For those captivated by recent events in astronomy, parallels can be drawn between the recent landing of NASA’s rover Curiosity on planet Mars and the public discourse on data security in Canada. With the distinction that one is effectively equipped with the right budget and tools to achieve its actual objective, both have come a very long way, both have managed to blaze through layers of clouds, both seek to secure ingredients essential to life, and both are now aimlessly wandering about unchartered territories.

A decisive factor in Barrack Obama’s 2008 political campaign was the extensive use of individual, thin sliced consumer data to send highly tailored messages to gain political support. Within 13 years, Google has become the most valuable brand in the world through the aggregation of vast amounts of data including search data, or data held in Gmail accounts. This information is then used to create an advertising cruise missile, which is much more efficient than the old method of pattern bombing.

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New legislation governing data breaches and privacy issues is popping up in states across the country. Most recently,  Connecticut, Vermont, and Illinois have enacted new laws in these areas.

Connecticut

At long last, the proposed legislation requiring a data breach to be reported has become law in Connecticut.  Section 369-701b was unable to move its way through the 2012 General Session of the Connecticut Legislature, but it was recently passed as part of the Connecticut General Assembly’s Special Session as an attachment of the Budget Bill.

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Recent unauthorized access to British Columbia Institute of Technology’s computer network, which contained personal medical information of approximately 12,680 individuals, is yet another reminder of risks of exposure to data breaches. That none of the data on BCIT’s computer network was compromised or misused is reflective of a low-profile non-hacker intrusion, and of the ease with which computer networks can be infiltrated. Indeed, a sophisticated hacker would know better than to leave massive amounts of data, rightly labeled by some as the “oil” of the 21^st century, uncompromised. More curious than uncompromised data, however, is BCIT’s notification in the absence of an actual data breach, and mandatory breach notification provisions under B.C. privacy law.

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The US and Australia have a longstanding agreement to back each other up in case of physical enemy attack, but now have moved that agreement to the arena of cyber-attack as well. With Australia’s history of cyber-attacks well known, such as an attack two years ago that brought down Australia’s Parliament’s website, the country cannot afford to ignore cyber security any longer.

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The cyber-attacks recently launched by six individuals from the group Anonymous, an international hacktivist collective, against 13 Quebec government and police websites are but a fleeting glimpse of a much broader problem associated with the cyber world, most of which remains largely unseen. Succinctly stated, the cyber-attacks were a response to the Quebec Liberal party’s constitutionally questionable Bill 78 that was recently passed as a response to the student crisis sparked three months ago over the government’s planned 75% tuition increase. That six individual were arrested by law enforcement agencies and charged with mischief, conspiracy, and unlawful use of a computer should hardly be reassuring.

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The following column was first published in the second issue of Advisen’s Cyber Liability Journal (here). I will republish my future columns in coming months. In the meantime, you can subscribe to the Journal at http://corner.advisen.com/journals.html (here).

Rick

It is axiomatic to say that insurance products evolve. Indeed, like virtually every organic structure, its development, growth and nimbleness are necessary to meet the progress of maturing, service-based economies. Hence, the advent of cyber/tech/privacy liability (CTP) insurance.

At present, there are over 25 markets selling some type of CTP coverage. Many insurers sell standalone products. Others bolt on new coverage parts to their existing products. Still others add endorsements that attempt to extend coverage to address an existing client’s business model.

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We are grateful to the rapidly-growing number of Cyberinquirer readers who continue to submit substantive content for publication. This truly is an industry blog, and we strive to present alternative points of view from all quarters. 

The following article was authored by Gregg A. Rapoport, Esq., and David Lam, CISSP, CPP. Attorney Rapoport has represented policyholders in coverage litigation for over 20 years as part of a broad business litigation practice based in Pasadena, California. Mr. Lam is vice president of the Los Angeles Information Systems Security Association and has over 20 years of experience as an IT and information security professional and author. This article was first published by RIMS, and we appreciate Messrs. Rapoport and Lam offering it for republication here.

Rick Bortnick

As they confront the sobering question of whether their networks and the data they carry are fully secure, today’s “C-level” executives are becoming fluent in once-esoteric information security terms. Many have reached the conclusion that no matter the size of their IT and security budgets, there is no foolproof system for securing the confidentiality, integrity and availability of their data. Company networks remain vulnerable to attacks even if they adhere to industry best practices and run best-of-breed firewalls.

