Banks Face New Threat
Banks have been caught off guard by what experts say is the first major mobile banking security threat to hit the United States.
It is a modification of the mobile Trojan called Svpeng, which has been used to steal money from Russian mobile bank accounts, said Dmitry Bestuzhev, head of the global research and analysis team, Latin America, at Kaspersky Lab, the Woburn, Mass.-based antivirus software company that discovered the malware.
The malware, which emanates from Russia, has been termed “ransomware,” because the hackers demand payment in exchange for not destroying the victim’s reputation, claiming there is child pornography and other prohibited content on the cell phone.
“It takes a picture of the victim and then says it will send it with the child pornography findings to all of the victim’s contacts,” Bestuzhev said.
“Nobody wants to be a victim of such reputation damage.”
This new malware is deeply integrated and is almost impossible to remove from an infected device, he added.
Better software is needed to protect against malware, said Chris Keegan, a managing director at Beecher Carlson in New York.
For now, banks rely on warning their customers against social engineering attempts by fraudsters, and usually that means, “Don’t press the button or answer the email.” Banks must warn their customers not to download any applications not found on verified websites, he said.
Banks Ran Out of Time
Avivah Litan, a Gartner Inc. vice president and analyst in Potomac, Md., said the malware should serve as a wake-up call for many banks, as a fair number of them have not developed security measures for mobile banking that are as robust as those used in online banking.
Ensuring that customers use secured browsers doesn’t apply when they use mobile apps.
Giants like Chase Bank, U.S. Bank and others are developing tougher measures specific to mobile, but the industry as a whole needs to step it up, Litan said.
“They’ve just been slow to put measures in place specific to mobile because there hasn’t been any mobile malware,” she said. “Everybody knew it was coming, but they thought they had more time.”
Matt Krogstad, head of mobile banking at Bank of the West in San Francisco, said the bank’s fraud prevention department works with his department to combat mobile malware and other types of mobile banking fraud.
“It’s an ongoing process since the mobile security space is constantly evolving,” Krogstad said.
Bank of the West diligently educates customers about the latest threats, Krogstad said. In cases like Heartbleed, communications to customers were to reassure them that the bank had done its due diligence to ensure that their accounts were safe.
“With other malware like this randomware, it’s more about reinforcing certain behaviors, such as not downloading apps from unofficial app stores or not clicking on links from people you don’t know,” he said. “Don’t jailbreak your phone or put your banking passwords in your contacts.”
Keeping up with all types of cyber crime continues to challenge the industry. Indeed, computer crime and malicious codes rank as No. 5 as a top risk for banks, according to Aon’s “2014 U.S. Industry Report: Financial Institutions.”
However, there is a disconnect at most banks that hampers risk mitigation, said Michael O’Connell, managing director, financial institutions practice at Aon Risk Solutions.
The disconnect occurs because one group traditionally is responsible for purchasing insurance, while another group is responsible for assessing exposures, including technology that may pose an operational enterprise risk, said O’Connell.
“We strongly recommend linking the two groups together, to assess ‘what-if’ scenarios and develop mitigation strategies that include insurance,” he said.
Kevin Kalinich, Aon’s global practice leader for cyber/network risk, said that recent court decisions have ruled that if fraudsters are able to steal customer identities or money, it is the bank’s obligation to help their customers, even if the fraud is out of the bank’s control.
“So if a customer gets fooled on their mobile devices, then the bank has the responsibility to monitor usage of their bank accounts,” Kalinich said.
Befuddled by Bitcoin?
Five years after the emergence of bitcoins, consumers are using them to buy everything from pizza to cars, from drugs to real estate. Political donations can even be made in bitcoin. Just about every day, companies are announcing they will accept this “digital cash.”
Like traditional currency, bitcoins facilitate the exchange of goods or services. The advantages of bitcoin are fast payments worldwide with very low transaction costs. International monetary transactions can take three days to clear, whereas bitcoin transactions are considered settled after just one hour.
Credit card transaction fees are roughly 2 percent of the purchase price, while the minimum bitcoin transaction fee is 0.001 of the bitcoin’s value.
Video: New York State Superintendent of Financial Services Benjamin Lawsky on the future of digital currency regulation.
