An Insatiable Beast
Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.
Part One: Who Kicked the Door In?
Executives with Sweet Life are in a self-congratulatory mode.
Having just plunked down $15 million for a new, just-in-time processing and shipping system, the company leadership feels poised for even greater success.
Starting with a then-unknown Kombucha product, the company grew, selling Kombucha, coconut water and a menu of flavored sparkling water sourced from unquestionably pure springs.
Walk into almost any tony yoga studio along the Atlantic seaboard and you would see some bottle or can with the Sweet Life label on it.
“I want to congratulate everyone involved in this effort,” Saltwood tells his assembled leadership team during a celebratory, well-lubricated meal at one of the best vino-centric restaurants in the Finger Lakes.
Smiles all around, except for Anne Margate, the company’s chief risk officer. Saltwood notices her mood and lifts a wine bottle in her direction as if to offer her more.
She waves the bottle off, and bends her head back down to her BlackBerry, typing feverishly.
Saltwood just shakes his head.
“She worries too much,” he says to himself.
Two days later comes a jolt of reality for Saltwood in the form of a phone call from his CIO.
“We’ve got a breach. Doesn’t look too extensive but we’re moving to identify any lost data and isolate the problem,” the CIO says.
“Alright, keep me posted if you think it’s going to get uglier. I especially want to know if any customer data gets compromised,” Saltwood says.
“Roger, Wilco,” says the CIO.
It’s uglier than either Saltwood or his CIO could possibly know.
What’s hit Sweet Life is a cyber worm that goes by the name of “Purple Moray.” The name of the worm reveals its intent.
The worm carries a payload that is designed to search out and destroy — just like its ravenous sea eel namesake — programmable logic computers that control machine processes, the very thing that Sweet Life just purchased as part of its $15 million manufacturing upgrade.
Purple Moray is also equipped with a rootkit component, making its passage through Sweet Life’s information technology systems virtually impossible to detect. Try as they might, Sweet Life’s IT team feels like it is not seeing the whole picture.
Sweet Life’s CIO picks up the phone and calls a forensics team he knows in Rochester.
“Yep,” says the CEO of the forensics team when he picks up the phone. He’s eating potato chips as he talks.
“Yeah, hi Mark,” says the CIO, who has known the forensics CEO since high school.
“Whatcha’ got?” Mark says, crunching a chip.
“Are you eating?” the CIO says agitatedly.
“I’m hungry. What is it?” Mark says.
The CIO shakes off his irritation.
“We need you to come down here. We’ve had a breach and we’re not sure of the extent of it,” the CIO says.
“We’ll be there this afternoon.”
Part Two: Gut-Wrenching Pain
The CIO initially fails to tell Anne Margate what’s going on. Sweet Life is a bit of an old boy’s club — though all the top brass is under 40 — and Anne is not a member of the club.
But she makes a point of finding out what’s going on within the company regardless. It’s when the Rochester forensics team shows up that she gets wind of what’s happened.
“When were you going to tell me about this?” she asks the CIO.
“I … ,” he manages to get out before she cuts him off.
“We need to tell our insurance broker,” she says. “I’ll send you an invite.”
“Which is more than you did for me,” she says to herself under her breath as she walks away.
“OK to summarize,” the broker says on the call, “we need a full list of any customers affected, then move to notify those customers. And keep the forensic work going.”
“I’ll let the cyber policy carrier and the crime policy carrier know that we might have a claim coming,” the broker says.
The next day the chief of operations comes into work to find that Sweet Life’s spanking new manufacturing system is down, all the way down.
“All the computers are dead, boss,” says one of the line foremen.
Anne Margate, who is now fully engaged in the recovery attempt, barges into the company lunch room.
There she finds Mark, the forensics guy, and two of his teammates settling down to a lunch of pepperoni pizza and a very large meatball sub.
“What’s going on?” she says.
“We’re having lunch,” Mark says.
“I know that, I mean with our manufacturing process,” she says.
Mark pauses to wipe some red sauce off of his chin.
“You’re, who again?” he says.
“I’m the risk manager,” she says, trying to control her anger.
“Oh,” he says. “What’s happened is that your operations have been attacked by a cyber worm. It’s called Purple Moray. It’s disabled the programmable logic computers that control your machine processes,” he says.
“Are they merely disabled or destroyed?” she says.
“We’re getting to that,” says Mark. “As soon as we finish lunch.”
Sweet Life’s broker, exercising an abundance of caution, contacts the company’s property carrier to notify it that Sweet Life may have a claim against this policy as well.
“It looks like the damages are far more extensive than we thought,” Anne Margate says on a call with Saltwood and the company’s property underwriters.
After she gets off the phone with her property underwriters, Anne Margate has the sickening feeling that in the event of the damages caused by a computer worm of this nature, her cyber, crime and property policies might not be all that well aligned.
Part Three: All Gone
“Can anybody in this company tell me what’s going on with this Purple Moray worm?” Josh Saltwood thunders into the phone from his vacation home in the Hamptons.
“All we’ve been able to do is identify it, we can’t stop it,” says the exhausted CIO.
Sweet Life’s situation is weakening day by day.
In addition to disabling or damaging key pieces of manufacturing equipment, the worm, through a second payload, did access and steal customer data; much more data than the company’s IT department initially understood to be taken.
The company has to inform customers, including the largest natural foods retailer in the country, that although it thought it hadn’t lost their data, it turns out they had.
“We know we told you a week ago that your information was OK, but it’s not OK,” the CIO and Margate tell the retailer on yet another painful call.
“This thing is like some kind of insatiable beast,” says Mark, the forensics guy, as he sits at an in-house Sweet Life computer, an open bag of peppermint bark on the desk.
“You want some bark?” he says to Margate, who is sitting beside him trying to learn as much as she can about cyber hack forensics.
“No thanks,” she says.
“I’ve never seen anything like this,” says Mark.
Over time, the forensics team, working in congress with Sweet Life’s IT team, is able to isolate the Purple Moray malware and remediate some of the damage done to the company’s computer-controlled manufacturing system.
Anne Margate, who worries about everything, finds that her concerns about her insurance policies were somewhat unfounded.
The cyber, crime and property policies all respond, although not to the degree that every loss is covered.
The company’s property coverage was inadequate to cover all of the damage done to the company’s new manufacturing system. The uninsured loss there is more than $5 million.
Sweet Life is facing a daunting task as it deals with a bruised image in the marketplace and strained relationships with its once loyal customers.
Now it also has to improve its cyber security and convince its insurers that it is a good risk going forward. When Josh Saltwood founded Sweet Life, he was one of three licensed retailers selling Kombucha. When Purple Moray struck, there were more than two dozen U.S.-based producers. The burgeoning coconut water market reflects a similar reality.
As Sweet Life tries to claw back to some semblance of success, it faces an initial market share loss of some $10 million annually, and there is no policy that can insure that.
Risk & Insurance® partnered with FM Global to produce this scenario. Below are FM Global’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance®.
While one could argue whether cyber risk is still “emerging,” it’s the new reality, and should be dealt with like any other hazard. So, let’s examine this scenario using a traditional risk management approach. Although cyber is a relatively new exposure, traditional risk management concepts apply: risk identification, assessment and mitigation.
Essentially, any organization is subject to a cyber attack, and it’s not a matter of if, but when it happens. In this case, Sweet Life had just upgraded its processing and shipping system, when a data breach occurred. How the breach actually occurred is not clear, but we do know that it did cause some major damage to the industrial system control computers. Serious business interruption ensued, which had a deleterious affect on the company’s supply chain and market share.
Just how aware was Sweet Life that its IT systems were at risk? Did Anne Margate, the chief risk officer, fully understand the potential exposure? Had she and the chief information officer had any discussions about business risk impact if the systems were compromised? Today’s risk manager has to think well beyond insurance procurement. In this new digital era, the CIO becomes a new and important ally in managing risk.
Potential questions to ask:
- To what extent are your business operations tied to computers, and how reliant are you on these systems to keep your operations running? Do you have a back up plan?
- How secure is your network? How resilient are your email spam filters and malware protection devices?
- Have employees received proper network security training?
- Are measures in place to keep potential intruders from gaining access to your network—internally and externally?
Some pre-emptive actions to consider:
- Determine what information security standard applies to your industry and base your cybersecurity framework on standardized practices.
- Identify and classify data based on business criticality, as well as sensitivity/confidentiality of data.
- Identify critical assets and physical/logical network access points at your facility and determine how access is controlled. Prioritize improvement activities.
- Create and maintain a documented incident response team to respond to cyber events. The plan should be part of a holistic risk management program.
- Test the plan. Tabletop simulation exercises can test the plan and identify restoration timeframes.
