Cyber: The New CAT
Superstorm Sandy. The Joplin tornado. The Japanese earthquake and tsunami. California wildfires. 9/11. Catastrophes come in many forms. It is universally understood that despite our best efforts, disaster can strike due to forces beyond our control. Cyber threats are equally dangerous and diverse — and just as unstoppable.
Yet even as catastrophe risk management matures and scores of executives join the catastrophe conversation, the dragon known as cyber risk still sits in the middle of the board room, quietly smoldering.
In every industry and at every company size, cyber risk is a foundation-level exposure that every business must confront — one that must be viewed with the same gravity as a company’s property, liability or workers’ comp risks.
As recent as a decade ago, that might have been an overstatement. But not now. Technology and business are fundamentally linked. Computers and the Internet are the primary platform for communicating with customers and vendors, managing profits and expenses, paying employees, operating the machines that produce goods and provide services, and making sure that the end product gets into customers’ hands on schedule. Mobile technology and the Internet of Things are opening new channels, making technology a physical extension of ourselves, both personally and commercially.
“The entire economy is so reliant, in ways that we don’t even see, on technology and the storage, transmission and usage of data, both personal and for analytical purposes, that it’s fundamental to almost every sector,” said Oliver Brew, vice president for professional, privacy, and technology liability at LIU Liberty International Underwriters, the specialty line division of Liberty Mutual in New York.
Video: Computer security expert Mikko Hyppönen explains how he tracked down the creators of the first PC virus, which hit the net 25 years ago, and how to stop the new viruses of today.
That reliance is only going to grow. A January report by Forrester Research described software assets as more critical to business success than financial assets over the next 20 years.
“If you take a look at the public companies’ 10-Ks and publicly disclosed statements, what are they emphasizing that’s going to differentiate them from their competitors, increase sales, decrease costs and maximize efficiency? They focus on the use of technology and the use of information assets,” said Kevin Kalinich, global practice leader for cyber and network risk at Aon Risk Solutions.
With increased technology comes increased opportunity for attack. However, that reality didn’t get a lot of traction in the C-suite until the recent Target breach splashed it across world headlines. Even now, there are still some resting easy, confident that their IT teams have everything under control. Others assume cyber attacks are a threat largely confined to industries such as retail, health care and financial services — sectors with the most data to lose.
Small businesses, in particular, downplay the risk, said Jesse Bessler, an account executive at Lacher & Associates, of Souderton, Pa. “I think it’s that they just don’t understand the risk, and they think that [a cyber policy] is an add-on item they don’t need.”
Security experts, however, are trying to break through the wall of denial. Cyber attacks, they argue, are akin to massive storms or similar to the focused destruction of a tornado — something you can prepare for, but not something you can prevent. Despite firewalls and antivirus programs, experts say, cyber punches will eventually land inside every company.
To grasp the magnitude of the threat, it’s important to recognize that the driving forces behind cyber crime are vast, varied and as uncontrollable as any atmospheric or geologic force. The threat is now ubiquitous, and experts agree that while making an effort to reduce the risk of a breach is important, it is no longer possible to completely prevent cyber attacks.
“It’s like two identical cars in a mall parking lot,” explained Kurtis Suhs, vice president and national technology and privacy product manager for Ironshore. “If one’s locked and one’s unlocked, the bad guy’s going to go to the unlocked car. But if the bad guy really wants to get into the locked car, he will — it’ll just take longer.”
And yet, organizations keep brushing off the threat. That may be because “cyber risk” has become synonymous with data theft. If an entity does not have a significant aggregation of customer financial data, executives assume they won’t be targeted. The reality is that the true exposure is no longer just about credit card or Social Security data. Hackers have expanded their target list, adopted a more patient approach and found deep-pocketed sponsors, whether private-sector or state-sponsored, security experts said.
