Tag Archives: RMS Cyber Accumulation Management System

Equifax Data Heist: Patching Up a Familiar Problem

The recent Equifax incident was by all measures a significant cyberattack. As the press statement released by Equifax on September 8 highlighted, the data theft potentially impacted approximately 143 million U.S. consumers. To put this into perspective this represents nearly 70 percent of the U.S. working population.

However, we should not be surprised. RMS tracks data theft among other types of cyber events on an ongoing basis, and we have seen numerous events of this magnitude or larger over the last few years. This Equifax breach would have ranked just #7 on the list of the largest data breaches in the 2017 RMS Cyber Risk Landscape report.

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Crossing the Divide – How Cyberattacks Affect the Physical World

We tend to think that critical systems responsible for managing oil rigs, power stations, steel production plants, are somewhat immune to what happens in the “wild west” of cyberspace. News of cyberattacks tend to focus on data theft, financial heists, or bringing down websites; they are contained within IT systems. If cyberattacks are contained in the cyber world, then the logic goes that only cyber insurers should be concerned by the risk.

There is also a sense of security in the belief that critical control systems for “real world” assets and processes would either be too mechanical, too old, not connected to the same network as the wider Internet, or would run on their own networks. The reality is that industrial control systems (ICS) that manage energy, water, transport, communications, and manufacturing plants, are increasingly managed and controlled remotely or need to be networked. Wherever the systems need to use a network, the systems are exposed to vulnerabilities on that network. For non-cyber insurers, this risk needs to be assessed and managed.

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Implications of the WannaCry Cyber-Attack for Insurance

The event is arguably the most significant cyber-catastrophe to date and clearly demonstrates the systemic nature of cyber risk. A single vulnerability was utilized to spread malware to over 300,000 machines in over 150 countries causing havoc to industries as diverse as hospitals and car manufacturers.

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The Changing Landscape of Cyber Threats

The cyber risk landscape is constantly changing. In the last few weeks alone we’ve seen potentially game-changing events with the release of U.S. National Security Agency hacking tools through the shadow brokers auction, and one of the most significant Denial of Service (DDoS) attacks ever seen when millions of Internet of Things devices were hijacked to target a major piece of Internet infrastructure taking hundreds of websites offline. In this blog I’ll discuss some of the constant ebb and flow of attack verses defense through the lens of the five cyber loss methods currently modeled by RMS.

Data Breaches

The loss of 500 million records in a single cyberattack represents the largest data breach event in history – so far, at least. The recent Yahoo hack, and the potential impact on the proposed Verizon takeover, has sent another stark reminder to industry executives of the dangers surrounding data breaches.

It may have been the biggest single hack ever in terms of records lost, but it’s hardly an isolated one. The leak of the Panama Papers was significant in terms of size – but also led to huge political fall-out globally as politicians were implicated in secret offshore funds, with the resignation of the Icelandic prime minister.

Governments and public agencies themselves have also been targeted in the U.S., Mexico, and the Philippines, for example. One of the most significant breaches affected Turkey, with the release of nearly 50 million records from the country’s General Directorate of Population and Citizenship Affairs, which included addresses, birth dates, and most troublingly, national ID numbers.

These individual large events fit within the observed pattern for 2016 so far, with less frequent cyber data hacks, though ones of higher severity.

Denial of Service Attack

2016 has been another active period for Denial of Service (DDoS) attacks. Going into the year we’d seen signs of a downwards trend. However this was spectacularly reversed in the first quarter which saw 19 attacks greater than 100 gigabits per second. Gaming and software industries continue to be most heavily impacted. Furthermore, we’re seeing a growing number of companies attacked repeatedly – on average, each targeted company was attacked 29 times, but with one company being attacked 283 times!

Frequency aside, the increasing complexity of attacks is most disturbing. 59% in the first quarter of 2016 were “multi-vector” attacks which require unique mitigation controls for each attack vector, as seen in the recent DDoS attack on Dyn, the DNS provider. If this trend continues we can expect existing defenses to be less effective against DDoS, and therefore disruption to be increased.

