Risk Insider: Terri Nichols

Cyber Checklist for Risk Managers

By: | January 25, 2016 • 2 min read
Terri Morris-Nichols is system director of risk management at PeaceHealth, a not-for-profit health care system with 10 hospitals and medical facilities in Alaska, Washington and Oregon. She is a registered nurse with a master's degree in health administration. She can be reached at TNichols@peacehealth.org.

This article was written in conjunction with Christine Novotny, ARM, Manager, Risk and Insurance, PeaceHealth.

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If the value of personal information makes us vulnerable, the value of health care information exponentially expands the bullseye. According to Reuters, medical records are worth up to 10 times more than credit card numbers on the black market.

As a health care organization, it is our responsibility to protect the integrity of our patient’s records, and we take this responsibility very seriously.

To help us break this threat apart into manageable steps we have created a checklist for the risk manager.

All too often the effort has been focused on preventing and managing massive cyber-attacks. However, it is critically important that we be mindful of the exposure the individual employee represents in our cyber security.

This could be the employee who inadvertently faxes data to the wrong person, leaves their computer unattended and at risk, or the employee who intentionally sets out to hurt the organization as a retaliatory measure.  This is a real exposure that is often overlooked.

It’s important that you act in lock step with network security and organizational teams in order to detect, stop, and address the untoward event appropriately.  Cyber threats can be overwhelming and a contributor to sleepless nights.

To help us break this threat apart into manageable steps we have created a checklist for the risk manager.

Checklist for Risk Managers

  • Work with board and executive leadership to ensure support for cyber initiatives.
  • Provide for strong data breach identification and management policies and procedures creating a zero tolerance culture for data breaches.
  • Ensure that education and training occurs at all levels of the organization at least annually to include basic definitions, policy content and zero tolerance culture.
  • Create a breach response team in partnership with Organizational Integrity, Finance, Legal, Risk, IT security, Human Resources, and Communications to ensure are all working together for immediate detection, response and action when a breach occurs.
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  • Negotiate a robust cyber insurance policy that has breach response, liability coverages, as well as coverage for regulatory actions, fines, and penalties.
  • Create data breach preparedness planning opportunities.
  • Leverage insurance carrier for education and loss prevention opportunities.
  • Appreciate the regulatory landscape through education and training.
  • Develop contracts with external partners including forensic firms, law firms, and public relations firms to assist during a large breach event.
  • Train, test, revise, train, test, and revise!

The answer to many cyber threats is having the force of an integrated cyber security and breach response team as your shield.

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Cyber Insurance

A Solution to Cyber Risk Assessment

A new schema will create a standard way for insurers to gather data on cyber exposure.
By: | January 25, 2016 • 5 min read
Digital sketch of the different financial charts

The insurance industry is about to have a clearer idea of just how much exposure it has to cyber attacks on its customers.

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Ahead of the February launch of its new suite of cyber risk management tools, RMS has released its recently developed Cyber Exposure Data Schema. The ‘open standard’ data schema will provide the insurance industry with a systematic and uniform way to capture cyber exposure data and manage cyber accumulation risk.

Many insurance companies have created cyber insurance products that are providing useful coverage, but their true exposure in the relatively new product line is still unclear, London-based RMS senior vice president Andrew Coburn said.

“Carriers appear to be getting decent profitability on writing cyber insurance, but the problem is that they don’t know how much they could lose in a bad year – what their ‘cyber catastrophe’ exposure is,” Coburn said.

“Clearly there is a lot of demand but not enough capacity in the market because carriers are nervous about accumulation – what happens if thousands get hit by a cyber attack at one time?”

In conjunction with the new schema, Verisk Analytics in Jersey City, N.J., announced the industry’s first global cyber exposure data standard “to help create a uniform method for data transfer across the insurance value chain.”

Verisk’s catastrophe modeling business AIR Worldwide has also developed a preparer’s guide to assist companies in collecting and storing the necessary cyber exposure data in an open format suitable for modeling.

