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Cyber Risk 101
March 2019, Cyber Security

In our Internet-connected society, cybercrime is a very real threat to any business or institution, regardless of size or nature of business that has a network, an Internet connection holds sensitive or personally identifiable data. This is according to Kerry Curtin, manager: financial institutions and professional risks at Aon South Africa.

Kerry Curtin
Kerry Curtin

The ‘2018 Cost of a Data Breach Study’ sponsored by IBM Security and conducted by Ponemon Institute, shows that the average global probability of a material breach in the next 24 months is 27.9%, an increase over last year’s 27.7%. Of all the countries surveyed, South Africa has the highest probability of experiencing a data breach at 43%. The study pins the average total cost of a data breach at US$3.86 million.

“The reality is that any entity that conducts any aspect of its business online and holds any sensitive data – employee or client records, banking and payment details of staff, customers or their own, market strategies or financials, payroll information, medical or academic records or any other sensitive data – is a potential target. And organisations of all sizes – from small businesses to large multinationals – are at risk. The study further reveals that 48% of all breaches in this year’s study were caused by malicious or criminal attacks by hackers and criminal insiders who are indiscriminate in who they choose as targets. The average cost per record to resolve such an attack was $157. In contrast, system glitches cost $131 per record and human error or negligence is $128 per record,” says Curtin.

A data breach is defined as an event in which an individual’s name and a medical record, financial record or debit card is potentially put at risk either in electronic or paper format. In the IBM Ponemon study, three main causes of a data breach are a malicious or criminal attack, system glitch, or human error. The costs of data breach vary according to the cause and the safeguards in place at the time of the data breach. A compromised record is information that identifies the natural person (individual) whose information has been lost or stolen in a data breach. In the ‘2018 Cost of a Data Breach Study’ the average cost to the organisation per compromised record was $148.

Data breach vs financial loss – can it be insured?

While existing forms of insurance sometimes carry a level of coverage, they were not intended to cover the many risks associated with an increasingly digital world. Standard policies are inadequate to cover the likely costs of even a more standard security breach, let alone cyber-attack or hacktivism. Only specialist cyber insurance policies provide extensive cover.

The good news is that business leaders are waking up to the very real threats of cyber risk to their business, evident in the fact that Aon has seen standalone cyber insurance policy sales grow in excess of 25% per year according to the ‘Aon 2018 Cyber Predictions Reality Check’ report. Factors driving this is the realisation that cyber-attacks have very real implications for huge financial losses and business continuity risk.

“In particular, ensuring your business is appropriately insured in terms of the type of losses it can suffer as a result of a hack is paramount. These incidents highlight the importance of risk management coupled with properly scoped insurance covers, with many assuming that a direct financial loss would be covered under a cyber insurance policy.

There is still a sense of mystery as to what cyber risks policies actually cover and there is the assumption that direct financial losses would be covered under a cyber policy. However, this is not the case as cyber policies cover loss of data and security protection specifically. A data breach would be covered under a cyber risk policy, but a direct financial loss would be catered for under either a Blended Financial Lines Policy which includes computer crime cover as well as fraudulent Internet transactions, or a Commercial Crime Policy which also provides Computer Crime cover,” explains Curtin.

Most cyber policies cover first party costs and any resultant liability (third-party) arising from a loss of data or a breach of network security – with data being defined as personally identifiable data and corporate information. First party costs include legal and IT services, data restoration costs, reputation management, notification costs to all affected data subjects, credit and ID monitoring, cyber extortion and loss of profits following from a network interruption. Third party costs include damages and defence costs arising from liability to others following from theft or manipulation of data held in your care, custody and control.

“As our digital connectivity continues to grow and more entities conduct aspects of their business online, the threats are likely to grow exponentially. Regardless of size or status, no business is safe from hackers, unless it includes security as its ultimate priority. There is no one size fits all approach to cyber risk insurance. It all depends on the size of the company, nature of its business and its unique levels of exposure. In this regard, consulting with a professional risk advisor is an invaluable exercise in assessing your exposures, developing a risk mitigation strategy and transferring that risk to an insurer in order to protect your reputation, data, clients and bottom line,” concludes Curtin.

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