To address these security challenges, companies are relying on their risk managers to evaluate the applicability of existing insurance coverage to data breach incidents, and to assess the value of transferring some of the uncovered financial risk to one of the carriers now offering cyber-risk insurance policies. As the market for these products matures, premiums have come down significantly and policy limits have increased.

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The following article, written by reknowned London Market underwriter Rick Welsh, was first published in the November 2011 Data Guidance newsletter. A shout out to Rick for passing it on to us for republication.

Rick Bortnick

Today, no company – even with comprehensive privacy policies and practices – can be safe from data breaches. Can companies effectively transfer the risk (and cost) of data breaches by way of insurance? What costs should the companies consider? Almost every reference to the cost of data breaches or ‘cyber crime’ identifies the actual cost of the breach notification as its common currency. In Part One of this analysis, Rick Welsh, Cyber Underwriting Director at ANV, explores this metric’s limitations and the true exposure and cost of data breaches.

The well-regarded Ponemon Institute is constantly measuring the cost of a data breach and is commonly referenced by many to express the rising cost of data breaches. The second annual ‘Cost of Cyber Crime Study’ issued by the Ponemon Institute in August 2011, found that the median annualised cost of cyber crime for the 50 companies in the study was $5.9 million, with a range being between $1.5 million to $36.5 million. The annualised average was up 56% from the previous year’s study.

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The following article was written by my good friend, Scott Godes, a policyholder attorney with Dickstein Shapiro in Washington, D.C., and his colleague, Ken Trotter, and appeared on Scott’s personal site, Corporate Insurance Blog, after being published by Hospitality Upgrade magazine. Cyberinquirer neither ratifies nor necessarily agrees with the opinions stated below, which are Scott’s exclusively and not those of Cyberinquirer or Dickstein Shapiro.

Rick Bortnick

It is no secret that the hospitality industry continues to be vulnerable to data breaches and other cyberattacks.  A report by Willis Group Holdings, a British insurance firm, states that the largest share of cyberattacks (38 percent) were aimed at hotels, resorts and tour companies.  According to the report, insurance claims for data theft worldwide jumped 56 percent last year, with a bigger number of those attacks targeting the hospitality industry. Because businesses in the hospitality industry obtain and maintain confidential data from consumers–countless credit card records in particular–they will continue to be attractive targets for hackers and data thieves. Cybersecurity risks can cause a company to incur significant loss or liability. A data breach could result in the loss of important and sensitive customer information and, in some cyberevents, stolen company funds.  Companies also may face liabilities to third parties under statutory and regulatory schemes, incurring costs to mitigate, remediate and comply with the liability under these statutes.  Worse still, class action lawsuits have been filed around the country after data breaches, with plaintiffs alleging, among others, the loss of the value of their personal information, identity theft, invasion of privacy, negligence or contractual liability.  Even when companies have had success in defeating class actions, they nonetheless incurred significant legal expenses when defending those lawsuits. Read the rest of this entry »

In a prior post (here), we discussed the frequency of cyber thefts in the hospitality industry in 2009. We have a decent idea of how many of you read that article. For those of you who haven’t, here’s my topic sentence: “38% of the credit card hacking events in 2009 involved the hospitality industry.” Yep. 38%.

And guess what? The hospitality industry remained a high-level target in 2010. Alright, if you’re connected to the hospitality industry, you probably knew that already. But what you might not realize is that you’re not out of the clear. And, things may be getting worse as  the frequency of cyber criminality grows, and as the perpetrators become more sophisticated and cyber attacks propagate (more on that below).

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The following article was written by my good friend, Scott Godes, a policyholder attorney with Dickstein Shapiro in Washington, D.C., and first appeared on his personal site, Corporate Insurance Blog. Cyberinquirer neither ratifies nor necessarily agrees with the opinions stated below, which are Scott’s exclusively and not those of Cyberinquirer or Dickstein Shapiro. Responsible comment will gladly be published (promptly…). Please feel free to forward them to me at your convenience.

Rick Bortnick

On October 27, 2011, CNN.com posted:

A massive cyberattack that led to a vulnerability in RSA’s SecurID tags earlier this year also victimized Google, Facebook, Microsoft and many other big-named companies, according to a new analysis released this week.

The Krebs On Security blog posted:

Security experts have said that RSA wasn’t the only corporation victimized in the attack, and that dozens of other multinational companies were infiltrated using many of the same tools and Internet infrastructure.

