UK: Cyber Attacks And Insurance: Prevention Better Than The Cure?

Cyber insurance is a booming business, with global premiums increasing by USD 500m, to USD 2.5bn. It is estimated that the market will continue to grow, with premiums reaching USD 7.5bn by 2020.

However, cyber attacks are also on the increase: PwC estimates that 1 in 4 UK companies were attacked by cyber criminals in the past two years. Such attacks cause significant financial, business and reputational damage costing businesses USD 400bn annually.

There have been many high profile examples of the consequences of cyber attacks. The 2014 cyber attack on Sony by the "Guardians of Peace", filled column inches for several months, assisted by the stolen data containing unreleased films and film stars' salaries.

In the UK, telecoms company TalkTalk was infamously hacked in 2014 and again in October 2015. In the 2015 attack more than 150,000 customers' personal details were accessed and over 20,000 bank account numbers and sort codes were stolen. According to TalkTalk's recent financial results, that attack cost the company GBP 60m and the loss of 95,000 customers.

In addition to high profile hackings, a typical business could be the victim of a cyber attack via one or more of the following methods:

  1. A corrupt current or former employee, service-provider or consultant accessing a company's systems to steal confidential information or to deploy hostile software, known as malware
  2. "Phishing" or fraud using electronic communications such as emails, letters or instant messages. The communications appear to be an authentic communication from a trusted source but will typically invite the recipient to disclose confidential information, transfer funds or visit websites hosting malicious content or
  3. "Vishing" or scams which take place over the telephone or via text message. Vishing might involve the fraudster impersonating the victim's bank or solicitor and deceiving the recipient to disclose information or transfer funds

What happens following a cyber attack?

If the cyber attack involved the theft of money, then the fraudsters will work quickly to transfer and convert the funds in order to obscure the audit trail. The speed at which fraudsters are able to transfer and convert stolen funds makes it very difficult to trace and recover funds, particularly if the funds are moved across international borders or converted to digital currencies. It is unsurprising that 70% of RBS' customers who were victims of scams did not receive a penny back.

If the attack involved the theft of information, such as bank account or other personal details, then the fraudsters will quickly look for ways to capitalise on that information. This might include selling the information on the "dark web" or using the information to enable further, even more sophisticated cyber attacks.

Impact of cyber attacks

Clearly, cyber attacks can cause significant first and third party loss, including business interruption, reputational damage, a fall in share price and litigation.

In addition, cyber attacks can lead to regulatory fines. Sony was fined GBP 250,000 in the UK for breaches of the Data Protection Act following the 2011 hack of its PlayStation Network. Data protection fines are expected to increase when the General Data Protection Regulation comes into force, currently expected in 2018. This will include penalties of up to 5% of worldwide turnover or €100m, whichever is bigger, for breaches.

In the FI Sector, the FCA provides guidance and enforces ongoing obligations on firms to identify cyber risks, update their fraud prevention systems and scrutinise transactions. It will be interesting to see if the FCA will also exercise its enforcement powers to sanction firms whose systems are found to be inadequate.

D&O policies also might not be immune from the impact of cyber attacks. Following the 2013 cyber attack on US retail giant Target, shareholders sued the directors and officers alleging that the directors knew or ought to have known that a cyber attack would cause substantial financial and reputational damage to the company and that the directors failed to take actions that would have prevented the cyber attack. These proceedings are continuing but we expect that the trend for shareholder claims and consequent claims under D&O policies will follow.

Recoveries

Given the difficulties of tracing stolen funds and presuming that the fraudster cannot be found (or is impecunious) then an option to recover financial losses might be to claim against the bank. Such a claim would be on the basis that the transfer to the fraudster was not authorised, breached the bank's mandate and/ or was negligent.

Since 2009, payments have been regulated by the FCA and the Payment Services Regulations ("PSR"). If the payer did not consent to a payment via the agreed procedure then the transaction is considered to be unauthorised and, under PSR 61, the bank or payment service provider ("PSP") is obliged to refund the full amount to the payer.

That said, if a payment was made in line with the agreed process then it is deemed to have been authorised, even if the payer was tricked into making the payment or disclosing confidential security information.

However, if it appears that the PSR has been negligent or not followed its own fraud prevention or notification processes then a recovery action against a PSP might still succeed.

Prevention and due diligence

The sophistication and ever-changing nature of fraudsters' methods makes preventing cyber attacks a constant challenge for insurers and their insureds.

Insurers can first start to manage that challenge via the policy's proposal form. This should be used to obtain information about an insured's cyber risk-profile, including its use of security systems, cyber attack testing and incident response plans.

Obtaining good due diligence from the proposal form combined with imposing appropriate minimum cyber-security standards puts insureds in a better position to prevent cyber attacks and avoid expensive claims. Given the financial, regulatory and reputational implications of a cyber attack, it is undoubtedly in the interests of all to be vigilant and prioritise investing in preventing cyber attacks.

Guidance for directors of companies fully or partly owned by the public sector

On 10 February 2016, the Cabinet Office published guidance for directors of companies fully or partly owned by the public sector, a summary of which is as follows.

Directors' responsibilities and duties

In addition to responsibilities under the Companies Act 2006 (CA 2006), directors appointed by a public sector body must also continue to act in accordance with other applicable legislation, relevant civil service and public sector guidelines, which include directions on managing public money and standards for conduct in public life.

Potential conflicts of interest

The guidance notes that a conflict of interest might occur where:

  1. There are conflicts between different professional duties, for example, where a director is a member of two boards, or where a director has competing loyalties to their public sector employer and the commercial venture to which they have been appointed director or
  2. There are conflicts between director duties and private interests, such as a financial or family interest

The duties in section 175 CA 2006 apply to all directors and all conflicts must be disclosed to the board and, in the case of directors who are public servants, to line managers. Failure to acknowledge and report the conflict may have significant consequences.

Directors' liability and indemnity protection.

The guidance refers to the chapter in CA 2006 which deals with directors' liabilities and notes that "where there is a publicly owned company, Government will decide on a case by case basis, with regard to the Companies Act 2006 whether it will offer any kind of indemnity to Directors."

The full guidance can be found on the government's website.

Cyber Attacks And Insurance: Prevention Better Than The Cure?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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

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

Authors
Rebecca Lowe
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (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 www.mondaq.com

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 Mondaq.com’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.

Disclaimer

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.

Registration

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 by clicking here .

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 unsubscribe@mondaq.com 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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Security

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 webmaster@mondaq.com.

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 EditorialAdvisor@mondaq.com.

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 enquiries@mondaq.com.

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