Cyber Gang Vigilance
The Bank of Bangladesh didn’t know what hit it. More than $80 million vanished before anyone even noticed last February. The good news is that the criminals did not accomplish what they initially set out to do – steal nearly $1 billion from the bank’s account at the Federal Reserve Bank of New York.
The hackers, however, did succeed in installing malware in the Bangladesh central bank’s computer systems. Then they watched, probably for weeks.
They observed how to go about withdrawing money from the bank’s U.S. account, using its credentials for the SWIFT (Society for Worldwide Interbank Financial Telecommunication) messaging system.
SWIFT is used by banks around the world along with other financial institutions like brokerages, securities dealers, asset management companies, and others, for secure financial communication.
If an email’s subject line is so tempting that you can’t resist opening it, you probably shouldn’t.
Bangladesh’s central bank was not alone; the same crooks took $12 million from an Ecuadorean lender in January 2015. Fortunately, another attack trying to steal about $1 million from a Vietnamese bank late last year was thwarted.
In all of these incidents, the perpetrators got access to the codes the banks use to connect to the SWIFT global payments network to request fund transfers that were directed elsewhere and then quickly disappear.
All indicators are pointing to one prime culprit – Dridex, a notorious gang of cyber criminals operating in Russia and former parts of Eastern Europe.
Dridex is a disciplined, highly organized gang that operates very much like any other company, following a Monday-to-Friday work week. During those working hours, it sends millions of phishing emails, managing to infect an average of 3,000 to 5,000 computers a day with its malware, also known as Dridex.
Once released, the malware lurks on a user’s computer, watching everything he or she does, waiting for some online banking activity, at which time it uses keystroke logging or web injections to steal the necessary user name and password so that it can carry out its own transactions later on.
These incidents are prompting central banks worldwide, as well as other businesses, to beef up security. After all, some security firms are already reporting that Dridex recently stepped up its attacks and added ransomware to its inventory. Most predict financial institutions will not be the prime target for long.
In addition to conducting regular audits and building strong information security awareness protocols, businesses, no matter what industry, are wise to reinforce some simple, yet vital, messages to all colleagues:
Delete any suspicious-looking emails and be wary of attachments: To unleash malware, hackers are smart enough to disguise attacks as generically worded messages such as, “Please look this over and get back to me by end of day.”
If it’s too good to be true, don’t look. If an email’s subject line is so tempting that you can’t resist opening it, you probably shouldn’t.
Working with their information security and technology teams, as well as many others, risk managers can play an integral role in driving online vigilance throughout their organizations.
Adopting the gang-style approach of the cyber criminals, risk managers can coordinate multiple disciplinary roles throughout the organization to fight cyber gangs’ crime games.
Realizing the True Cost of Risk
Let me get right to the point: Total Cost of Risk (TCoR) usually isn’t.
Don’t get me wrong — calculating the Total Cost of Risk makes a lot of sense. Understanding our risk-related costs allows us to focus on those areas where we can reduce our expenses. The problem is that we often miss the “slow drip” costs in our risk control efforts, meaning we can miss opportunities to save our organizations some serious cash.
Why does this happen? A lot of it comes down to how we traditionally define the elements of our total cost of risk. The profession has agreed (for the most part), that TCoR contains three elements:
Total Cost of Risk = Insurance Premiums + Retained Losses + Risk Control Costs
Calculating our insurance premium costs usually doesn’t cause us too much heartache. We pull out the invoices and tally up how much premium we paid. It doesn’t really matter if we utilize a captive or place lines in the market; premium is premium.
By applying this cost-focused risk lens to their business processes, organizations tap into a wider pool of expertise when identifying systemic inefficiencies.
Sure, we might need to do some fancy allocation math, but let’s be realistic: If we don’t know how big the insurance check is every year then calculating TCoR is probably the least of our worries.
You might think that calculating retained losses should be pretty straightforward as well. Traditionally we would include items like deductibles (insurance or workers’ comp), costs of minor repairs or replacements, ex gratia payments, etc.
But what about the losses we retain from missing an opportunity to be first to market with a new product? What about our lost sales revenues caused by product recalls or data breaches? For all the talk about the value of reputation, how many organizations currently factor in the loss they retain when their reputation takes a hit?
Risk control costs can include both internal and external expenditures, and are often the hardest to track. Traditionally, we would include costs of attorneys and auditors, the salary and benefits of our risk management teams, and maybe the training and equipment costs of our safety or quality programs.
But what about other costs of regulatory compliance such as complying with environmental protection requirements? Do we account for the staff time it takes us to perform our SOX audits? What about the payroll tied up in business or enterprise risk register review sessions?
By applying a broader, enterprise definition to retained losses and control costs, organizations can identify new opportunities to reduce cost across the full spectrum of risk.
By applying this cost-focused risk lens to their business processes, organizations tap into a wider pool of expertise when identifying systemic inefficiencies. Accounting for those inefficiencies through a robust TCoR process can help to drive risk-informed improvements to business processes, and accelerate cost savings.
After all — reducing the true total cost of risk is something leaders of every organization can get behind.
Commercial Auto Warning: Emerging Frequency and Severity Trends Threaten Policyholders
The slow but steady climb out of the Great Recession means businesses can finally transition out of survival mode and set their sights on growth and expansion.
The construction, retail and energy sectors in particular are enjoying an influx of business — but getting back on their feet doesn’t come free of challenges.
Increasingly, expensive commercial auto losses hamper the upward trend. From 2012 to 2015, auto loss costs increased a cumulative 20 percent, according to the Insurance Services Office.
