Why Cyber Claims Will Continue to Grow
By: Joe Rosengarten (Insurance Business Magazine) January 2017
As the fastest growing coverage in the country, cyber insurance is certainly an exciting and dynamic space in which to operate. But, exponential growth also brings challenges and unexpected roadblocks. With that in mind, IBA sat down with Kari Stern, Claims Manager at NAS Insurance Services, to find out how she’s managing the rapidly evolving industry, her biggest challenges of 2016, and to ask what major trends she foresees impacting the cyber space in 2017.
“From a claims perspective, the most important thing from last year was the continued increase in incidents of cyber extortion and ransomware events,” Stern says. “That’s the most frequent type of claim that we’re seeing reported. Previously, ransomware would encrypt the victim’s records and demand money for the decryption key. The target could either pay or restore their data from backup. But ransomware has now progressed to the point that certain strains of the virus not only demand a ransom and encrypt the records, but they are also exfiltrating data.”
These new, more powerful strains are forcing those affected to conduct a forensic investigation (as well as data restoration) to determine if data was exfiltrated, which results in claims becoming more expensive.
Despite the sharp uptick, Stern is not necessarily surprised by the increased number of claims last year. “Since the Target breach in 2015 – and other high profile breaches since then including Home Depot and Sony – more people are aware that of the risks and are recognizing that they’ve had an event occur, that’s led to the increase,” she says. “I think it will continue to increase in 2017.”
A recent trend that Stern has noticed is a rise in claims that refer to a ‘rogue employee’, who has recognized the value of the data the company owns and instigated an internal hack or breach. In some cases, these employees use the threat of spreading the data as a way of negotiating a better severance package. “We’re seeing an increase in claims where employees who are on disciplinary action, or have been terminated or are leaving to go to a competitor are either wiping or stealing data,” Stern says.
So, looking to a year on from today; how does Stern think the claims side of cyber insurance will have changed? “My guess would be that the cost of claims is going to rise, because forensics is going to be needed more often, and that’s the most expensive part,” she says. “The hackers are getting more sophisticated. They’re constantly changing how the viruses work and what they do to systems.”
