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What the 2015 State of the Union Means for Risk Managers

state of the union 2015

Last night, President Obama delivered the annual State of the Union. Unsurprisingly, the speech covered a variety of topics ranging from foreign affairs to civil rights to climate change. While these issues may ultimately have little impact on the insurance industry or risk management, there were two topics raised that could be of significant interest.

The first relates to tax reform:

“As Americans, we don’t mind paying our fair share of taxes, as long as everybody else does, too. But for far too long, lobbyists have rigged the tax code with loopholes that let some corporations pay nothing while others pay full freight. They’ve riddled it with giveaways the superrich don’t need, denying a break to middle class families who do,” Obama said.

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For the past few years, the Obama administration’s annual budget proposal has included a measure that would deny a tax deduction for certain reinsurance premiums paid to foreign-based affiliates by domestic insurers. While the administration and some members of Congress deem this deduction a “loophole,” it is actually a commonly used and effective risk management tool.

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Doing away with this particular “loophole” would force the industry as a whole to reduce the size and scope of its U.S. offerings. A previous economic impact study found that this proposal would reduce the net supply of reinsurance in the United States by 20%, thus increasing prices by to billion annually for the same coverage.

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If Congress does take up comprehensive tax reform, this is certainly an initiative that many in the industry will need to keep an eye on.

The other issue is cybersecurity:

“And tonight, I urge this Congress to finally pass the legislation we need to better meet the evolving threat of cyberattacks, combat identity theft, and protect our children’s information. If we don’t act, we’ll leave our nation and our economy vulnerable. If we do, we can continue to protect the technologies that have unleashed untold opportunities for people around the globe,” the president said.

Cybersecurity and the management of cyberrisks is certainly one of the hottest topics in the industry. While it remains unclear what proposed legislation will look like, we will almost certainly see at least one major piece of cybersecurity legislation introduced in the next few months. Previous efforts have focused on information-sharing. With the number of attacks and damage inflicted only increasing, however, it is quite possible that new legislation may be even broader in scope.

It is also important to note that simply including something in a State of the Union address does not always translate into real action. It is quite possible that tax reform will get tabled again as various factions are unable to agree. It’s also possible that Congress will be unable to come up with a cybersecurity bill that achieves many of its goals without undermining the privacy or personal security of individuals. It is, however, an overview of the administration’s priorities for the coming year, and that does still carry some weight.

Human Error Caused 93% of Data Breaches

Despite tremendous increased attention, the number of reported cyberbreach incidents rapidly escalated in 2014. According to Information Commissioner’s Office data collected by Egress Software Technologies, U.K. businesses saw substantially more breaches last year, with industry-wide increases of 101% in healthcare, 200% in insurance, 44% among financial advisers, 200% among lenders 200%, 56% in education and 143% in general business. As a result, these industries also saw notable increases in fines for data protection violations.

The role of employees was equally alarming.

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“Only 7% of breaches for the period occurred as a result of technical failings,” Egress reported.

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“The remaining 93% were down to human error, poor processes and systems in place, and lack of care when handling data.

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Check out more of the findings from Egress’ review in the infographic below:

Infographic: Human error causes alarming rise in data breaches

McAfee Labs Predicts Top Cybersecurity Threats for 2015

2015 cybersecurity trends

In 2015, cybercriminals will increasingly be non-state actors who monitor and collect data through extended, targeted attack campaigns, McAfee Labs predicts. In the group’s 2015 Threats Predictions, Intel Security identified internet trust exploits, mobile, internet of things and cyber espionage as the key vulnerabilities on next year’s threat landscape.

“The year 2014 will be remembered as ‘the Year of Shaken Trust,’” said Vincent Weafer, senior vice president of McAfee Labs. “This unprecedented series of events shook industry confidence in long-standing Internet trust models, consumer confidence in organizations’ abilities to protect their data, and organizations’ confidence in their ability to detect and deflect targeted attacks in a timely manner. Restoring trust in 2015 will require stronger industry collaboration, new standards for a new threat landscape, and new security postures that shrink time-to-detection through the superior use of threat data. Ultimately, we need to get to a security model that’s built-in by design, seamlessly integrated into every device at every layer of the compute stack.”