Using bitcoin is somewhat similar to online banking. Software known as a “wallet” stores bitcoin addresses (similar to an account number) and handles transactions. The wallet can reside on any computing device, or on a website known as a “web wallet.” Wallets securely store bitcoin using encryption and can send them to an individual or company for payment.
Wallets connected to the Internet and used for transactions are called “hot wallets.” Wallets stored on devices without Internet connections are “cold wallets.” A cold wallet can be stored on a stand-alone USB device, for example. Similar to an online bank account, the user name and password must be protected from unauthorized access to protect the bitcoins within the wallet.
How Does Bitcoin Work?
Bitcoin does not have banks that log transactions or track how many bitcoins are held in individual accounts. Instead, the bitcoin network uses a “block chain” to perform these functions openly and publicly.
The block chain is a public ledger containing all confirmed transactions. The integrity and chronological order of the block chain is maintained with encryption provided by the bitcoin network. User identities are protected by recording the bitcoin address in the ledger instead of user names. As long as bitcoin users do not identify themselves as the owner of a bitcoin address, their transactions remain anonymous.
No single entity or central bank controls the bitcoin network or sets economic policy. Instead, bitcoin users control the bitcoin network, with a subgroup of bitcoin “miners” who use their computers to process transactions and add them to the block chain by “mining.”
Roughly every 10 minutes, the bitcoin network bundles recent transactions and sends them to the miners. The miners’ computers perform complex calculations or “proofs of work” that require billions of calculations per second, turning the effort into a type of lottery.
The first miner to satisfy the proof of work is rewarded in bitcoins. This incentive motivates miners to participate in the bitcoin network.
As the bitcoin network grows in computing power, it automatically adjusts the difficulty of the proof of work to ensure the calculations take roughly 10 minutes. This keeps mining competitive and ensures that no single individual or entity can control the network.
The transactions, combined with the proof of work and control data, are now a block in the chain. The calculations for the proof of work are based off the previous block in the chain to enforce chronological order.
As more blocks are added to the chain, it becomes increasingly difficult to reverse previous transactions since all subsequent blocks would require recalculation.
As with any emerging technology, this new practice brings associated — and sometimes uncharted — risks.
Like cash, a lost bitcoin is lost forever. There is no recourse to recover the money if the password to a bitcoin wallet is forgotten. The same is true if the wallet is corrupted due to hardware failure, or if the USB storage device containing a cold wallet is lost. Having good backups of the wallet is critical.
Additionally, bitcoin transactions are not reversible. Once a transaction has been confirmed in the block chain, it cannot be undone. This benefits merchants since chargeback fraud, (e.g., when someone purchases an item with their credit card, then petitions their credit card company for a refund claiming they never received the item), is not possible.
By the same token, unscrupulous companies may keep the bitcoin and never fulfill an order.
Like cash, a lost bitcoin is lost forever. There is no recourse to recover the money if the password to a bitcoin wallet is forgotten.
Acting too fast could result in lost payment. Bitcoin transactions can occur nearly instantly, however, blocks are added to the block chain every 10 minutes; it takes at least that long for the transaction to be confirmed by the bitcoin network.
If an order is fulfilled before the transaction is confirmed, a company may find that product has been shipped, but payment never occurred. For particularly large transactions, waiting until several blocks are added to the chain may be wise.
Bitcoin value is volatile. Bitcoin values have risen and fallen significantly over the last two years. This makes storing value in bitcoins somewhat of a gamble. Many companies that accept bitcoins immediately exchange them for local currency, protecting their organizations from potentially dramatic price swings.
Malware can steal bitcoins. Computer processing power can be stolen to mine for bitcoins. Such malware has been found on computers, tablets and cell phones. Such malware can also attack the wallet software itself and potentially drain the wallet of any bitcoins it contains.
Bitcoins can be lost to theft or exchange failure. In early 2014, hackers exploited weaknesses in several bitcoin exchange websites. By sending many copies of the same bitcoin payment, a vulnerable exchange sent out the requested bitcoins repeatedly.
Using this technique, hackers stole thousands of bitcoins, worth millions of dollars. Unable to return bitcoins to their customers, the hacked exchanges closed. Since there is no FDIC-like insurance protecting users, the only remedy is through the legal system.