Multiple policies, various coverage: In terms of insurance coverage, cyber losses tend to involve multiple carriers. In this case, Sweet Life had three separate policies for cyber, crime and property. Unfortunately, how these policies would respond in the event of a cyber attack had never been fully vetted. As is the case with any insurance coverage, the time to learn about what is covered is an exercise best conducted before the loss actually occurs. If you have multiple carriers, be sure that you and your broker meet with them in advance to understand how the policies will respond and iron out any discrepancies.
Stabbed in the Back
Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.
Part One: Opportunity Knocks
Jack Fisk, nice and warm in the comfort of his study in Fort Collins, Colorado, sat and stared at the message in his personal email account inbox. He sat and stared at it for a long time.
Jack took a sip of herbal tea and a nibble of the lemon cookie at his elbow. Then he went back to staring at the message. There it was in black and white, an offer from a Chinese national — an offer he felt he couldn’t refuse.
As a lead engineer with Super Diamond, a manufacturer of mining and drilling equipment, Jack was an integral part of a team that developed one of the most effective drilling bits ever made. The bit, used in gold mining and deep-sea oil extraction, was helping to push Super Diamond into record-breaking revenue territory.
There was only one problem and it was a very big one, for Jack at least. Super Diamond’s top line was breaking records, but Jack Fisk felt left out. Where were his millions, he wondered.
Well here they were. He didn’t know how they found him, but they found him.
The deal was this. Hand over some of Super Diamond’s top-secret product information and receive a seven-figure reward.
As Jack considered the offer, he felt entirely justified in taking it. It was his creativity and knowledge, more than anyone else’s, which led to the product breakthrough. He was sure of it. He knew it in his gut.
Here’s what Jack didn’t know. Another employee of Super Diamond, an IT executive based in Mumbai, was looking at a very similar email. This employee, Vijay Bhakta, enjoyed super-user status within Super Diamond’s computer networks, with access to all of its servers.
The Chinese had done their homework. Jack, married with two children, lived a pretty straight life. The lure of a big paycheck was more than enough for him.
Vijay enjoyed a riskier lifestyle. Money was a good motivator for him, but just as compelling were the offers of drugs and prostitutes the Chinese were dangling in front of him.
In approaching Vijay, the Chinese were after more than product information. They wanted access to Super Diamond’s customer list and information on its entire product line, not just the drilling bits that Jack helped develop.
Both executives, unbeknownst to the other, took the bait.
For the next 18 months, Jack used the time-honored method of downloading proprietary information onto a thumb drive, walking out the door with it, and painstakingly sending it to his Chinese contact using his personal email address in the quiet comfort of his study at home.
The Bitcoin payments from the Chinese, amounting to $2.7 million in 18 months, arrive faithfully. Jack uploads his company’s precious trade secrets just as faithfully.
Vijay is introduced to a hacker who, armed with the IT exec’s user information and passcodes, invades Super Diamond’s system at will over the same time period.
Vijay is also faithfully compensated, with cash drops and services meeting his other needs, under the terms of his agreement with the Chinese.
At the end of 18 months, fully exploiting their two points of entry, the Chinese own the keys to the Super Diamond kingdom. They know how to make a number of Super Diamond’s products and they know exactly who to sell them to and at what price.
Part Two: A Chilling Recognition
Super Diamond’s risk manager, Cathleen Sunbury, is enjoying an invigorating game of tennis with a friend on a sunlit court in San Diego, when she gets an urgent text from the company’s COO.
“Please get to the office, ASAP,” says the message. “Urgent.”
A chill runs through Cathleen.
“Uh oh,” she says, as she and her friend grab a water break courtside.
“What is it?” her friend says.
“I don’t know what it is, but it doesn’t look good,” Cathleen says. “I gotta go.”
“Is this because I was winning?” her friend asks.
That would normally be a funny jibe between friends. It’s not today.
At the office, other company executives share with Cathleen what they know. Sales in several of Super Diamond’s key Asian markets have suddenly softened.
There is also an indication that the company suffered an IT breach, but the extent of it is difficult to ascertain. Whoever broke in did a great job of covering their tracks. What was accessed and what was taken appear to be unknowns. The company’s IT department is at a loss.
“I know who to call,” Sunbury says, banking on a conversation she had with a former higher-up in the FBI who now works for a cyber forensics firm in Philadelphia.
The Super Diamond CEO and CFO initially balk at the forensic firm’s price tag.
The vice president of the forensic firm, who led key cyber investigations for the FBI before entering the private sector, snorts in derision.
“Your company is horrible at this,” the forensics VP says.
“Your IT department has no idea what happened and it will take them months to figure it out,” he says.