McAfee Labs predicts the top cybersecurity threats in 2015 will be:

1. Increased use of cyber warfare and espionage tactics. Cyber espionage attacks will continue to increase in frequency as long-term players will become stealthier information gatherers, while newcomers to cyber-attack capabilities will look for ways to steal sensitive information and disrupt their adversaries.

  • Established nation-state actors will work to enhance their ability to remain hidden on victim systems and networks.
  • Cybercriminals will continue to act more like nation-state cyber espionage actors, focusing on monitoring systems and gathering high-value intelligence on individuals, intellectual property, and operational intelligence.
  • McAfee Labs predicts that more small nation states and terror groups will use cyber warfare.

2. Greater Internet of Things attack frequency, profitability, and severity. Unless security controls are built-in to their architectures from the beginning, the rush to deploy IoT devices at scale will outpace the priorities of security and privacy. This rush and the increasing value of data gathered, processed, and shared by these devices will draw the first notable IoT paradigm attacks in 2015.

  • The increasing proliferation of IoT devices in environments such as health care could provide malicious parties access to personal data even more valuable than credit card data. For instance, according to the McAfee Labs report entitled Cybercrime Exposed: Cybercrime-as-a-Service, the cybercrime community currently values stolen health credentials at around $10 each, which is about 10 to 20 times the value of a stolen U.S. credit card number.

3. Privacy debates intensify. Data privacy will continue to be a hot topic as governments and businesses continue to grapple with what is fair and authorized access to inconsistently defined “personal information.”

  • In 2015 we will see continued discussion and lack of clarity around what constitutes “personal information” and to what extent that information may be accessed and shared by state or private actors.
  • We will see a continued evolution in scope and content of data privacy rules and regulations, we may even see laws begin to regulate the use of previously anonymous data sets.
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  • The European Union, countries in Latin America, as well as Australia, Japan, South Korea, Canada, and many others may enact more stringent data privacy laws and regulations.

4. Ransomware evolves into the cloud. Ransomware will evolve its methods of propagation, encryption, and the targets it seeks. More mobile devices are likely to suffer attacks.

  • We predict ransomware variants that manage to evade security software installed on a system will specifically target endpoints that subscribe to cloud-based storage solutions.
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  • Once the endpoint has been infected, the ransomware will attempt to exploit the logged-on user’s stored credentials to also infect backed-up cloud storage data.
  • We expect the technique of ransomware targeting cloud-backed-up data to be repeated in the mobile space.
  • We expect a continued rise in mobile ransomware using virtual currency as the ransom payment method.

5. New mobile attack surfaces and capabilities. Mobile attacks will continue to grow rapidly as new mobile technologies expand the attack surface.

  • The growing availability of malware-generation kits and malware source code for mobile devices will lower the barrier to entry for cybercriminals targeting these devices.
  • Untrusted app stores will continue to be a major source of mobile malware. Traffic to these stores will be driven by “malvertising,” which has grown quickly on mobile platforms.

6. POS attacks increase and evolve with digital payments. Point of sale (POS) attacks will remain lucrative, and a significant upturn in consumer adoption of digital payment systems on mobile devices will provide new attack surfaces that cybercriminals will exploit.

  • Despite current efforts by retailers to deploy more chip-and-pin cards and card readers, McAfee Labs sees continued growth in POS system breaches in 2015 based on the sheer numbers of POS devices that will need to be upgraded in North America.
  • Near field communications (NFC) digital payment technology will become an entirely new attack surface to exploit, unless user education can successfully guide users in taking control of NFC features on their mobile devices.

7. Shellshock sparks Unix, Linux attacks. Non-Windows malware attacks will increase as a result of the Shellshock vulnerability.

  • McAfee Labs predicts that the aftershocks of Shellshock with be felt for many years given the number of potentially vulnerable Unix or Linux devices, from routers to TVs, industrial controllers, flight systems, and critical infrastructure.
  • In 2015, this will drive a significant increase in non-Windows malware as attackers look to exploit the vulnerability.

8. Growing exploitation of software flaws. The exploitation of vulnerabilities is likely to increase as new flaws are discovered in popular software products.

  • McAfee Labs predicts that exploitation techniques such as stack pivoting, return- and jump-oriented programming, and a deeper understanding of 64-bit software will continue to drive the growth in the number of newly discovered vulnerabilities, as will the volume of malware that exploits those newly discovered vulnerabilities.