“Since the recession ended, commercial auto losses have challenged businesses trying to grow,” said David Blessing, SVP and Chief Underwriting Officer for National Insurance Casualty at Liberty Mutual Insurance. “As the economy improves and businesses expand, it means there are more vehicles on the road covering more miles. That is pushing up the frequency of auto accidents.”
For companies with transportation exposure, costly auto losses can hinder continued growth. Buyers who partner closely with their insurance brokers and carriers to understand these risks – and the consultative support and tools available to manage them – are better positioned to protect their employees, fleets, and businesses.
Liberty Mutual’s David Blessing discusses key challenges in the commercial auto market.
“Since the recession ended, commercial auto losses have challenged businesses trying to grow. As the economy improves and businesses expand, it means there are more vehicles on the road covering more miles. That is pushing up the frequency of auto accidents.”
–David Blessing, SVP and Chief Underwriting Officer for National Insurance Casualty, Liberty Mutual Insurance
More Accidents, More Dollars
Rising claims costs typically stem from either increased frequency or severity — but in the case of commercial auto, it’s both. This presents risk managers with the unique challenge of blunting a double-edged sword.
Cumulative miles driven in February, 2016, were up 5.6 percent compared to February, 2015, Blessing said. Unfortunately, inexperienced drivers are at the helm for a good portion of those miles.
A severe shortage of experienced commercial drivers — nearing 50,000 by the end of 2015, according to the American Trucking Association — means a limited pool to choose from. Drivers completing unfamiliar routes or lacking practice behind the wheel translate into more accidents, but companies facing intense competition for experienced drivers with good driving records may be tempted to let risk management best practices slip, like proper driver screening and training.
Distracted driving, whether it’s as a result of using a phone, eating, or reading directions, is another factor contributing to the number of accidents on the road. Recent findings from the National Safety Council indicate that as much as 27% of crashes involved drivers talking or texting on cell phones.
The factors driving increased frequency in the commercial auto market.
In addition to increased frequency, a variety of other factors are driving up claim severity, resulting in higher payments for both bodily injury and property damage.
Treating those injured in a commercial auto accident is more expensive than ever as medical costs rise at a faster rate than the overall Consumer Price Index.
“Medical inflation continues to go up by about three percent, whereas the core CPI is closer to two percent,” Blessing said.
Changing physical medicine fee schedules in some states also drive up commercial auto claim costs. California, for example, increased the cost of physical medicine by 38 percent over the past two years and will increase it by a total of 64 percent by the end of 2017.
And then there is the cost of repairing and replacing damaged vehicles.
“There are a lot of new vehicles on the road, and those cost more to repair and replace,” Blessing said. “In the last few years, heavy truck sales have increased at double digit rates — 15 percent in 2014, followed by an additional 11 percent in 2015.”
The impact is seen in the industry-wide combined ratio for commercial auto coverage, which per Conning, increased from 103 in 2014 to 105 for 2015, and is forecast to grow to nearly 110 by 2018.
None of these trends show signs of slowing or reversing, especially as the advent of driverless technology introduces its own risks and makes new vehicles all the more valuable. Now is the time to reign in auto exposure, before the cost of claims balloons even further.
The factors driving up commercial auto claims severity.
Data Opens Window to Driver Behavior
To better manage the total cost of commercial auto insurance, Blessing believes risk management should focus on the driver, not just the vehicle. In this journey, fleet telematics data plays a key role, unlocking insight on the driver behavior that contributes to accidents.
“Roughly half of large fleets have telematics built into their trucks,” Blessing said. “Traditionally, they are used to improve business performance by managing maintenance and routing to better control fuel costs. But we see opportunity there to improve driver performance, and so do risk managers.”
Liberty Mutual’s Managing Vital Driver Performance tool helps clients parse through data provided by telematics vendors and apply it toward cultivating safer driving habits.
“Risk managers can get overwhelmed with all of the data coming out of telematics. They may not know how to set the right parameters, or they get too many alerts from the provider,” Blessing said.
“We can help take that data and turn it into a concrete plan of action the customer can use to build a better risk management program by monitoring driver behavior, identifying the root causes of poor driving performance and developing training and other approaches to improve performance.”
Actions risk managers can take to better manage commercial auto frequency and severity trends.
Rather than focusing on the vehicle, the Managing Vital Driver Performance tool focuses on the driver, looking for indicators of aggressive driving that may lead to accidents, such as speeding, sharp turns and hard or sudden braking.
The tool helps a risk manager see if drivers consistently exhibit any of these behaviors, and take actions to improve driving performance before an accident happens. Liberty’s risk control consultants can also interview drivers to drill deeper into the data and find out what causes those behaviors in the first place.
Sometimes patterns of unsafe driving reveal issues at the management level.
“Our behavior-based program is also for supervisors and managers, not just drivers,” Blessing said. “This is where we help them set the tone and expectations with their drivers.”
For example, if data analysis and interviews reveal that fatigue factors into poor driving performance, management can identify ways to address that fatigue, including changing assigned work levels and requirements. Are drivers expected to make too many deliveries in a single shift, or are they required to interact with dispatch while driving?
“Management support of safety is so important, and work levels and expectations should be realistic,” Blessing said.
A Consultative Approach
In addition to its Managing Vital Driver Performance tool, Liberty’s team of risk control consultants helps commercial auto policyholders establish screening criteria for new drivers, creating a “driver scorecard” to reflect a potential new hire’s driving record, any Motor Vehicle Reports, years of experience, and familiarity with the type of vehicle that a company uses.
“Our whole approach is consultative,” Blessing said. “We probe and listen and try to understand a client’s strengths and challenges, and then make recommendations to help them establish the best practices they need.”
“With our approach and tools, we do something no one else in the industry does, which is perform the root cause analysis to help prevent accidents, better protecting a commercial auto policyholder’s employees and bottom line.”
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.