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Scott Stransky, manager and principal scientist, AIR Worldwid

“It’s important to lay the foundation – you can’t build a model until there is a standardized way to put it in a framework for capturing cyber risk,” said Scott Stransky, manager and principal scientist at AIR Worldwide in Boston.

Currently, some insurers just collect information on the potential insured’s industry and revenues, Stransky said.

Other insurers spend a lot of time talking to the company’s information technology staff about their recovery plans, whether they have network intrusion testing, and which devices they actually use for intrusion testing.

RMS created an accumulation management system to help carriers organize and structure their data enabling them to determine how much exposure they have, he said. RMS has also developed detailed scenarios to illustrate the five key cyber events that could occur and cause carriers to lose a lot of money.

“The schema is data architecture – how to organize exposure information in the insurance company to make sure they’ve got their data in the right structure,” Coburn said. “This enables them to report to senior management the exact picture of exposure, and how it’s segmented across the market in different architectures.”

The new data schema for cyber insurance provides firms with a standardized approach to identifying, quantifying and reporting cyber insurance exposure.

The Cyber Exposure Data Schema, developed in collaboration with the Centre for Risk Studies at Cambridge University and with support from eight leading insurance and reinsurance companies, provides firms with a standardized approach to identifying, quantifying and reporting cyber insurance exposure. The schema is both model agnostic and compatible with any exposure management system and will enable firms to:

    • Share and transfer information about exposures in a consistent and standardized format for risk transfer transactions, benchmarking exercises, and regulatory reporting;
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  • Report exposure aggregates by different types of coverage and potential loss characteristics to a level of granularity that can inform risk appetite decisions;
  • Assess and monitor an insurer’s risk appetite, by estimating losses from accumulation scenarios or other types of risk models to the exposure recorded;
  • Clarify silent or affirmative covers by identifying insurance policies that may have ambiguity in whether they would pay out in the event of a cyber incident.

The Cyber Exposure Data Schema was developed by the Centre of Risk Studies at Cambridge University and supported by RMS, Amlin Plc, Aon Benfield, AXIS Capital, Barbican Insurance Group, Canopius Managing Agents Ltd., RenaissanceRe Holdings, Talbot Underwriting, and XL Catlin.

To develop the Cyber Exposure Data Schema, the Cambridge Centre of Risk Studies consulted with a broad range of organizations seeking to harmonize cyber exposure reporting, including cyber risk experts, cyber insurance writers, and industry organizations such as the Lloyd’s Market Association, U.S. rating agencies, the Reinsurance Association of America, and the Chief Risk Officers Forum.

In the London market, Lloyd’s has mandated that all companies within its syndicates or under its management need to report their cyber exposure by the end of the first quarter in March.

In addition to making its Cyber Exposure Data Schema available to all industry participants, RMS has also collaborated with Lloyd’s of London and AIR Worldwide to help the growing cyber insurance market quickly establish the core data requirements for managing cyber risk common to both modeling firms.

By using similar terminology and precise definitions, in addition to highlighting the common elements across their data schemas, the initiative will make it easier for companies to code existing account data to identify their potential cyber accumulations.

“Cyber insurance is an important new area of coverage, and it is essential that we have good-quality standardized data to track exposures,” Tom Bolt, director, performance management, Lloyd’s of London, said in announcing the new schema.

“I am delighted that RMS has collaborated with us to help standardize some common data requirements and that their new data schema incorporates this.”

Bolt noted that Lloyd’s also collaborated with AIR to “help standardize some common data requirements and … their new data schema incorporates this.”

In the London market, Lloyd’s has mandated that all companies within its syndicates or under its management need to report their cyber exposure by the end of the first quarter in March.

“That was one of the drivers for getting the RMS schema published now,” Coburn said. In early February, RMS will release its cyber accumulation management system which includes the five scenarios.

“While the problems are the same in every region, the U.S. is further ahead of other markets in writing cyber risk; the large majority of cyber insurance premiums are written in the U.S.,” he said.

