Canada: Mitigating Cyber Risk And Cybersecurity Insurance

Last Updated: May 3 2016
Article by Carol Lyons and Jeffrey Nagashima


In an era of increasing competitiveness, businesses and organizations are becoming more dependent on digital systems in order to compete effectively and are concentrating their value in digital assets to benefit from the explosive growth of a connected economy. However, concurrent with the exponential growth of the digital economy, cyber attacks have increased at the same or an even greater rate. Perpetrators of cyber attacks range from amateur lone-wolf hackers to sophisticated nation states. The variety of attacks and attackers, and the resources available to attackers, make it impossible for businesses and organizations to be completely breach-proof.

Because of this, business and institutions must put in place systems and procedures to protect their digital systems and assets, and take initiatives to mitigate their exposure to cyber risk. This article will highlight some common forms of cyber attacks, some common best practices tips to reduce your exposure to cyber risk, and lastly discuss the availability and limitations of cyber insurance to mitigate cyber risk.

Common Forms of Cyber Attacks

To begin mitigating cyber risk, businesses and organizations need to have at least a preliminary understanding of the threat landscape. However, this is challenging as each business and organization is unique, and consequently may be exposed to unique forms of cyber attacks. Furthermore, cyber attacks can result from a combination of many of the categories of attacks described below. In general though, the three broad categories of cyber attacks are: to attack the members of the business or organization, to attack the digital systems of the business or organization, and lastly to attack the suppliers or customers of the business or organization.

The first category of cyber attack is through the use of social engineering or similar methods to obtain confidential information directly from individuals, typically employees or customers, of a business or organization. Below is a description of several of the more common methods used:

" Phishing – A phishing attack usually involves the attacker sending an email from either a recognized or professional sounding business, with a link or attachment which either contains or directs you to malicious software1. Phishing emails are typically sent to large groups of recipients with the expectation that some will open the link or attachment; however, cyber criminals have used targeted phishing emails directed at individuals as well.

" Baiting – Involves leaving physical media storage devices (typically USB keys) in a location where they are sure to be found. Curiosity then propels a person to examine the contents of such a device resulting in malware gaining access to their computer systems.

" Pretexting – This type of attack involves a misrepresentation by a person, typically the impersonation of a respected individual or business, to obtain private information. It is similar in concept to phishing but is typically more targeted. For example, victims have received calls from cyber criminals impersonating technical support staff at major technology companies who claim the victims have been affected by malware and the victim must provide the support staff with remote access to their computer so they can remedy the situation. Once the fraudster has remote access they can upload malware onto the victim's computer.

" Waterholing – This type of attack involves compromising an existing website or setting up a fictitious duplicate to obtain users' private information.

The second category of attack focuses on exploiting vulnerabilities in the digital systems of the target. Some examples of these types of attacks include:

" Denial of service – This type of attack is designed to obstruct legitimate users from gaining access to a website by repeatedly trying to access a website through the use of multiple access requests which utilizes all of the website's available bandwidth. Consequently, users that try to access this site may find the website takes an exceptionally long period of time to load as the website tries to manage the overloading number of access requests.

" DNS spoofing – This type of attack involves corrupting the server the website is hosted on so that users who try to access the website are instead diverted to another website (which may or may not contain other malware).

" Smurf attack – This type of attack involves sending the target's internet address to a large network of computers who then respond back directly to the target thereby slowing the targets computer as it becomes overloaded with data traffic to the point that it becomes non-functional. This is similar to the denial of service attack.

" SQL Injection – This attack is used on websites that typically request data from users. SQL stands for Structured Query Language and is the language used in digital database management. Websites that manage data from users typically build their databases through SQL. An SQL injection involves the insertion of malicious data into available data fields designed to corrupt the targeted database. This can result in the database being nonfunctional or releasing information available in the database.

The last broad category builds off the first two categories outlined above. Businesses and organizations should be aware that they are not the only target of cyber attacks. Their customers or suppliers may have been attacked using any of the methods described above, and also many others not described. Customers and suppliers who have been attacked may not be aware that their digital systems have been compromised and may unknowingly send malware or provide access points for cyber attackers into your business' or organization's digital systems.

Consequently, businesses and organizations must remain vigilant, not only about their own systems but also in managing their digital relationships with both consumers and suppliers. Risk mitigation starts with identifying the risks in each of the three broad categories outlined above. Businesses and organizations should then take steps to identify and implement the measures they can put into place to manage their risks, and explore the availability of insurance.

Best Practices for Mitigating Cyber Risk

A good cybersecurity program requires involving all aspects of a business. Businesses and organizations need to take an enterprise wide approach to cyber risk management. As shown above, attacks can come from both internal and external sources. As a result, businesses and organizations should look at revamping their internal policies to protect against cyber attack from members of their business or organization, their technical infrastructure to protect against external attacks, and lastly should look at what cyber security policies and systems their customers and suppliers have in place.