Cloud Provider Failure

With the leading cloud providers continuing to achieve double and even triple-digit year-on-year growth, the clear trend of companies moving their services to the cloud is continuing apace. Though overall trends have seen a decrease in the annual downtime, 2016 has seen several small but significant failures including an Amazon Web Services outage in Australia, Salesforce in both the U.S. and Europe and a Verizon issue that impacted among others JetBlue Airways. As these cloud services become more popular, the accumulation of risk to both business interruption and data loss is becoming ever more severe as more companies become increasingly reliant on the cloud.

Financial Transaction Theft

Perhaps the most audacious cyber-attack of the past year was when almost US$100 million was stolen from Bangladesh’s central bank and transferred to accounts in Manila and the Philippines. Even more shocking, this money was stolen from the bank account at the U.S. Federal Reserve and was transferred using standard SWIFT financial transaction messages.

The largest cyber heist ever could have been even larger but for a misspelling, and it was this typo that raised the attention of the U.S. Federal Reserve Bank in New York. The perpetrators had attempted to withdraw $950 million over 35 separate transactions. A similar attack, using a vulnerability in the SWIFT messaging system, led to another multi-million dollar theft from a Ukrainian bank.

Perhaps more than any other sector, the interconnected nature of modern financial services leaves the industry open to large scale systemic cyber losses.

Cyber Extortion

Ransomware attacks are continuing to become more frequent and more complex in 2016. One alarming pattern has seen an increased targeting of healthcare institutions where we’ve seen multiple hospitals in California and Kentucky in the U.S. and in Germany, all being attacked. In one particularly un-ethical incident the Hollywood Presbyterian Hospital had to pay out around $17,000 to regain access to their systems.

The more sophisticated software now being used to perpetrate attacks is starting pay dividends for the hacking groups. The “Jigsaw” malware, for example, threatens to delete an increasing number of files after every hour of nonpayment. Encryption type malware has become the norm – and targeted, business-focused malware is growing as evidenced by the “Samsam” scheme which targets unpatched server software.

Incorporating Into the RMS Cyber Model

RMS is continuing to monitor the broad spectrum of cyber-attacks that are impacting thousands of companies every month. During a recent online seminar, the RMS cyber team shared some of these key trends outlined in this blog, and discussed the impacts on cyber insurers. Through the RMS Cyber Accumulation Management System, RMS is continuing to incorporate these insights into our modeling to provide the most comprehensive and accurate view of cyber risk.

Mandatory reporting of cyber-attacks would improve understanding of cyber risk

The recent call by the Association of British Insurers (ABI) for the U.K. government to mandate the reporting of cyber-attacks is another welcome attempt to improve the collective learning opportunities presented by the continuous stream of cyber events. Every attack provides new data which can be fed into probabilistic models which help build resilience against this growing corporate peril – so long as we are able to find out about those attacks. Thus initiatives like this, which will lead to the sharing of valuable information and insights, are paramount.

Reporting cyber attacks is already mandatory in most U.S. states where laws require companies to notify their customers and regulators as soon they suffer a security breach. In 2018 a similar EU law, The European Network Information Security Directive, will make it mandatory for certain firms to provide alerts of cyber incidents.

However, having more information on data breaches still only provides just part of the picture required to fully understand cyber as a peril.

Current security breach notification laws, where they exist, do not require companies to report the many other types of cyber-attack that are increasingly being used to target organizations. Cyber extortion, for example, is a growing trend. Firms typically choose not to report this type of attack to limit damage to their corporate reputation.

Historical attacks not a good indicator of the future

While having access to data on historical cyber breaches is valuable, the threat is constantly evolving, such that previous attacks have rarely been a good indicator of future events. Even a small shift in the balance between the capabilities of hackers and cyber defenses could lead to a significant shift in the frequency and severity of cyber attacks.

Staying on top of the myriad of threat actors and their motivations and resources, as well as having a broad view of the range of viable attack methods that exist today, is crucial to understanding and managing cyber risk. But is challenging to manage.

As a first step to help insurers better understand their existing cyber risk loss potential, RMS recently launched its Cyber Accumulation Management System. This tool provides insurers with a framework to organize and structure their data, identify their accumulations and correlated risk, and stress test their portfolios against a range of cyber loss methods. Having this capability enables insurers to understand the potential size of cyber catastrophes and set their risk appetite to safely grow capacity for this line of business.

Cyber attacks are an increasingly significant threat to the global economy. The combination of new cyber risk management solutions combined with initiatives such as mandatory reporting will help the insurance industry to continue to play itscrucial role in ensuring the resiliency of our economy.

Contact the RMS cyber team for more information cyberrisk@rms.com.

Unlocking the Potential of Cyber Insurance

The cyber insurance market presents insurers with an attractive growth opportunity. It also presents a significant challenge to overcome. Coverage constitutes the largest genuinely new class of business developed by the insurance industry for at least a generation. And its potential at even the conservative end-of-the-scale can be measured in tens of billions of US dollars.

However, with limited tools to measure the threat, carriers have been understandably reluctant to throw too much capital at the risk. With warnings about the systemic nature of the threat reverberating through the press to boardrooms, the industry has so far approached the risk with caution and coverage has been limited.

Yet the need for insurance solutions to assist corporates with their cyber threat is real and great. In the wake of losses such as Target’s $67 million settlement with Visa over a breach of customer payment data, and an estimated annual global cost of cybercrime of $445 billion, companies are eager to offload what they rightly see as a large and looming financial risk.

Industry Concerned by Systemic Nature of Cyber

We recently surveyed 40 RMS clients already writing cyber, including insurers, reinsurers, and brokers, to gain an understanding of their concerns. They had a number of common challenges.

Firstly, due the dynamic and emerging nature of the peril it’s difficult to quantify just how big and systemic a potential cyber catastrophe might be. In addition, with so many different attack methods available to cyber criminals—even knowing where the attack will come from poses some difficulty.

Another common challenge was the uncertainty of how cyber attacks could impact non-affirmative cyber policies—the so-called silent exposure. With limited precedent set for how cyber-related losses would trigger these policies there is uncertainty around the impact of a cyber catastrophe.

Lastly, the lack of a common data standard or a mechanism for understanding aggregations of risk, pose a further challenge, hindering companies in understanding their capital implications, setting risk appetites, and meeting their regulatory reporting obligations.

A Response to the Problem

We have tackled our clients’ cyber risk management concerns by developing a cyber accumulation management solution, built on three core elements.

  1. A data standard for the industry

    Our Cyber Exposure Data Schema was developed in conjunction with the Centre for Risk Studies at the University of Cambridge, with support from leading market companies. It provides an approach to standardising cyber data as a distinct peril. It copes with both affirmative and silent cyber coverage, and allows risk to be tracked and transferred by providing a consistent framework for data capture, storage, and analysis. Critically, it is open source, model-agnostic, and extensible.

  1. Five loss scenarios to stress test portfolios

    The new RMS cyber loss process models assess actual books of business against multiple realistic loss scenarios, testing various levels of severity for the top five cyber threats identified by our industry development partners at Cambridge. Running analyses shows underwriters how loss events would interact with their exposure, and isolates the key drivers of risk, allowing an informed, independent view of cyber to be formed.

  1. A Cyber Accumulation Management System

    The accumulation engine is the framework for generating loss projections. The analytical capabilities enable companies to report exposure aggregates by coverage type and potential loss characteristics, to a previously unthinkable level of granularity. It highlights accumulations and correlations, giving insurers, reinsurers, and brokers all of the tools necessary to answer questions regarding portfolio optimization, capacity and capital requirements, while delivering answers to regulatory demands.

Together these three components comprise a complete cyber risk management solution which solves the key, real-world challenges facing the insurance industry today. We have created a new standard for the capture and management of cyber exposure data, and mechanisms both to get a handle on affirmative and silent cyber risks, while simultaneously meeting reporting requirements. All of that delivers the insights necessary to unlock the capital necessary to meet ultimate insureds’ demands for cyber cover, and allow the insurance sector to grow confidently into this exciting new line of business.