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Cyber and Internal Crime – the changing face of corporate risk

Published: 19/11/15

It's somewhat irrelevant that it was 'only' a 15 year old who recently carried out one of the UK's worst ever cyber attacks by hacking the Talktalk database and putting millions of their customers at risk of fraud and finacial loss. Whilst we might have felt some relief that it wasn't down to one of the more cinsister groups quick to claim it as their own, the fact remains that Talktalk share price fell sharply and investors are worried about the threat of compensation claims. MP's are to launch an inquiry into the hack and politicians asking whether British business is leaving their customers vulnerable. The breach led to bigger questions surrounding Talktalk's security and needless to say it hasn't done much for the company's reputation.

Talktalk is big enough to be serious news, but that's not to say that similar attacks aren't happening to SME's where ransomes are being made and paid, albeit on a smaller scale and on the quiet.21111

Data privacy and protection is one of the key cyber risks. The frequency and sophistication of cyber attacks and incidients continues to increase and looks likely to do so in the foreseeable future.

Whilst data protection laws differ from county to contry, the shifting legulatory landscape means that legislation continues to evolve; understandably the trend is towards tighter rules as governments look to bolster cyber security. In the EU draft legislation has proposed mandatory reporting of a data breach to the regulator and potentially to individuals affected by the breach. There are also proposals to impose larger fines for breaches of data protection laws of between 2% to 5% of a company's global turnover.

Business interruption is an increasing concern where more businesses rely on technology, particularly in sectors such as telecoms, manufacturing, transport, media and logistics.

Whatever their size or sphere all organisations need to consider their cyber exposures and prepare for a potential incident. This risk is not restricted to the big brands; hackers are far more likely to target the companies with the weakest security, irrespective of their size.

Depending on the nature of its business and the sector in which it operates, a company is exposed to its own set of cyber risks. For example, a financial institution will hold a wealth of data on its customers, the theft of which would cause immeasurable damage to its reputation. Banks also face huge business interruption exposures through the use of electronic trading systems. In contrast, a utility company will be exposed to risks associated with industrial control systems, where a hack could cause catastrophic damage to property or subsequent business interruption. Meanwhile, a pharmaceutical or tech company will hold valuable intellectual property, and a professional services company will hold sensitive client data.

5 top cyber risk mitigation tips:

  • Identify key assets at risk and weaknesses such as the “human factor” or over-reliance on third parties
  • Create a culture of cyber security and a “think-tank” approach to tackling risk – different stakeholders from the business need to share knowledge
  • Implement a crisis response or breach response plan. Test it
  • Consider how merger and acquisition activity and changes in corporate structures will impact third party data
  • Make decisions around which risks to avoid, accept, control or transfer

Which cyber risks are the main cause of economic loss? Loss of reputation - 61% Business interruption - 49% Damages to be paid due to loss of customer data - 45% Loss of IP/trade secretsSubsequent requirement from regulatory bodies - 11% Website downtime - 9% Notification costs - 9% Extortion - 7% Other - 1%

(Source: Allianz Risk Barometer 2015. Figures represent a percentage of all eligible responses to the questions (127 in total). More than one risk selected.)

There is no doubt that the corporate risk environment is changing; cyber crime is not the only issue as today's SMEs are as likely to suffer loss from a denial of service attack as they are from property damage or a liability claim.

White collar crime and internal fraud are on the increase; according to a survey by independent fraud prevention service Cifas, UK internal fraud rose by 18% in 2014.

Senior executives of small and medium-sized businesses typically have greater access to sensitive information and company accounts than their larger counterparts, making internal crime easier to commit and more likely to go undetected. Internal and cyber crime meet over issues such as data loss, intellectual property and damage to systems or equipment. Both can severely impact on reputativtion and require payment of damages. In the case of internal crime Cifas' advice is to know your employees as well as you know your customers and in both types - the organisation must consistently and continually review its processes and controls.

Flint Insurance has access to a number of cyber crime policies depending on the size and type of business. And ealier this year insurance giants, Aviva launched its own new Commercial Crime cover – broadly speaking this offers protection against:

internal crime – protection against theft fraud or dishonesty by your employees external crime - protection against theft fraud or dishonesty by a third party

this wide cover is not limited to loss of money, securities and insured property, but includes automatic cover extensions, such as:

Expenses – cover for investigation costs, legal defence costs, mitigation costs, reinstatement of data costs, public relations consultancy fees and property damage expenses in connection with a loss covered by the policy (sub-limits apply in addition to the limit of liability).

Care custody control & client loss – cover for loss of money, securities or insured property (i) not belonging to you, or leased, or hired by you, but is in your care (ii) held by a client, but in your care.

Corporate ID fraud – cover for fees, costs and expenses incurred to reinstate public records following fraudulent modification, alteration or theft of your identity by an employee or third party (sub-limit applies).

Court attendance & staff disruption costs – cover for compensation payments of up to £500 per day for senior members of staff and £250 for other employees required to attend court, a barrister consultant, a legal arbitration or a meeting with police authorities, in connection with a loss (sub-limit applies).

Contractual penalties – cover for contractual penalties that you are required to pay (excludes damages for breach of contract) as a result of a covered loss (sub-limit applies).

Benefit schemes – for direct finacial loss sustained to any benefit scheme discovered during the period of insurance.

Malicious damage to data – cover for the cost of reinstating data following malicious mischief committed by an employee or third party to damage, destroy, erase or delete data or insert unauthorised and corrupting or harmful software code.

Outsource service provider crime – cover for theft, fraud or dishonesty committed by an outsource service provider or their employee.

Recruitment costs – cover for the external costs to recruit replacement members of staff where they have been dismissed as direct result of their having committed an internal crime covered by the policy (sub-limit applies).

Premiums start at between £1,000 - £1,500; speak to our commercial team on 0845 371 1452 for more information about this Commercial Crime product and other options for cyber risks.

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