This is in line with comments from others, including this quote from Digital Forensic Investigator News, that “2011 has quickly become the year of the cyber attack.“  Would your insurance policies cover those events?  Beyond the denial of service attacks that made news headlines, a shocking “80 percent of respondents” in a survey of “200 IT security execs” “have faced large scale denial of service attacks,” according to a ZDNet story.  These attacks and threats do not appear to be on a downward trend.  They continue to be in the news after cyberattacks allegedly took place against “U.S. government Web sites – including those of the White House and the State Department –” over the July 4, 2009 holiday weekend.  The alleged attacks were not only against government sites; they allegedly included, “according to a cyber-security specialist who has been tracking the incidents, . . . those run by the New York Stock Exchange, Nasdaq, The Washington Post, Amazon.com and MarketWatch.” Themore recent ZDNet survey shows that a quarter of respondents faced denial of service attacks on a weekly or even daily basis, with cyberextortion threats being made as well.

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I. Overview

Canada’s privacy regime can be described as a web of legislation at both the federal and provincial/territorial level. Some commentators express concern that this web has become tangled, lacks uniformity and actually undermines the predictability and consistency that, in their view, would exist under a single (federal) privacy regime. Canada has two primary privacy statutes: the Privacy Act and the Personal Information Protection and Electronic Documents Act (“PIPEDA”). The Privacy Act, R.S.C. 1985, c. P-21 (Can.), took effect on July 1, 1983, and imposed certain privacy rights obligations on approximately 250 federal government departments and agencies by limiting the use and disclosure of personal information. The Privacy Act also gives individuals the right to access and, if necessary, correct personal information held by governmental organizations subject to the Act.

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I.                    Introduction

The Internet facilitates the widespread and instantaneous flow of information across international borders.  While the advent of this method of transnational communication has truly created a “global economy,” at the same time, it has engendered problems for companies and their insurers which seek to assess risk and implement information safeguards, particularly in the face of divergent data privacy laws which vary from region to region or may not even exist in certain jurisdictions.  The Asia-Pacific region typifies such a lack of uniformity.  At the same time, the emerging economies in this rapidly growing part of the world have generated promising targets for computer hackers. 

75% of Asia-Pacific enterprises have experienced cyber attacks in the past 12 months.  Perhaps not surprisingly, a 2010 study by Symantec reported that almost half of all Asia-Pacific-based businesses (and 67% in Singapore) ranked cyber risk and information security as their top concern—more so than natural disasters, terrorism, and traditional crime combined.  Cyber attacks and data breaches are on the radar of CEOs and risk managers for good reason: the average cost for a large company to remediate a data breach in Australia increased to nearly $2 million in 2010, which is slightly up from 2009.  See Ponemon Institute/Symantec 2010 Annual Study: Australian Cost of a Data Breach (May 2011).  Notwithstanding the prevalence of such attacks, it is far more likely that a cyber security program is managed as a part of a company’s traditional business risks, with traditional coverages being contorted to cover various components of cyber risk (i.e. property loss, liability to third-parties, business interruption, etc.), rather than by way of a dedicated cyber-specific insurance program.  Still, in light of recent developments, it is virtually certain that companies soon will begin looking to transfer such risk via more efficient and targeted technology insurance forms and policies.   

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Doug Pollack of IDExperts recently published a blog post on cyber insurance that caught my eye. Insofar as IDExperts is a respected provider of cyber breach response services, I assumed the article would address technical issues. Upon reading the piece, however, I was disappointed to find that the article addressed insurance-related matters, including criteria for the selection of insurance products and programs, a topic typically the province of risk managers, brokers, underwriters and lawyers. Hmmm…

At the outset, the article addresses technical issues, as the author correctly suggests that “privacy, compliance and legal officers should work closely with their risk manager to ensure that the organization is getting a policy that meets its needs.” Having hooked me with that truism, I was looking forward to reading on. But that is where the technical commentary (and our common perspective) ends. From there, the author moves on to express his views (and, in my counter-view, misconceptions) on cyber insurance products and how they should operate.

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The yellow fever outbreak of summer 1798 was the worst in Philadelphia’s history. Over 5,000 residents were infected, and nearly 1,300 died, causing even President Washington to flee. On the night of September 1st, 1798, the vault at Carpenter Hall was breached and the then-massive amount of $162,821 went missing. This first bank robbery in the United States, attributed as an “inside job”, ushered in an era of robberies that turned criminals into celebrities. Jesse James, Bonnie and Clyde, and John Dillinger have become legends. At present, the risk of yellow fever has been mitigated due to vaccines. The risk of bank vaults being physically robbed similarly has been reduced.

