were to get hit by a bus on any given day, they could jump in and do my job on that first, sad day.
R&I: What is your favorite book or movie?
“Madame Bovary.” I met my husband at Rutgers in a French literature class, and we were reading that book at the time, so it’s my favorite.
R&I: What is the most unusual/interesting place you have ever visited?
It’s a toss-up between Israel and Egypt; the pyramids were so exciting but so was Bethlehem and Masada.
R&I: What is the riskiest activity you ever engaged in?
Talking back to the Sisters of Charity; like O’Reilly, I was a bold, fresh article!
R&I: If the world has a modern hero, who is it and why?
I really admire Pope Francis. He’s trying to be an enlightened pope who embraces all people and religions, and he brings some needed change to Catholicism.
R&I: What about this work do you find the most fulfilling or rewarding?
Every day is a new challenge and it never gets boring.
R&I: What do your friends and family think you do?
They think I meet with brokers and carriers and buy insurance and handle big insurance claims and that’s it. If they only knew!
Helping Investment Advisers Hurdle New “Customer First” Government Regulation
This spring, the Department of Labor (DOL) rolled out a set of rule changes likely to raise issues for advisers managing their customers’ retirement investment accounts. In an already challenging compliance environment, the new regulation will push financial advisory firms to adapt their business models to adhere to a higher standard while staying profitable.
The new proposal mandates a fiduciary standard that requires advisers to place a client’s best interests before their own when recommending investments, rather than adhering to a more lenient suitability standard. In addition to increasing compliance costs, this standard also ups the liability risk for advisers.
The rule changes will also disrupt the traditional broker-dealer model by pressuring firms to do away with commissions and move instead to fee-based compensation. Fee-based models remove the incentive to recommend high-cost investments to clients when less expensive, comparable options exist.
“Broker-dealers currently follow a sales distribution model, and the concern driving this shift in compensation structure is that IRAs have been suffering because of the commission factor,” said Richard Haran, who oversees the Financial Institutions book of business for Liberty International Underwriters. “Overall, the fiduciary standard is more difficult to comply with than a suitability standard, and the fee-based model could make it harder to do so in an economical way. Broker dealers may have to change the way they do business.”
As a consequence of the new DOL regulation, the Securities and Exchange Commission (SEC) will be forced to respond with its own fiduciary standard which will tighten up their regulations to even the playing field and create consistency for customers seeking investment management.
Because the SEC relies on securities law while the DOL takes guidance from ERISA, there will undoubtedly be nuances between the two new standards, creating compliance confusion for both Registered Investment Advisors (RIAs)and broker-dealers.
To ensure they adhere to the new structure, “we could see more broker-dealers become RIAs or get dually registered, since advisers already follow a fee-based compensation model,” Haran said. “The result is that there will be likely more RIAs after the regulation passes.”
But RIAs have their own set of challenges awaiting them. The SEC announced it would beef up oversight of investment advisors with more frequent examinations, which historically were few and far between.
“Examiners will focus on individual investments deemed very risky,” said Melanie Rivera, Financial Institutions Underwriter for LIU. “They’ll also be looking more closely at cyber security, as RIAs control private customer information like Social Security numbers and account numbers.”
Demand for Cover
In the face of regulatory uncertainty and increased scrutiny from the SEC, investment managers will need to be sure they have coverage to safeguard them from any oversight or failure to comply exactly with the new standards.
In collaboration with claims experts, underwriters, legal counsel and outside brokers, Liberty International Underwriters revamped older forms for investment adviser professional liability and condensed them into a single form that addresses emerging compliance needs.
The new form for investment management solutions pulls together seven coverages:
- Investment Adviser E&O, including a cyber sub-limit
- Investment Advisers D&O
- Mutual Funds D&O and E&O
- Hedge Fund D&O and E&O
- Employment Practices Liability
- Fiduciary Liability
- Service Providers D&O
“A comprehensive solution, like the revamped form provides, will help advisers navigate the new regulatory environment,” Rivera said. “It’s a one-stop shop, allowing clients to bind coverage more efficiently and provide peace of mind.”
Ahead of the Curve
The new form demonstrates how LIU’s best-in class expertise lends itself to the collaborative and innovative approach necessary to anticipate trends and address emerging needs in the marketplace.
“Seeing the pending regulation, we worked internally to assess what the effect would be on our adviser clients, and how we could respond to make the transition as easy as possible,” Haran said. “We believe the new form will not only meet the increased demand for coverage, but actually creates a better product with the introduction of cyber sublimits, which are built into the investment adviser E&O policy.”
The combined form also considers another potential need: cost of correction coverage. Complying with a fiduciary standard could increase the need for this type of cover, which is not currently offered on a consistent basis. LIU’s form will offer cost of correction coverage on a sublimited basis by endorsement.
“We’ve tried to cross product lines and not stay siloed,” Haran said. “Our clients are facing new risks, in a new regulatory environment, and they need a tailored approach. LIU’s history of collaboration and innovation demonstrates that we can provide unique solutions to meet their needs.”
For more information about Liberty International Underwriters’ products for investment managers, visit www.LIU-USA.com.
Liberty International Underwriters is the marketing name for the broker-distributed specialty lines business operations of Liberty Mutual Insurance. Certain coverage may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds. This literature is a summary only and does not include all terms, conditions, or exclusions of the coverage described. Please refer to the actual policy issued for complete details of coverage and exclusions.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty International Underwriters. The editorial staff of Risk & Insurance had no role in its preparation.