Transactions may be anonymous, but they are recorded. Bitcoin is popular with criminals since their identities are protected. However, every transaction is recorded in the public ledger and IP addresses are recordable by Internet service providers.
This makes it possible for law enforcement agencies to reconstruct past bitcoin transactions if a user’s identity can be matched with a bitcoin address. Once the identity is matched, the criminal’s entire history of bitcoin use becomes available.
A company may not wish to have its customer list revealed to others. It might be a competitive disadvantage or perhaps the company might lose customers (especially if it is in a socially gray area where customer privacy is greatly valued).
Laws and regulations are still emerging. In the United States, various federal and state agencies disagree on how to classify bitcoins and regulate their use.
At the federal level, for example, the IRS is treating bitcoin as property, not currency. This means that capital gains and losses must be calculated and reported for tax purposes, thereby complicating everyday use since every purchase requires accounting documentation.
Most states have not adopted a regulatory approach to digital currency. Texas has issued a regulatory guidance on its decision to not treat bitcoin as currency. As of this writing, New York is developing virtual currency exchanges, while Florida is applying existing laws to bitcoin exchanges, particularly money-laundering laws.
Until government agencies fully decide exactly what bitcoin is, insurers are unlikely to feel comfortable offering standardized coverage. Pending that, companies seeking insurance can inquire about customized offerings.
Internationally, the legal landscape is just as complicated, with many laws in development.
Some countries, such as Iceland, have restricted the foreign exchange of bitcoin. Others, such as Ecuador, have banned the currency. China has barred its financial institutions from transacting in bitcoin, while India has advised the public to avoid buying and selling virtual currencies.
Given all of the media coverage that bitcoin receives, it is important to remember that it emerged only five years ago. Will bitcoin revolutionize the financial world? Or will it join other valueless currencies only found in history books? It’s too soon to know for certain.
Should a company accept bitcoin as payment today? If approached thoughtfully, accepting bitcoin can be a differentiator in today’s competitive marketplace.
If implemented poorly, accepting bitcoin can be risky. Taking appropriate steps to minimize risks allows companies to adopt virtual currencies and attract the growing user base.
And if nothing else, being educated about virtual currencies ensures each company will be prepared for the future — whichever direction it may take.
Lloyd Takata is executive vice president of OneBeacon Technology Insurance. JOE BUDZYN is the organization’s assistant vice president and senior business development manager. They can be reached at email@example.com.
Six Best Practices For Effective WC Management
It’s no secret that the professionals responsible for managing workers compensation programs need to be constantly vigilant.
Rising health care costs, complex state regulation, opioid-based prescription drug use and other scary trends tend to keep workers comp managers awake at night.
“Risk managers can never be comfortable because it’s the nature of the beast,” said Debbie Michel, president of Helmsman Management Services LLC, a third-party claims administrator (and a subsidiary of Liberty Mutual Insurance). “To manage comp requires a laser-like, constant focus on following best practices across the continuum.”
Michel pointed to two notable industry trends — rises in loss severity and overall medical spending — that will combine to drive comp costs higher. For example, loss severity is predicted to increase in 2014-2015, mainly due to those rising medical costs.
Debbie discusses the top workers’ comp challenge facing buyers and brokers.
The nation’s annual medical spending, for its part, is expected to grow 6.1 percent in 2014 and 6.2 percent on average from 2015 through 2022, according to the Federal Government’s Centers for Medicare and Medicaid Services. This increase is expected to be driven partially by increased medical services demand among the nation’s aging population – many of whom are baby boomers who have remained in the workplace longer.
Other emerging trends also can have a potential negative impact on comp costs. For example, the recent classification of obesity as a disease (and the corresponding rise of obesity in the U.S.) may increase both workers comp claim frequency and severity.
“The true goal here is to think about injured employees. Everyone needs to focus on helping them get well, back to work and functioning at their best. At the same time, following a best practices approach can reduce overall comp costs, and help risk managers get a much better night’s sleep.”
– Debbie Michel, President, Helmsman Management Services LLC (a subsidiary of Liberty Mutual)
“These are just some factors affecting the workers compensation loss dollar,” she added. “Risk managers, working with their TPAs and carriers, must focus on constant improvement. The good news is there are proven best practices to make it happen.”