There are a number of best practice guidelines available for businesses and organizations looking to develop their cybersecurity. For example, some common and helpful guidelines include:

1. Framework for Improving Critical Infrastructure Cybersecurity by the National Institute of Standards and Technology;2

2. Cybersecurity Best Practices Guide for IIROC Dealer Members by the Investment Industry Regulatory Organization of Canada;3

3. Cyber Incident Management Planning Guide for IIROC Dealer Members by the Investment Industry Regulatory Organization of Canada;4

4. Get Cybersafe Guide for Small and Medium Businesses by the Government of Canada;5

5. Cyber Security Self-Assessment Guidance by the Office of the Superintendent of Financial Institutions Canada.6

In particular, below are some of the more common best practices for mitigating cyber risk:

" Establish a governance framework to manage cybersecurity risk. The framework should create a cross-organizational committee of senior executives with a full range of enterprise knowledge and capabilities to assist in the development of a cybersecurity program, particularly the identification of known risks and established controls;

" Identify a company's crown jewels and allocate the highest protection to the most important/valuable data;

" Develop an enterprise wide cybersecurity risk profile and a target cybersecurity risk profile the business or organization wishes to achieve. Decide which risks the businesses can afford to protect against, which it is willing to accept, and which it needs to mitigate and consider cybersecurity insurance accordingly;

" Ensure that cybersecurity is on the board agenda and that access to cybersecurity expertise is available;

" Adequately staff and budget for cybersecurity risk according to the value of an enterprises digital systems;

" Constantly review the operational environment to determine the likelihood of a cybersecurity event and the impact it may have;

" Make cybersecurity training and awareness mandatory for all personnel, and ensure that all personnel understand their roles and responsibilities with regard to cybersecurity;

" Consider the following technical best practices:

- Application Whitelisting – This involves permitting only those applications that have been approved by the business or organization to operate on their networks;

- Application Security and Operating System Patching – This involves effectively deploying new security updates for applications or operating systems in a timely fashion; and

- Limiting Administrative Privileges – This involves allowing only a group of trusted personnel configure, manage and monitor the digital systems and networks of a business or organization.

" Consider conducting vendor cybersecurity assessments. The Cybersecurity Best Practices Guide for IIROC Dealer Members provides a useful sample vendor assessment;7

" Do not focus on just preventing of cyber attacks, also consider policies and procedures to detect cyber intrusion and to remove any malicious code; and

" Ensure your company consistently and frequently creates backups to safeguard information in the event of a cyber-attack.

These are only a sample of the some of the many best practices for mitigating cyber risk available. Businesses and organizations must remember to frequently review their policies, procedures, and digital infrastructure with respect to cybersecurity as the threat landscape is constantly evolving and historic methods become outdated leading to vulnerabilities. While the above best practices provide some guidance on mitigating your cyber risk, a careful consideration of available cyber insurance coverage should be part of any risk mitigation practices.

Cyber Insurance

The frequent incidences of cyber breaches and cyber crime and related news reporting has greatly increased awareness of the existence of the cyber risk threat and the need to find solutions, including insurance. Insurance brokers, eager to "fill the need," are leading the charge by providing a host of cyber risk related services, including performing comprehensive analyses of the types of risks that their clients are exposed to, matching the risk profile to the insurance available, and providing education on risk management and risk mitigation efforts that can help reduce not only the risk of loss, but potentially the cost of insurance. In this sense, cyber insurance considerations are one of the drivers for improvements in cyber risk management processes.

On the positive side, cyber risk insurance is a growing industry in Canada, the United States and Europe and coverage is becoming increasingly available and affordable. On the other hand, coverage is not currently available for all types of cyber risks.8

Available Cyber Insurance Coverage

Most commercial general liability policies now specifically exclude cyber risk. However, specialized cyber risk insurance policies are available and may be specifically designed to respond to a number of losses due to a cyber attack or data security breach. The scope and limits of coverage will necessarily be subject to the insurer's overall risk appetite and ability to quantify the nature and extent of the risks it is assuming.

By way of example, a tailored cyber liability insurance policy may cover:

" loss of income due to the incident (e.g. cyber attack or privacy or data security breach);

" loss of profits that the organization would have earned had the incident not occurred;

" in the case of an interruption in business, recoupment of expenses that must be paid even though the business is not operating;

" costs for notification to customers and/or others for privacy and data security breaches, certain associated legal costs and, where applicable, costs related to monitoring the credit of affected customers and/or others for a period of time following the incident;

" costs incurred to avoid claims that, if made, would be covered under the policy;

" where legally permitted, costs of regulatory actions and investigations; fines and penalties;

" legal liability to third parties arising from hacking attacks or malware as well as due to a privacy or data security breach; and

" cyber extortion, such as "ransomware" (a type of malware that prevents an organization from accessing its own computer system until a ransom is paid).