Sophisticated hackers are conducting long-term surveillance and probing for weaknesses they can exploit for financial gain, said David Remnitz, global and Americas leader of Ernst & Young’s forensic technology and discovery services business. “The end result here is the theft of highly valuable, internal information for significant financial gain,” he said.
While that could mean outright theft of trade secrets or confidential M&A data, it could also mean corporate sabotage, as in corrupting a decade of research and development results or putting competitors out of business. Imagine a market where most of the players used one primary vendor as a source for a key ingredient. An organization could contract with a lesser-used source for that ingredient, then disrupt the operations of the primary vendor via a denial-of-service attack or other type of malware, leaving the rest of the market scrambling for suppliers.
The potential for lost business and liability claims could be devastating for the affected companies. Even those with solid business continuity plans in place could still take heavy hits from the reputational fallout.
“A large company might be able to absorb that risk. A small company can’t,” said Elissa Doroff, a vice president and senior advisory specialist in Marsh’s network security and privacy practice in New York.
To date, breaches have largely been limited to individual companies, but the potential for larger events looms. One concern centers on cloud companies, which could host data for hundreds of businesses. A data breach or network interruption, or the physical destruction of a cloud-service data center could wreak larger havoc on the economy.
“That’s a potentially catastrophic loss,” said Doroff.
The sky’s the limit at this point. Criminals are capable of disrupting a multinational corporation, a transportation or logistics network, a health care system, an entire industry or even an entire region, creating havoc and leading to economic losses in the millions or billions — in many situations even putting lives at risk.
Keep in mind that those with ill intent don’t even need to have an IT background — the proliferation of hackers-for-hire means that anyone intent on doing damage can do so if their pockets are deep enough.
That said, it probably wouldn’t take a well-funded ring of genius-level hackers and a sophisticated attack plan to paralyze the average organization. Three years ago, the U.S. subsidiary of Shionogi, a Japanese pharmaceutical firm, suffered a devastating cyber attack that deleted the contents of 88 computer servers, crippling the company’s operations for several days, disabling its email, BlackBerry servers, order-tracking system, and financial management software. The attacker? A former mid-level employee, working from a public
Wi-Fi network at a nearby McDonalds, calmly sipping coffee while bringing Shionogi to its knees.
An Enterprise Approach
Even organizations that have never been affected by a catastrophe generally do not question the need for CAT planning. At the very least, most probably have a written evacuation plan in place and enough insurance to cover the potential physical damage of a storm. The smartest also address the whole picture from a supply chain and business continuity standpoint, and may have even considered questions about how to manage any reputational damage related to interruption of service to customers.
Cyber exposure should be approached in much the same way. It starts with engineering out the risk to whatever extent possible. If your roof is old, for instance, replacing it may be a way to ensure the building is more likely to stay intact if it’s battered by a storm. The cyber equivalent might be replacing old servers or upgrading any existing automated intrusion detection system. Security experts stress, however, that cyber risk is not an IT exposure, it’s an enterprisewide exposure. Therefore vulnerabilities need to be identified across an entire organization, with policies and procedures modified accordingly.
A comprehensive, enterprisewide disaster plan can also go a long way toward helping companies minimize the damage sustained in the event of a cyber attack. For every function of an organization, management needs to ask hard questions about how a cyber attack could disrupt that function, and what kind of back-up plan each department would need. Do you have a way to contact customers and suppliers if your email goes down? Do you have a crisis communication plan for alerting the public about how you’re handling the situation? Are your records backed up and accessible through a secure third-party?
Increasingly, organizations will rely on insurance to ensure their survival after a cyber event. In a February survey by BAE Systems, nearly 30 percent of companies said they expected the cost of a cyber attack to exceed $75 million. Another 20 percent expected the cost to fall between $15 million and $75 million.
“There’s an expectation that this could have an extremely material effect on business performance, and that’s a risk they look to hedge,” said Paul Henninger, global product director for BAE Systems Applied Intelligence, a business unit of BAE Systems.