“There are still many more companies in the U.S. market that are very keen to expand their capacity, so it’s a universal problem.

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“Our purpose is not to stop insurers from collecting this information or force insurers to collect more – the guide is really a framework for how companies can think about which fields are more relevant than others,” he said.

In addition, AIR Worldwide has developed an SQL implementation to allow organizations to begin to use the standard in their enterprises. In the coming months, the firm aims to provide SQL scripts that can be used for deterministic scenario analysis and accumulation analysis.

One example would be finding out what types of encryption that insureds are using, Stransky said. The firm could use a query to find flaws that could impact the carrier’s book of business.

“We want to make this practical so carriers can use this right away, but also flexible to allow growth within the framework – something that adds value,” he said.

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at riskletters@lrp.com.
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Sponsored: State of Vermont

7 Questions to Answer before Choosing a Captive Insurance Domicile

Ask the right questions and choose a domicile for your immediate and long-term needs.
By: | February 5, 2016 • 7 min read
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Risk managers: Do your due diligence!

It seems as if every state in America, as well as many offshore locations, believes that they can pass captive legislation and declare, “We are open for business!”

In fact, nearly 40 states and dozens of offshore locations have enabling captive insurance legislation to do just that.

With so many choices how do you decide who is experienced enough to support the myriad of fiscal and regulatory requirements needed to ensure the long term success of your captive insurance company?

“There are certainly a lot of choices,” said Mike Meehan, a consultant with Milliman, an actuarial firm based out of Boston, Massachusetts, “but not all domiciles are created equal.”

Among the crowd, there are several long-standing domiciles that offer the legislative, regulatory and infrastructure support that makes captive ownership not only a successful risk management tool but also an efficient entity to manage and operate.

Selecting a domicile depends on many factors, but answering these seven questions will help focus your selection process on the domiciles that best fit your needs.

 

1. Is the domicile stable, proven and committed to the industry for the long term?

ThinkstockPhotos-139679578_700The more economic impact that the captive industry has on the domicile, the more likely it is that captives will receive ongoing regulatory and legislative support. The insurance industry moves very quickly and a domicile needs to be constantly adapting to stay up to date. How long has the domicile been operating and have they been consistent in their activity over the long term?

The number of active captive licenses, amount of gross premium written in a domicile and the tax revenue and fees collected can indicate how important the industry is to the jurisdiction’s bottom line. The strength of the infrastructure and the number of jobs created by the captive industry are also very relevant to a domicile’s commitment.

“It needs to be a win – win situation between the captives and the jurisdiction because if not, the domicile is often not committed for the long term,” said Dan Kusalia, Partner with Crowe Hortwath LLP focused on insurance company tax.

Vermont, for example, has been licensing captives since 1981 and had 589 active captives at the end of 2015, making it the largest domestic domicile and third largest in the world. Its captive insurance companies wrote over $25 billion in gross written premiums. The Vermont State Legislature actively supports an industry that creates significant tax revenue, jobs and tourist activity.

 

2. Are the domicile’s captives made up of your peer group?

The demographics of a domicile’s captive companies also indicate how well-suited the location may be for a business in a particular industry sector. Making sure that the jurisdiction has experience in the type and form of captive you are looking to establish is critical.

“Be among your peer group. Look around and ask, ‘Who else is like me?’” said Meehan. “Does the jurisdiction have experience licensing and regulating the lines of coverage for other businesses in your industry sector?”

 

3. Are the regulators experienced and consistent?

Vermont_SponsoredContentIt takes captive-specific expertise and broad experience to be an effective regulator.

A domicile with a stable and long-term, top-tier regulator is able to create a regulatory environment that is consistent and predictable. Simply put, quality regulation and longevity matter a lot.

“If domicile regulators are inexperienced, turnaround time will be slower with more hurdles. More experience means it is much easier operating your business, especially as your captive grows over time,” said Kusalia.