In applying for coverage, organizations should be prepared to demonstrate to the insurer that cyber risk is an integrated part of their overall enterprise-wide risk management framework and that appropriate risk management tools and processes are in place. Insurers, brokers and other specialists will be involved in the process in order to analyze and assess the potential risk and the effectiveness of the measures in place to mitigate losses.

Some insurers and insurance professionals (e.g. brokers) also offer cybersecurity risk related services for after an event, including through third-party service providers such as breach consultation, forensic analysis, notification services, call centre services, credit and identity theft monitoring, fraud consultation and credit and identity restoration services.

Limitations and Challenges for Cyber Risk Insurance

If insurers cannot reasonably calculate the potential quantum of a loss, they will not accept the transfer of the risk. Currently, there is not enough historical data and other information available to permit insurers to quantify certain cyber risks, such as cascading losses arising from cyber theft of trade secrets or from cyber crime resulting in disruption to or destruction of major infrastructure (such as a power plant). Consequently, such risks are generally not insurable. Until modern history records enough data on which insurers can rely to assess their potential exposure to such risks, insurers will not be in a position to assume them. By way of comparison, insurers have many years of experience estimating and quantifying probable losses from such varied perils as automobile accidents, home and industrial fires and even earthquakes – at least, enough to enable them to model, be prepared for, and price the corresponding potential losses accordingly. For this reason most available cyber insurance coverage is currently restricted mainly to losses relating to data breaches and cyber extortion. Nevertheless, it may be possible to work with a broker and the insurance market to attempt to design a policy that addresses your organization's vulnerability to other specific cyber risks. But, even if the insurance coverage is available, the policy is likely to be costly and subject to strict limitations.

Possible Future Development of Cyber Insurance Coverage

Stakeholders (e.g., in the United States) have advocated for mandated, widespread cyber incident reporting and the creation of a central repository of data and information relating to cyber breaches and attacks and associated losses and other fallout. This could assist insurers in evaluating and quantifying insured losses.

If implemented, over time, more comprehensive coverage could become available and/or more affordable. In addition, it is possible that, if enough pressure is brought to bear, a cyber risk insurance scheme may be legislated. For example, such a scheme may involve a government back stop, similar to the programs that have been set up in the United States, Europe and elsewhere to cover terrorism risk. Such a government-initiated or public-private program would likely be called for in the event of a credit crunch e.g. where lenders require organizations to have comprehensive cyber risk insurance protection that is otherwise commercially unavailable.


In conclusion, businesses and institutions need to be aware that cyber criminals have a wide variety of tactics available. Cyber criminals can target an organization's employees to obtain access to digital systems or they can target the digital system directly. Organizations need to focus on identifying where their vulnerabilities are, develop their own optimal risk portfolio, put in place policies and appropriate safeguards to protect critical digital systems and consider the extent to which they can use cyber insurance to mitigate cyber risk to help reach their optimal risk portfolio.

McMillan Cybersecurity Article Series


1 This includes any form of malicious software (or more commonly known as "malware") such as viruses, worms, and lyphen Trojans. Malware is short for malicious software and includes essentially any unwanted computer code. A virus is a form of malware that is a self replicating program that attaches itself to another program or file to reproduce. Similarly, worm's are another form of malware that are self-sustaining programs and can replicate independent of another program. Lastly, Trojans are a form of malware that appear to act like a normal program, but secretly perform unwanted activity.

2 Framework for Improving Critical Infrastructure Cybersecurity, National Institute of Standards and Technology, Version 1.0, February 12, 2014.

3 Cybersecurity Best Practices Guide for IIROC Dealer Members, Investment Industry Regulatory Organization of Canada, December 21, 2015.

4 Cyber Incident Management Planning Guide for IIROC Dealer Members, Investment Industry Regulatory Organization of Canada, December 21, 2015.

5 Get Cybersafe Guide For Small and Medium Businesses, Government of Canada, last modified March 3, 2015.

6 Cyber Security Self-Assessment Guidance, Office of the Superintendent of Financial Institutions Canada, October 28, 2013.

7 See appendix B of 3.

8 Insurance Institute, "Cyber Risks - Implications for the Insurance Industry in Canada" (Emerging Issues Research Series)

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2016

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.

Carol Lyons
Jeffrey Nagashima
Similar Articles
Relevancy Powered by MondaqAI
Thompson Dorfman Sweatman LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Thompson Dorfman Sweatman LLP
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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