Taking a realistic approach to cyber attacks could improve underwriting of the risk, he said. Just as carriers evaluate whether clients are prepared for a CAT-5 hurricane, knowing some damage is likely, they could determine whether clients are ready for a cyber storm.
“You can’t make it go away, but you can minimize the impact on the bottom line and customers and reputation,” he said.
Complete coverage on the inevitable cyber threat:
Risk managers are waking up to the reality that the cyber risk landscape has changed. Every sector must prepare to withstand the storm.
Critical Condition. The proliferation of medical devices creates a host of scary risks for the beleaguered health care industry.
Disabled Autos. It’s alarmingly easy for a hacker to take control of a driverless vehicle, tampering with braking systems or scrambling the GPS.
Unmanned Risk. The dark side of remote-controlled drones, which have already been hacked — by students.
An Electrifying Threat. There is a very real possibility hackers could devastate the nation’s power grids — for a potentially extended period of time.
Heading Off ‘Cybergeddon’. Experts say resistance is futile, but resilience is paramount.
Risk Technology: Risk Managers Lead from Within
This year marks my twentieth in the risk management field. Now I would never call myself a risk manager. Far from it: I’m a computer geek, and proud of it. Today we refer to the Internet, Cloud, Mobile and Big Data, but I’ve been working with technology my entire life. So much has changed in those twenty years. Networking computers together was rudimentary and extremely limited when I started. Now everything, and everyone, is interconnected, and that has changed everything.
That interconnectivity has allowed organizations to move away from the isolated, siloed processes of the past, and produced dramatic changes in the way we conduct our business and our lives. I’ve watched risk management evolve from a department called upon primarily when things go wrong, to a pervasive philosophy for running a successful business. Fewer and fewer risk managers I speak to work in isolation, reacting to claims as they come in. Rather they are a collaborative lynchpin to manage risk. They don’t wait for bad things to happen. They proactively put safety programs in place, analyze loss data and make their organizations more risk-aware. They know an enormous amount about the inner workings of their organization, its suppliers, distributors, vendors and team members. This is a fundamental transition from a middle management, administrative function, to an executive level function that is key to the organization’s success.
But risk managers are increasingly finding that email and spreadsheets are clumsy, inefficient, and ultimately create obstacles to managing risk throughout their company. With the speed and global reach of business, when even ‘local’ businesses rely on a far-flung supply chain, yesterday’s technology introduces risk, inefficiencies and increased levels of error. Today’s business demands technology that facilitates decisions for tomorrow’s business challenges. Organizations need a platform – a platform that provides secure, efficient and consistent methods of communicating risk-related events and data. Fortunately this need comes at a time when we have a convergence of technologies that can make this vision a reality.
This is a fundamental transition from a middle management, administrative function, to an executive level function that is key to the organization’s success.
Just imagine running your business on technology of twenty years ago. Sending paper memos (when CC referred to a literal ‘carbon copy’), using a phone tethered to your desk, taking delivery of policy documents in hard copy – oh wait, they still do that. Would that put your business at a competitive disadvantage? Of course it would – and risk management would suffer too.
Risk management no longer has to take a back seat to other parts of the organization. Quite the opposite. By leveraging commercial cloud platforms, the pervasiveness of the Internet and the interconnectivity of everyone and everything, the risk management team can be the most modern, forward-looking part of the company. Risk management has become the bellwether of change – actually bearing the standard for technology-enabled collaboration and productivity across the organization. Imagine that.
The Tools of the Trade
Integrating medical management with pharmacy benefit management is the Holy Grail in workers’ compensation. But getting it right involves diligence, good team communication and robust controls over the costs of monitoring technology.
Risk managers in workers’ compensation can feel good about the fact that opioid use is declining slightly. But experts who gathered for a pharmacy risk management roundtable in Philadelphia in June pointed to a number of reasons why workers’ compensation professionals have more than enough work cut out for them going forward.
For one, although opioid use is declining, its abuse and overuse in legacy workers’ compensation claims is still very much a problem. An epidemic rages nationally, with prescription drug overdose deaths outpacing those from the abuse of heroin and cocaine combined.
In addition, increased use of compound medications and unregulated physician dispensing are resulting in price gouging and poor medical outcomes.
Although individual states are attempting to address the problem of physician dispensing of prescriptions in workers’ comp, there is no national prohibition against it: That despite substantial evidence that the practice can result in ruinous workers’ compensation medical bills and poor patient outcomes.
“The issue is that there isn’t enough formal evidence to indicate improved outcomes from the use of compounds or physician dispensed drugs, and there are also legitimate concerns with patient safety,” said roundtable participant Jim Andrews, executive vice president, pharmacy, for Duluth, Ga.-based pharmacy benefit manager Healthcare Solutions.
Andrews’ concerns were echoed by another roundtable participant, Dr. Jennifer Dragoun, Philadelphia-based vice president and chief medical officer with AmeriHealth Casualty.
“When we’re seeing worsening outcomes and increasing costs, that’s the worst possible combination of events,” Dr. Dragoun said.
Whereas two years ago, topical creams and other compounds with two to three medications in them were causing concern, now we’re seeing compounds with seven or more medicines in them.
How those medicines are interacting with one another, and in the case of a compound cream, how quickly they’re being absorbed by the patient, are unknowns that are creating undue health risks.
“These medicines haven’t been tested for that route of administration,” Dragoun said.
In other words, the compounds have not been reviewed or approved by the FDA.
Carol Valentic, vice president of cost containment and medical management with third-party administrator Broadspire, said her company’s approach to that issue is to send a letter to providers, through the company’s pharmacy benefit administrator, alerting them to the fact that compounds are not FDA-approved and could be dangerous.
Other roundtable participants said they employ utilization review of every prescribed compound medication. They’re finding that the inflation of the average wholesale price for prescriptions that pharmacy benefit managers are battling in the case of single medications is happening with compounds as well, to the surprise of probably no one.
“The cost of compounds is doubling every year,” Healthcare Solutions’ Andrews said.
Kim Clark, vice president of utilization management with Patriot Care Management Inc., a division of Patriot National, Inc., said Patriot has their own software, DecisionUR, and opioids as well as compound prescriptions can be directed from the PBM to Utilization Review.
In the area of new worries in workers’ compensation, and there are plenty of them, Dragoun also pointed to the introduction of extremely high cost, albeit extremely effective specialty medications, such as those being used to treat Hepatitis C. Treatments in this area can run into the hundreds of thousands of dollars.
Domestic drug manufacturers, pressed to pursue profits as their product lines mature and their margins level off, are jockeying for dominance in this area.
“This seems to be a route that a lot of drug makers are going after. Very narrow markets but with extremely high cost medications,” said Deborah Gleason, clinical resources manager, medical programs, with ESIS, the Philadelphia-based third-party administrator that is part of ACE Group.
Tools of the Trade
Given how substantially the use of prescriptions can balloon the cost of a workers’ compensation claim and undermine outcomes, a number of tools are in the market that can help risk managers rein in costs.
One is urine drug monitoring, which can catch cases of drug diversion, or instances where an injured worker is ingesting unprescribed substances. But the use of that test can create its own problems, namely overutilization.
Gleason, with ESIS, Inc., and others use urine drug monitoring. But when the test is overused, say by being conducted every month instead of quarterly as is recommended, the members of the Philadelphia roundtable said its costs can outrun its usefulness.
Test results are frequently inconsistent, signaling that the injured workers aren’t taking the prescribed medication or are taking something they shouldn’t be. Drug testing shouldn’t be used in isolation but rather as a component of integrated medical management.
“What’s emerging today, and in some companies more prevalently, is the integration of managed care with pharmacy benefit management,” roundtable participant Valentic said.
“When we’re seeing worsening outcomes and increasing costs, that’s the worst possible combination of events.”
— Dr. Jennifer Dragoun, Vice President and Chief Medical Officer, AmeriHealth Casualty
In other words, it’s not enough to flag a script or pick up a urine drug monitoring test result. There needs to be a plan or a system in place that says what action should be taken with the patient once that information has been received.
Identifying a potential problem early and taking action on it is key, said ESIS’ Gleason. She added that the patient’s psychological state, including how they react to and perceive pain, is something that more risk practitioners should consider.
Obstacles to assessing someone’s psychological or psychosocial state, according to roundtable members, include a lack of awareness or acceptance of its possible advantages on the part of patients and physicians. After all, we’re talking about an assessment, a list of questions, that should take no more than 15 minutes to carry out.
If a treating physician or case manager doesn‘t conduct a psychological test but is still concerned about the potential for pain medication abuse, there is one key question they can ask an injured worker, according to AmeriHealth Casualty’s Dragoun.
“There is one question that predicts far more than any other attribute of a patient whether they are likely to abuse narcotics, and that is if they have a personal or family history of substance abuse,” Dragoun said.
“You know they may ask that about the patient, but I don’t know how many ask it about the family,” Patriot Care Management’s Kim Clark said.
Pharmacogenetic testing, that is testing an individual for how they might react to certain drugs or combinations of drugs, and not — let’s be clear about this — whether they are predisposed to addiction, is also entering the market.
But as is the case with urine drug monitoring, the use of pharmacogenetic testing is no cure-all and the cost of it needs to be carefully managed.
Some vendors are pitching that it be applied to every case in a payer’s portfolio. The roundtable participants in Philadelphia agreed that it should be used with far more discretion than that.
Regulating the Regulators
It’s a given in the insurance business and in workers’ compensation that regulators in all 50 states call the shots. There are few national laws that regulate the hazards faced by workers’ compensation risk managers and injured workers.
Having said that, is it really such a pipe dream to think that the federal government could step in and provide leadership in an area that is so prone to confusion, risk and self-serving behavior on the part of some vendors and medical practitioners?
If the Philadelphia roundtable as a group could point to one place where federal regulators could do some good it would be in the area of physician dispensing. Many states have enacted legislation to curb the practice, as there is no data to prove better outcomes, and regulation by the federal government would be of benefit, the Philadelphia roundtable concluded.
Another area would be to require FDA oversight for compounds.
“The minute you need to have FDA approval of a compound, that’s going to stop it,” Broadspire’s Valentic said.
It’s a notion worth considering. After all, lives are at stake here.
Given the lack of oversight from the federal government, the roundtable participants pointed to measures in a number of states that are worth emulating. The Texas closed formulary, which limits the range of medications that can be prescribed, is one example.
The requirement in the State of New York that a prescribing physician check a state registry — what’s known as a prescription drug monitoring program — to check whether a patient is already taking or has a prescription for a controlled substance, is another good example of a state government stepping in to ensure the safety of its residents.
“The minute you need to have FDA approval of a compound, that’s going to stop it.”
— Carol Valentic, Vice President of Cost Containment, Medical Management, Broadspire
Pennsylvania also earned praise from the roundtable for recently passing a measure limiting the amount of medication that a physician can dispense to an initial supply.
With different regulations in every state and with the average wholesale cost of prescriptions constantly on the rise, pharmacy benefit management is an art requiring constant vigilance.
“It’s not an original thought, but if you stop and think about all the things that are happening in society with the addictions and the costs, the cost of doing nothing is greater than the cost of doing something.
I think that’s why everybody is doing something,” Healthcare Solutions’ Andrews said.
For more information about Healthcare Solutions, please visit www.healthcaresolutions.com.
Opinions of the roundtable participants are the opinions of each individual contributor and are not necessarily reflective of their respective companies.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Healthcare Solutions. The editorial staff of Risk & Insurance had no role in its preparation.