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Computer hacking is a constantly evolving and growing threat.  While recent high-profile network security breaches at companies such as Epsilon and Sony (with crisis management and other costs estimated to range from $1 billion to multiples thereof in the case of Sony) have helped raise awareness about the need to adequately protect personal identifiable information, the problem has existed for decades. 

Yet the situation has only recently begun to receive proper attention from the media, government officials, businesses, and certain segments of the insurance industry.  Of course, the cost of a security breach may have something to do with that.  According to a study from Marsh and the Ponemon Institute, the typical data breach in FY 2010 resulted in companies and their insurers have to pay an average of $7.2 million to deal with and remedy the situation. 

One particularly alluring target for hackers has been educational institutions.  While schools and universities may not immediately appear to be obvious targets, the statistics confirm that attacks against educational institutions are on the rise. 

In 2007, educational institutions accounted for 25% of all reported data breaches.  This number jumped to 33% in 2008.  See Sarah Stephens & Shannan Fort, Cyber Liability & Higher Education, Aon Professional Risk Solutions White Paper (December 2008) Read the rest of this entry »

Faced with revitalizing a deteriorated economy, formulating a national budget, and the aftermath of Osama Bin Laden’s death, President Barack Obama has his hands full. Yet, in the midst of all the issues commanding the White House’s attention, the Obama Administration somehow has found time to address the threats to our nation’s cyber security.

According to Business Insurance, on Thursday, May 12, 2011, the Obama Administration proposed cyber security legislation to improve protection for individuals and the federal government’s computer and network systems. The proposed legislation would address national data breach reporting by creating simpler and standardized reporting requirements for the 47 states that contain such requirements. The proposal would also synchronize penalties for computer crimes with other crimes. Additionally, the government, through the Department of Homeland Security, would become directly involved in assisting the industry as well as state and local governments in policing and enforcing cyber security. The proposed legislation encourages the state and local governments to share information with the Department of Homeland Security about cyber threats or related incidents by providing them with immunity for doing so.  
 
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Following the publication of our original post on the implications of a cyber attack on investors’ securities portfolios (see here), we have been asked by scores of readers whether securities fraud litigation arising from cyber crime has ensued. Not surprisingly, the answer is “yes.”

Indeed, we have located at least two such cases, one a putative securities fraud class action against a payment processing company and the second an SEC initiated action against a private investor. The results may (or may not) surprise you, depending on your perspective of trial courts’ levels of judicial activism and willingness to render substantive decisions at early stages of litigation.

 In re: Heartland Payment Systems, No. 09-1043 (D.N.J. Dec. 07, 2009) remains the paradigm for such litigation. To facilitate its payment processing services, Heartland Payment Systems (“Heartland”) stored millions of credit and debit card numbers on its internal computer network. In December 2007, hackers launched a Structured Query Language Attack (“SQL attack”) on Heartland’s payroll management system. To its credit, Heartland was able to successfully avert the attack before any personally identifiable information was stolen. At the same time, however, the company failed to detect malicious software (“malware”) which had been placed on the network by the SQL attack.  The malware infected Heartland’s payment processing system, ultimately enabling the hackers to steal 130 million consumer credit and debit card numbers.  Heartland did not discover the breach until January 2009, at which time it notified government authorities and publicly disclosed the event.  Over the course of the following month, Heartland’s stock price dropped over $15 per share. Perhaps not surprisingly, shareholder class actions ensued.

In their complaint, plaintiffs alleged that Heartland and its officers and directors had made material misrepresentations and omissions about the December 2007 SQL attack. Specifically, plaintiffs claimed that the defendants concealed the SQL attack and misrepresented the general state of Heartland’s data security.  Plaintiffs further alleged that the defendants’ conduct was fraudulent because they were aware that Heartland’s network had been breached, yet they had not fully remedied the problem Read the rest of this entry »

Cyber crime is costing the United Kingdom more than £27  billion a year ($43.5 million), according to a recent study published by Britain’s Office of Cyber Security and Information Assurance.  The report, entitled “The Cost of Cyber Crime,” concluded that digital crime was a widespread, pervasive threat to U.K. businesses.

Theft of intellectual property, such as designs, formulas and other company secrets from businesses costs £9.2 billion, with firms specializing in pharmaceuticals, biotechnology, electronics, IT and chemicals being hit hardest.  The pharmaceutical industry loses about £1.8 billion a year in IP theft, followed by electronics and electrical equipment makers and the software sector.  In terms of non-IP industrial espionage, financial services are the biggest loser, with yearly losses of more than 2 billion, followed by mining and aerospace. 