Michel outlined some of those best practices risk managers can take to ensure they get the most value from their workers comp spending and help their employees receive the best possible medical outcomes:
1. Workplace Partnering
Risk managers should look to partner with workplace wellness/health programs. While typically managed by different departments, there is an obvious need for risk management and health and wellness programs to be aligned in understanding workforce demographics, health patterns and other claim red flags. These are the factors that often drive claims or impede recovery.
“A workforce might have a higher percentage of smokers or diabetics than the norm, something you can learn from health and wellness programs. Comp managers can collaborate with health and wellness programs to help mitigate the potential impact,” Michel said, adding that there needs to be a direct line between the workers compensation goals and overall employee health and wellness goals.
Debbie discusses the second biggest challenge facing buyers and brokers.
2. Financing Alternatives
Risk managers must constantly re-evaluate how they finance workers compensation insurance programs. For example, there could be an opportunity to reduce costs by moving to higher retention or deductible levels, or creating a captive. Taking on a larger financial, more direct stake in a workers comp program can drive positive changes in safety and related areas.
“We saw this trend grow in 2012-2013 during comp rate increases,” Michel said. “When you have something to lose, you naturally are more focused on safety and other pre-loss issues.”
3. TPA Training, Tenure and Resources
Businesses need to look for a tailored relationship with their TPA or carrier, where they work together to identify and build positive, strategic workers compensation programs. Also, they must exercise due diligence when choosing a TPA by taking a hard look at its training, experience and tools, which ultimately drive program performance.
For instance, Michel said, does the TPA hold regular monthly or quarterly meetings with clients and brokers to gauge progress or address issues? Or, does the TPA help create specific initiatives in a quest to take the workers compensation program to a higher level?
4. Analytics to Drive Positive Outcomes, Lower Loss Costs
Michel explained that best practices for an effective comp claims management process involve taking advantage of today’s powerful analytics tools, especially sophisticated predictive modeling. When woven into an overall claims management strategy, analytics can pinpoint where to focus resources on a high-cost claim, or they can capture the best data to be used for future safety and accident prevention efforts.
“Big data and advanced analytics drive a better understanding of the claims process to bring down the total cost of risk,” Michel added.
5. Provider Network Reach, Collaboration
Risk managers must pay close attention to provider networks and specifically work with outcome-based networks – in those states that allow employers to direct the care of injured workers. Such providers understand workers compensation and how to achieve optimal outcomes.
Risk managers should also understand if and how the TPA interacts with treating physicians. For example, Helmsman offers a peer-to-peer process with its 10 regional medical directors (one in each claims office). While the medical directors work closely with claims case professionals, they also interact directly, “peer-to-peer,” with treatment providers to create effective care paths or considerations.
“We have seen a lot of value here for our clients,” Michel said. “It’s a true differentiator.”
6. Strategic Outlook
Most of all, Michel said, it’s important for risk managers, brokers and TPAs to think strategically – from pre-loss and prevention to a claims process that delivers the best possible outcome for injured workers.
Debbie explains the value of working with Helmsman Management Services.
Helmsman, which provides claims management, managed care and risk control solutions for businesses with 50 employees or more, offers clients what it calls the Account Management Stewardship Program. The program coordinates the “right” resources within an organization and brings together all critical players – risk manager, safety and claims professionals, broker, account manager, etc. The program also frequently utilizes subject matter experts (pharma, networks, nurses, etc.) to help increase knowledge levels for risk and safety managers.
“The true goal here is to think about injured employees,” Michel said. “Everyone needs to focus on helping them get well, back to work and functioning at their best.
“At the same time, following a best practices approach can reduce overall comp costs, and help risk managers get a much better night’s sleep,” she said.
To learn more about how a third-party administrator like Helmsman Management Services LLC (a subsidiary of Liberty Mutual) can help manage your workers compensation costs, contact your broker.
Debbie discusses how Helmsman drives outcomes for risk managers.
Debbie explains how to manage medical outcomes.
Debbie discusses considerations when selecting a TPA.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Helmsman Management Services. The editorial staff of Risk & Insurance had no role in its preparation.