For example, over the past 35 years, only three leaders have helmed Vermont’s captive regulatory team. Current Deputy Commissioner David Provost is one of the longest tenured chief regulators and is a 25-year veteran in the captive insurance industry. That experienced and consistent leadership enables the domicile to not only attract quality companies, but also to provide expert guidance on the formation process and keep the daily operations running smoothly.

 

4. Are there world-class support services available to help manage your captive?

Vermont_SponsoredContentThe quality of advisors and managers available to assist you will have a large impact on the success of your captive as well as the ease of managing the ongoing operations.

“Most companies don’t have the expertise to operate an insurance company when you form a captive, so you need to help build them a team,” Jeffrey Kenneson, a Senior Vice President with R&Q Quest Management Services Limited.

Vermont boasts arguably the most stable and experienced captive infrastructure in the world. Many of the leading captive management companies have their headquarters for their Global, North America and U.S. operations based in Vermont. Experienced options for captive managers, accountants, auditors, actuaries, bankers, lawyers, and investment professionals are abundant in Vermont.

 

5. Can the domicile both efficiently license and provide on-going support to your captive as it grows to cover new lines of coverage and risks?

Vermont_SponsoredContentLicensing a new captive is just the beginning. Find out how long it takes for the application to get approved and how long it takes for an approval of a plan change of your captive’s operations.

A company’s risks will inevitably change over time. The captive will need to make plan changes which can include adding new lines of business. The speed with which your domicile’s regulatory branch reviews and approves these plan changes can make a critical difference in your captive’s growth and success.

The size of a captive division’s staff plays a big role in its speed and efficiency. Complex feasibility studies and actuarial analyses required for an application can take a lot of expertise and resources. A larger regulatory team will handle those examinations more efficiently. A 35-person staff like Vermont’s, for example, typically licenses a completed application within 30 days and reviews plan changes in a matter of days.

 

6. What are the real costs to establishing and managing your captive?

Vermont_SponsoredContentIt is important to factor in travel costs, the local costs of service providers, operating fees, and examination fees. Some states that do not impose a premium tax make up for it in high exam fees, which captives must be prepared for. Though Vermont does charge a premium tax, its examination fees are considered some of the least expensive options in the marketplace.

It is also important to consider the ease and professionalism of doing business with a domicile in the ongoing operations of your captive insurance company.

“The cost of doing business in a domicile goes far beyond simply the fixed cost required. If you can’t efficiently operate due to slow turn-around time or added obstacles, chances are you have made the wrong choice,” said Kenneson.

 

7. What is the domicile’s reputation?

Vermont_SponsoredContentMake sure to ask around and see what industry experts with experience in multiple domiciles have to say about the jurisdiction. Make sure the domicile isn’t known for only licensing certain types of captives that don’t fit your profile. Will it matter to your board of directors if your local newspaper decides to print a story announcing your new insurance subsidiary licensed in some far away location?

Are companies leaving the jurisdiction in high numbers and if so, why? Is the domicile actively licensing redomestications — when an existing captive moves from one domicile to another? This type of movement can often be a positive indicator to trends in a domicile. If companies of a particular size or sector are consistently moving to one state, it may indicate that the domicile has expertise particularly suited to that sector.

Redomestications made up 11 of the 33 new captives in Vermont in 2015. This trend is a positive one as it speaks to the strength of Vermont. It reinforces why Vermont is known throughout the world as the ‘Gold Standard’ of domiciles.

Asking the right questions and choosing a domicile that meets your needs both today and for the long term is vital to your overall success. As a risk manager you do not want surprises or headaches because you did not ask the right questions. Do the due diligence today so that you can ensure your peace of mind by choosing the right domicile to meet your needs.

For more information about the State of Vermont’s Captive Insurance, visit their website: VermontCaptive.com.

 

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with the State of Vermont. The editorial staff of Risk & Insurance had no role in its preparation.




The State of Vermont, known as the “Gold Standard” of captive domiciles, is the leading onshore captive insurance domicile, with over 1,000 licensed captive insurance companies, including 48 of the Fortune 100 and 18 of the companies that make up the Dow 30.
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