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Data security breaches pose a serious threat to a corporation’s financial stability as well as to its credibility in the marketplace. Most notably, the 2007 TJX data security breach, where 45 million credit card and debit card numbers were stolen, cost the company over $4 billion. For many corporations, the solution is to purchase a cyber liability insurance policy, which provides insurance coverage in the event of such a breach.

The risk of data security breaches has also affected students of universities throughout the nation. In June of last year, Cornell University officials informed 45,000 members of the school’s community that their personal information, including their names and social security numbers, was stolen after a University-owned laptop was stolen. Due to such breaches, college officials nationwide have begun purchasing cyber liability insurance policies to offset the financial burdens of a data security breach.

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Interviewing for your first job as a teenager is as exciting as it is intimidating. Thoughts of what to do with your first paycheck consume your mind as you rehearse your best “do-you-want-fries-with-that” smile. The interview proceeds flawlessly and you start to count the dollar signs as you await the job offer. But imagine your surprise when you are informed that you did not get the job because your background check revealed that you are over $75,000 in debt and five years behind in your child support payments for your eleven year old child…a terrifying thought considering you are only 16 years old.

Adults aren’t the only victims of identity theft. Child identity theft is an increasing and understated crime. A child’s Social Security Number (“SSN”) is the perfect target, as the theft typically goes undetected until years after the crime has taken place. Indeed, the crime might not be discovered until the rightful owner/victim uses his or her SSN for the first time years later. This revelation often occurs when the victim applies for his or her first job or financial aid before college.

The scheme works as follows: businesses are using various techniques to search the Internet for dormant SSNs. These numbers often belong to long-term inmates, dead people or children. Obtaining them is not as difficult as one may think, as SSNs are distributed systematically depending on age, geographical location and when the number is issued. Once it has been determined that no one is actively using the number to obtain credit, the numbers are offered for sale.

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Lest one question the severity of the evolving challenges in our rapidly growing cyber world, President Obama has crystallized it succinctly: (1) “cyber threat is one of the most serious economic and national security challenges we face as a nation;” and (2) “America’s economic prosperity in the 21st century will depend on cybersecurity.” In other words, President Obama has declared cybersecurity to be a national security priority.

While that’s obviously good news, the follow-up question is “how are we doing in meeting the associated demands?” Regrettably, not so well, it seems.

Speaking before cybersecurity and privacy experts from government, law enforcement, the private sector, academia and privacy and civil liberties groups, President Obama, Homeland Security Secretary Janet Napolitano, Commerce Secretary Gary Locke, Cyber Coordinator Howard Schmidt and other Administration officials uniformly acknowledged that far more work needs to be done to protect digital communications and information infrastructure and make it more difficult and costly for cybercrimimals.

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We’ve all heard the story of the clerk at the local gas station who was double-swiping credit cards in order to make fraudulent copies. Online banking, restaurants, clothing retailers…every industry is potentially a target. Yet the industry that was the subject of more credit card thefts than any other sector in 2009?  Hotels.

To the point, SpiderLabs (an affiliate of Trustwave, a data-security consulting firm) has published a study which reports that 38% of the credit card hacking events in 2009 involved the hospitality industry.  Over one-third of all thefts of credit card numbers occurred at hotels. Much to my surprise, given the wealth of reporting on the subject, the financial services industry lagged well behind at a comparatively minor 19%. Retail followed at 14.2% while restaurants and bars were fourth at 13%.

I guess I shouldn’t have been surprised, though, as my own credit card number was stolen several years back while i was staying at a business travelers’ hotel in New York City. I had gone to the City for a Cinco de Mayo event sponsored by a major international insurer. Several days later, I received a call from my credit card company asking if I had bought gasoline on Long Island or a $5000 television at a big box retailer. While I do buy gasoline, I hadn’t been on Long Island. And while I certainly would have loved a $5000 television (or, for economy’s sake, something less pricey), I hadn’t bought that either. The conclusion was simple: my credit card number had been stolen when I used it at the New York hotel.

So, why hotels? According to security analysts, they’re generally easy targets. The large chain hotels may employ sophisticated security technology or other protections. Or they may not. In either case, how about smaller or private owned, non-chain hotels? The next time you check into a hotel, ask what security methods they use to protect credit card information. You probably won’t like the answer. The credit card number that you provide at check-in may sit in a folder or a file maintained right at the front desk. Who would prevent someone from simply lifting the file? Especially in the middle of the night. The single desk clerk on overnight duty?

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