Company Directors must wake up to cyber threats or they risk litigation from all sides, warned Francis Kean of Willis Group Holdings. Speaking at a Willis-hosted cyber liability conference in London this week, the Executive Director of Willis’ FINEX Global Unit pointed out that company boards must understand how exposed their company is to the digital threat environment, following recent Securities and Exchange Commission (SEC) guidance on disclosure of cyber attacks.
“The SEC guidance is a useful wake-up call to the risks of data breaches for Boards everywhere but they now have a delicate balancing act,” Kean told the audience in the Willis Auditorium. “The problem with exposing cyber breaches is you don’t want to provide a route map to hackers, or potential plaintiffs down the road, but you also don’t want to expose yourself to a shareholder class action,” he added.
Kean stressed the need for Boards to understand emerging cyber threats. “There is a whole universe of potential cyber risk not understood at a Board level,” he explained. “This, in turn, creates a risk that Directors will fail to discharge their duty of care and duty to promote the success of the company. Their fiduciary duties require them to gain some understanding of the cyber threat faced by their companies and to ensure adequate and proportionate procedures are adopted to mitigate the consequences of a serious data breach.”
The SEC guidance dates from October 2011. It was issued in response to concerns that it was hard for investors to assess security risks if companies failed to disclose data breaches in their public filings. Willis noted that there are “five specific disclosure areas addressed in the guidance: pre-attack exposure analysis; cyber incidents; exposure to the firm in description of business; legal proceedings; and financial statement implication.”
On another panel at the event, Jeremy Smith, Willis’ Cyber Liabilities Practice Leader, discussed the development of cyber liability insurance. He explained that the “convergence of cyber coverage in recent years was largely due to a lack of sophisticated claims data and significant increases in cyber crime.”
However, Smith noted that brokers are now pushing for further innovation from the market and have managed to secure additional coverage for PCI fines, third party vendors and terrorism.
Advanced Persistent Threats (APTs), such as the Aurora virus and Nightdragon, are the next challenge for the insurance industry according to Smith. He described APTs as “sustained attacks designed to steal intellectual property over a number of years,” adding that the “insurance industry hasn’t fully tackled this threat yet, but I hope that brokers and insurers will find a solution together in the future.”
Smith also strongly suggested that companies with large exposures should consider tailored cyber policies. “If a company has a significant exposure, I would always recommend a stand-alone cyber liability product as coverage may not be found under a GL or PI policy,” he explained.
“Cyber liability has developed into a specialist market with expert underwriters and tailored products,” Smith continued. “These products offer more than just insurance; companies also get access to a range of services from expert legal advice, to post breach response services, which are absolutely critical to ensuring the costs of a breach are kept to a minimum,” he concluded.
Source: Willis Group Holdings