“It’s looking like you have an internal perpetrator, possibly more than one. How much longer can you afford to wait to determine what’s going on?”
The phrase “possibly more than one” overwhelms any resistance on the part of the CFO and the CEO. They sign on the dotted line with the forensics firm.
The forensic firm gets right to work. To connect the dots they pull records from a number of departments, including Human Resources and Security.
They also have their own cyber security specialist take a look at the Super Diamond network to see who might have compromised it.
It takes the forensics firm two days to come up with two names: Jack Fisk and Vijay Bhakta.
Part Three: Gone, Gone, Gone
Jack Fisk and Vijay Bhakta are dismissed and face criminal charges. As painful as that is for company executives, that’s the easy part.
What comes next for Cathleen Sunbury in her role as risk manager is far more painstaking, and far more painful.
The forensics team is able to match up human resources records, including data on when Vijay Bhakta and Jack Fisk were in the office, against data on computer use, including when an outside device was connected to Jack Fisk’s computer.
That left no doubt that the product information and additional company information that was taken from Super Diamond was the work of inside perpetrators.
The “good” news is that Super Diamond executives now understand what happened. The bad news is that their insurance policies are inadequate to cover the loss.
Determining the value of what was taken, including the cost of lost sales, is difficult, but Super Diamond executives settle on a figure of $200 million.
The company’s cyber breach policy, though, covers an occurrence in the event of a breach from an outside hacker. Bhakta and Fisk are internal perpetrators, and thus the company is not covered, its carrier says.
Compounding the pain, Super Diamond shareholders file suit against Super Diamond executives and board members. The shareholders argue that the board and the C-suites failed to take adequate measures to protect proprietary company information.
The company’s E&O and D&O policies respond to the costs of the lawsuits. But the company faces punishing premium increases for both E&O and D&O coverage going forward.
Sales are depressed, due to the theft of key intellectual property, and getting good cyber coverage at a reasonable price is flat-out impossible.
Super Diamond settles for a premium increase to cover both external and internal hacks that is 400 percent more than it faced the previous year.
Worn out by the process of determining the loss and trying to get coverage for a company that is bleeding money; Cathleen Sunbury resigns.
“I don’t know who we’re going to get to replace you,” the CEO says.
“I don’t know either,” Sunbury says, meaning no disrespect but feeling utterly defeated.
Risk & Insurance® partnered with Swiss Re Corporate Solutions to produce this scenario. Below are Swiss Re Corporate Solutions’ recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance®.
Super Diamond’s Cathleen Sunbury might still have her job and her company would be in much better shape had she partnered with Swiss Re Corporate Solutions.
Swiss Re, in addition to offering cyber insurance coverage that would have covered an internal perpetrator incident such as the one detailed in “Stabbed in the Back,” would also advise Sunbury and her fellow executives at Super Diamond on being much better prepared to defend against and respond to it.
Having a forensics team, a crisis (breach) communications partner and the right law firm lined up ahead of time would have saved the company a lot of time and trouble. Swiss Re offers all of that as part of its coverage.
In just one example, imagine the costs that Super Diamond will incur if it has to go after Vijay Bhakta and Jack Fisk in civil court, or what it’s going to spend defending itself against shareholder lawsuits.
Swiss Re Corporate Solutions would have paid for Super Diamond’s legal defense, compensated it for lost revenue, and paid for data reconstitution and additional legal costs as part of its CyberSolutions product.
The lost sales in Asia that Super Diamond experiences when Jack Fisk sells its intellectual property to a Chinese national would also be covered under that policy.
On the front end, Swiss Re Corporate Solutions would work with Super Diamond to identify which of its mining or drilling technologies were most valuable; in other words, naming the “crown jewels” that the company absolutely could not afford to lose control of. That would also involve ascertaining where those “jewels” are stored and who has access to them.
The upfront work would also include the services of experts with IBM who can conduct penetration tests of the company’s IT systems.
In essence, companies everywhere need to understand that any gap in its preparedness or ability to respond creates liability. There is not only the initial liability of a loss or a penetration, there is the multiplying liability of shareholders, or regulators, holding the company responsible for its negligence.
By partnering with Swiss Re Corporate Solutions and picking up its CyberSolutions product, Super Diamond would have bolstered its risk mitigation and vastly improved the efficiency of its response.
No company is safe from a cyber penetration; the record is clear on that. But experts say many companies have a lot of ground to make up to become more vigilant and better coordinated to bounce back when an incident occurs.
No entity can do this on its own. Pick the right partner(s).
