Cyber Risk: The Insidious Threat
In today’s digital landscape, the looming specter of cyber risk poses a significant concern for businesses, private clients, and high net worth individuals alike. The consequences of a cyber attack can be far-reaching, impacting not only financial stability but also fundamental operations. In a chilling case, the first known healthcare facility was forced to close its doors due to a ransomware attack. This incident underscores the importance of understanding the end results of such attacks and highlights the insidious nature of cyber risk.
In 2021, a hospital fell victim to a ransomware attack that paralyzed its ability to submit claims to insurers. This exemplifies the dangers we have previously discussed regarding cyber risk. For businesses, a cyber attack can have dire consequences, hindering the collection of accounts receivable and impeding crucial processes such as order processing and sales. When ransomware locks down a company’s web connections and systems, it disrupts the cash flow that is the lifeblood of any business. Without the ability to collect receivables, an organization can quickly find itself in dire straits.
When assessing risk, it is important to differentiate between replaceable and irreplaceable assets. Physical structures and facilities, such as buildings and equipment, can often be replaced, albeit with some inconvenience and cost. Even the relocation of offices is a common occurrence for many companies. While physical damage may create hurdles for a business, it is a quantifiable and fixable risk.
Financial risks, such as losses resulting from lawsuits, can also be mitigated through insurance coverage or alternative means of replacement. However, the true danger lies in cyber risk. A ransomware attack, like the one experienced by the hospital, compromises an irreplaceable asset: the fundamental functionality of a business. It disrupts vital operations, including order processing, accounts receivable, and interactions with insurers. For a healthcare facility, the risks extend beyond financial implications; patient well-being can also be jeopardized.
The ripple effect of a cyber attack:
can push a business into a death spiral. In the case of the hospital mentioned earlier, the inability to collect accounts receivable could lead to an inability to meet payables. Vendors may put a company on credit hold or require cash payments, compounding the financial strain. While sympathy may exist for the aftermath of a cyber attack, all parties involved have their own financial obligations to fulfill.
To combat the looming threat of cyber attacks, proactive measures are necessary. One such approach is through cyber insurance coverage. Companies like Coalition offer comprehensive policies that not only cover stolen funds and lost income but also provide active protection. These policies include free active monitoring and alerting to detect and prevent issues before they escalate. In-house expert claims responders ensure a swift and efficient recovery process, enabling businesses to bounce back faster.
In the legal realm, a recent ruling has provided a victory for cyber insurance policyholders. Previously, vague exclusions within policies allowed insurance companies to avoid making payments for losses resulting from cyber attacks. However, the Appellate Division has clarified that a war exclusion does not bar coverage for such incidents. While most policies include exclusions for war or war-like events, the court emphasized that hostile or war-like actions must involve more than ill will or a desire to harm. This ruling provides policyholders with a clearer understanding of their coverage and highlights the need to review policy exclusions.
When obtaining cyber insurance, it is crucial to carefully examine what is covered and what is not. While most standalone policies may have a war exclusion, cyber insurance policies must specifically address war or war-like actions by a military force or invasion. Some policies may offer coverage for state-sponsored acts, but it may require additional premiums. Understanding the potential sources of cyber attacks and tailoring coverage accordingly can provide businesses with enhanced protection.
One intriguing aspect of cyber insurance is the time lapse between the actual event and the detection of the attack. Unlike other events that occur instantly, cyber attacks can go unnoticed for months as hackers infiltrate systems and gather information. Therefore, cyber insurance policies often account for this time delay, allowing for retroactive coverage of events that occurred prior to discovery.
the threat of cyber attacks looms large in today’s interconnected world. The devastating impact of such attacks is exemplified by the closure of a hospital due to a ransomware attack. Understanding the insidious nature of cyber risk is crucial for businesses and individuals alike. By investing in proactive measures, such as robust cyber insurance coverage that offers active protection and prompt response, organizations can safeguard their operations and financial well-being. Stay informed, review policy exclusions carefully, and be prepared to confront cyber risk head-on to ensure a resilient and secure future.