9. New evasion tactics for sandboxing. Escaping the sandbox will become a significant IT security battlefield.

  • Vulnerabilities have been identified in the sandboxing technologies implemented with critical and popular applications. McAfee Labs predicts a growth in the number of techniques to exploit those vulnerabilities and escape application sandboxes.
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  • Beyond application sandboxing, McAfee Labs predicts that 2015 will bring malware that can successfully exploit hypervisor vulnerabilities to break out of some security vendors’ standalone sandbox systems.

The bebe Hack: Guarding Against Cyberbreach During the Holiday Shopping Season

bebe data breach

On Friday, retail chain bebe announced that it had identified an attack on computers that operate the in-store payment processing system. The attack may have exposed data from cards swiped in retail locations in the U.S., Puerto Rico, and the U.S. Virgin Islands between Nov. 8 and Nov. 26, including cardholder name, account number, expiration date and verification code. The breach did not impact customers who shopped online or in other international locations, bebe reported, and the company has hired a security firm to stop and investigate the attack.

Almost exactly a year after the massive Target hack, this latest incident comes after a steady stream of sizable breaches among retailers, including Home Depot, JPMorgan Chase and eBay. Consumers have begun to find these hacks increasingly less surprising, and stopped paying as much attention – a phenomenon many are calling “breach fatigue.”

But companies are not entirely off the hook. While Target is on the rebound and subsequent breach victims have endured less damage to consumer perception, these cybersecurity incidents still demand a notable amount of contingency planning and mitigation.

According to public relations and social media firm Affect, there are four keys to protecting brand reputation in the event of a security breach:

1) Develop a Fully Locked and Loaded Response Plan

In the digital age, it is essential to have a cyber attack plan in place as part of an organization’s crisis management strategy. Companies can get ahead of a crisis by leveraging social media to diffuse damaging situations. In order to prepare, be sure to anticipate and understand the kinds of threats that could influence your business and your industry.

“There are four phases of crisis communications: readiness, response, reassurance and recovery,” said Sandra Fathi, president of Affect. “In order to properly respond to a crisis, each stage must be ready to go at a moment’s notice — develop materials such as messages and prepared statements, prepare delivery channels like hotlines and social media platforms and train employees regarding awareness and organizational procedures.
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2) The Customer is Top Priority

Arguably the most important step in maintaining a brand’s image amid a breach is to be honest with customers and inform them about what has occurred — the sooner the better, especially if their personal information is at stake. In fact, 47 states have Security Breach Notification Laws that govern communication with customers in the face of a security breach including the timeline for those communications. Several weeks elapsed before Target released an official statement to their customers and as a result, experienced massive backlash from customers, other organizations and the media alike.

Adam Levin, chairman and founder of IDT911, a provider of data risk and identity management services, believes every company needs to demonstrate three things in the wake of a data breach.

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“Urgency, transparency, and empathy are all critical. I don’t think they [Target] showed enough of those three,” Levin said in an interview with ABCNews.com. Not being upfront with customers can result in a loss of confidence in the brand that can hinder not only the company’s reputation, but could lead to a loss in revenue.

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3) Monitor the Situation in Real-Time

Social media can be a powerful tool but “with great power comes great responsibility.” While positive engagements boost a brand’s respect, companies must always monitor for negative interactions in real-time and be even more stringent during a security breach, as customers will turn to social media to respond to situations, regardless of their allegiance to the brand. Develop a Social Media Response Map that outlines anticipated situations and correlated standard responses to avoid any last minute shuffle. Don’t shy away from angry customers that continuously post adverse comments.

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Depending on the situation, it may be worthwhile to engage with these individuals in a private forum and resolve their concerns, taking the negative sentiments offline.

4) Don’t Repeat the Same Mistakes

For brands, it is especially important to not make the same mistakes twice. Customers may or may not forgive a first offense, so a second go-around is even harder to rebound from. Companies must carefully document and analyze each breach to identify how it happened, why it happened and how to prevent such an event in the future. Consider changing security vendors, deploying new software, re-training staff and amending company policies. It is also important to communicate these changes to customer to reassure them that a similar breach will not reoccur.