Hot Hacks That Leave You Cold
Thousands of dollars lost at the blink of an eye, and systems shut down for weeks. It might sound like something out of a movie, but it’s becoming more and more of a reality thanks to modern hackers. As technology evolves and becomes more sophisticated, so do the occurrence of cyber breaches.
“The more we rely on technology, the more everything becomes interconnected,” said Jackie Lee, associate vice president, Cyber Liability at Nationwide. “We are in an age where our car is a giant computer, and we can turn on our air conditioners with our phones. Everyone holds data. It’s everywhere.”
Phishing Out Fraud
According to Lee, phishing is on the rise as one of the most common forms of cyber attacks. What used to be easy to identify as fraudulent has become harder to distinguish. Gone are the days of the emails from the Nigerian prince, which have been replaced with much more sophisticated—and tricky—techniques that could extort millions.
“A typical phishing email is much more legitimate and plausible,” Lee said. “It could be an email appearing to be from human resources at annual benefits enrollment or it could be a seemingly authentic message from the CFO asking to release an invoice.”
According to Lee, the root of phishing is behavior and analytics. “Hackers can pick out so much from a person’s behavior, whether it’s a key word in an engagement survey or certain times when they are logging onto VPN.”
On the flip side, behavior also helps determine the best course of action to prevent phishing.
“When we send an exercise email to test how associates respond to phishing, we monitor who has clicked the first round, then a second round,” she said. “We look at repeat offenders and also determine if there is one exercise that is more susceptible. Once we understand that, we can take the right steps to make sure employees are trained to be more aware and recognize a potentially fraudulent email.”
Lee stressed that phishing can affect employees at all levels.
“When the exercise is sent out, we find that 20 percent of the opens are from employees at the executive level,” she said. “It’s just as important they are taking the right steps to ensure they are practicing what they are preaching.”
Locking Down Ransomware
Another hot hacking ploy is ransomware, a type of property-related cyber attack that prevents or limits users from accessing their system unless a ransom is paid. The average ransom request for a business is around $10,000. According to the FBI, there were 2,400 ransomware complaints in 2015, resulting in total estimated losses of more than $24 million. These threats are expected to increase by 300% this year alone.
“These events are happening, and businesses aren’t reporting them,” Lee said.
In the last five years, government entities saw the largest amount of ransomware attacks. Lee added that another popular target is hospitals.
After a recent cyber attack, a hospital in Los Angeles was without its crucial computer programs until it paid the hackers $17,000 to restore its systems.
Lee said there is beginning to be more industry-wide awareness around ransomware, and many healthcare organizations are starting to buy cyber insurance and are taking steps to safeguard their electronic files.
“A hospital holds an enormous amount of data, but there is so much more at stake than just the computer systems,” Lee said. “All their medical systems are technology-based. To lose those would be catastrophic.”
And though not all situations are life-or-death, Lee does emphasize that any kind of property loss could be crippling. “On a granular scale, you look at everything from your car to your security system. All data storage points could be controlled and compromised at some point.”
The Future of Cyber Liability
According to Lee, the Cyber product, which is still in its infancy, is poised to affect every line of business. She foresees underwriting offering more expertise in crime and becoming more segmented into areas of engineering, property, and automotive to address ongoing growing concerns.”
“Cyber coverage will become more than a one-dimensional product,” she said. “I see a large gap in coverage. Consistency is evolving, and as technology evolves, we are beginning to touch other lines. It’s no longer about if a breach will happen. It’s when.”
About Nationwide’s Cyber Solutions
Nationwide’s cyber liability coverage includes a service-based solution that helps mitigate losses. Whether it’s loss prevention resources, breach response and remediation expertise, or an experienced claim team, Nationwide’s comprehensive package of services will complement and enhance an organization’s cyber risk profile.
Nationwide currently offers up to $15 million in limits for Network Security, Data Privacy, Technology E&O, and First Party Business Interruption.
Products underwritten by Nationwide Mutual Insurance Company and Affiliated Companies. Not all Nationwide affiliated companies are mutual companies, and not all Nationwide members are insured by a mutual company. Subject to underwriting guidelines, review, and approval. Products and discounts not available to all persons in all states. Home Office: One Nationwide Plaza, Columbus, OH. Nationwide, the Nationwide N and Eagle, and other marks displayed on this page are service marks of Nationwide Mutual Insurance Company, unless otherwise disclosed. © 2016 Nationwide Mutual Insurance Company.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Nationwide. The editorial staff of Risk & Insurance had no role in its preparation.