Australia: The new frontier: Cyber risk management and insurance, part 1

Clayton Utz Insights
Last Updated: 22 August 2014
Article by David Gerber

Most Read Contributor in Australia, November 2017

Key Points:

Cyber risks can come from the malice of others, or the negligence of your own organisation.

Every day we share more information electronically, and companies handling this increasing volume of data face increasing risks from hackers, viruses and human error. These risks may lead to privacy breaches, system shutdowns or even electronic blackmail. This can have significant impacts on companies – practically and legally. Beyond the immediate costs to resolve these issues, there can be profound impacts on reputation and liability to third parties.

While companies usually can articulate these risks, they are often ill-prepared for them when it comes to insuring them. It may not be enough to rely on traditional property and liability policies to cover cyber risks. However with greater awareness of the risks, and of the benefits of bespoke cyber risk insurance, companies can limit their exposure against the unknown and unexpected. In this article we'll explore the growth of cyber risks.

Some varieties of cyber-attacks

There were numerous cyber-attacks throughout 2013 – targeting companies as large as Microsoft, Facebook, and Neiman Marcus. They have focused the business world's attention on a range of cyber risks, such as data breaches or denial of service, for criminal gain or simply for demonstrations of political 'hacktivism'.

A recent high-profile data breach involved US retailer Target Corporation in late 2013, and is estimated to have compromised 40 million credit and debit cards (including PIN numbers) across the company's 1,800 US stores. Further reports suggest that the parties responsible may also have taken the personal contact information for as many as 70 million customers as well, making this security breach one of the largest attacks in history.1 Surprisingly, this was not a single strategic hack of Target's central database or website. Instead, there was an infiltration of malicious software ("malware") into Target's checkout machines activated once the Christmas holiday shopping period began.

Other recent cyber-attacks have involved "Denial of Service" raids exploiting small weaknesses in the infrastructure of the internet originally designed without malicious activity in mind.2 These attacks can render websites inaccessible and shut down ongoing web traffic indefinitely.

These both appear to be sophisticated and orchestrated cyber-attacks. Large companies may be able to invest significant resources into system protection and early-detection software, but they must constantly be one step ahead of cyber-attackers who are quick to adapt their methods. Smaller companies are at even greater risk given their comparative lack of resources for managing these exposures.

Cyber risks: Not always from outsiders

Data breaches are not restricted to unwanted third-party activity. Internal errors, system failures and poor information handling policies can also lead to lost data. Any organisation is vulnerable to internal leaks involving fraudulent employees, although employee negligence can be equally significant.

This requires careful consideration of how networks can be compromised by lost or stolen hardware (such as computers and storage devices like USBs), ensuring only the right people have access to secure databases, and proper training to prevent inadvertent disclosures.

The impacts on the ground

So what is the potential cost of a cyber-attack or data breach? In most cases the first response will be to conduct investigations, audits and repairs to remedy the relevant vulnerability. What has happened? How do we fix it and get back online?

Then the focus will be external. It may be necessary to notify affected parties such as customers and partner organisations. Where the data lost is of a private or sensitive nature, the company may face possible claims by third parties and penalties as imposed by law or regulation. This inevitably requires legal advice and representation.

The immediate impacts are likely to be expensive external consultants, forensic investigators, lawyers and technical support hired to assist with whatever is needed to ensure business continuity.

The loss of a system that has been compromised by a virus or malware may impact day-to-day operations. There could be lost revenue from the business interruption.

However, perhaps the most acute damage will be to the company's reputation and future custom. The steps to repair a damaged reputation could involve extensive public relations campaigns. If credit card details are lost, the company may incur costs to offer complimentary credit monitoring services to customers. Often these public relations and communication efforts will be combined with a concerted campaign to demonstrate better network security.

Finally, the difficulty in quantifying loss of confidence and trust among customers may translate into long-term marketing efforts to rehabilitate and restore a company's goodwill over time.

Data breaches and Australia's Privacy regime

If the shifting cyber landscape is difficult to secure, it is also difficult to regulate. Lawmakers and supervisory organisations are sometimes found playing catch-up only after a breach or an attack.

Australia's privacy law has recently undergone significant reform to improve the protection of the growing amount of information held by government and business. The harmonisation of various privacy principles into Australian Privacy Principles (APPs), which came into effect on 12 March 2014, is part of a scheme under which "serious or repeated interferences with privacy" can lead to civil penalties of up to $1.7 million for companies or $340,000 for individuals. In cases involving data breaches, there are three potential ways that a company could be found to be in breach of the APPs:

APP 6 forbids businesses holding personal information from using or disclosing that information for any purposes other than those for which the information was collected. This principle may be breached by, for example, disclosure through the accidental publishing of information (as with Telstra in 2013).

APP 8 requires businesses to take reasonable steps to ensure that any overseas recipients of Australian personal information (such as a database host, or a cloud server) do not breach the APPs. This principle may be breached if a business fails to take reasonable steps and there is a breach involving data in the control of an overseas recipient.

APP 11 mandates that any business holding personal information take all reasonable steps to protect that information from misuse, interference and loss, as well as unauthorised access, modification or disclosure. The Office of the Australian Information Commissioner's (OAIC's) current Guide to information security – 'Reasonable steps' to protect personal information explains that the "inclusion of 'interference' in APP 11 is intended to recognise that attacks on personal information may not be limited to misuse or loss, but may also interfere with the information in a way that does not amount to a modification of the content of the information (such as attacks on computer systems)". A company would be well advised to consider its systems and OAIC's guidance in relation to this principle. An updated draft of the Guide to information security has recently been released for consultation.

The second set of reforms relate to the powers of the Australian Information Commissioner. These changes will now allow the Commissioner to conduct assessments of compliance with the APPs, accept enforceable undertakings, make determinations on its own investigations (without a complaint of external parties), seek civil penalties for serious or repeated breach of privacy and recognise external dispute resolution schemes for privacy-related complaints.

Finally, it is possible that Parliament will establish a mandatory notification scheme for serious data breaches under the Privacy Amendment (Privacy Alerts) Bill (Cth). The original version of this draft legislation lapsed in 2013 but was reintroduced into the Senate by the Federal Opposition on 20 March 2014. The Bill would amend the Privacy Act 1988 (Cth) to require companies to notify the OAIC and take reasonable steps to notify affected individuals of serious data breaches as soon as practicable. Failure to comply with these obligations would be deemed to be an interference with the privacy of an individual, thereby potentially engaging the Commissioner's powers introduced in March. The Bill is still before the Parliament.

In the second part of this article, we will look at the option to manage cyber risks using insurance.


1Alina Selyukh, U.S. retailers at Senate hearing: hackers have upper hand, 4 February 2014.

2Dave Lee, Huge hack 'ugly sign of future' for internet threats, 11 February 2014.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions