The following speech was delivered at a conference on cyber risks at the European Parliament on 23 February 2016.
Jo Willaert, FERMA President
“Honorable Members of the European Parliament, representatives of the European Commission, ladies and gentlemen,
As President of the European Federation of risk management associations, and myself as Risk Manager for Agfa-Gevaert for 15 years, it is my privilege today to be a guest in the European Parliament, the heart of the European Union.
I want to thank Mark Weil, CEO Marsh UK and Ireland, for inviting me to speak at this conference.
Earlier this month, a Los Angeles Hospital, the Hollywood Presbyterian Medical Center was a victim of a cyberattack called a ransomware. On 5 February, hackers took over the medical records and shut down the hospital’s computer servers for more than10 days.
Even patients had to move to other hospitals because key software was locked.
I understood that last Wednesday, the hospital announced they finally paid the hackers to regain control of its computers.
Hospitals and all businesses are going to have to invest in cybersecurity and it’s not cheap.
You might know that the risk manager function in the financial sector is already well defined. In the “real economy”, however, it isn’t the case. Companies are free to decide whether or not they want to hire a risk manager.
Today, I would like to draw your attention on three key elements for FERMA when we speak about cyber security:
- First, I’ll express our concern regarding the new systemic nature of cyber risks. The possibility that cyber-attacks at a company level could trigger severe instability or collapse an entire industry or economy.
- Second, I will outline how businesses, governments and insurers should collaborate to protect our critical infrastructures. Increasing the resilience of our industries should be our common objective
- Third, I’ll try to convince you that we need a new corporate governance to respond to cyber threats in which the risk manager has a central role.
1. Cyber risk is today a risk that every company is faced with.
Let’s be clear; the inter-connectivity between machines in the supply chain and cloud computing is a source of systemic risk.
This is similar to what we faced in 2008 when the banking sector almost collapsed because of the size of institutions that were “too big to fail”.
The failure (provoked or not) of one major digital provider could today put a stop to thousands of organizations or at least disturb seriously their activities.
For example, the healthcare and the financial sectors deal with very sensitive data. Data of thousands of organisations are more and more stored outside the company in the cloud. They are hosted by a handful of digital providers like Amazon, Microsoft, IBM and Google. This is already a reason to worry about a systemic risk.
It’s a challenge for companies to assess these risks because it raises issues of confidentiality and reputation. This is preventing a clear and open analysis of cyber risks.
Disclosing a cyber-attack or admitting a potential vulnerability endangers the reputation of a company towards its stakeholders.
As a response, the EU legislator has taken action with the adoption of the NIS Directive for critical infrastructures and the Data Protection Regulation for personal data.
These laws will require organizations to prepare themselves for the notification of incidents and data breaches to their local supervisors.
FERMA welcomes this legislation. But it must be recognized that the increased use of personal data will generate more claims for the emerging cyber insurance industry.
We can already anticipate that the European laws for cybersecurity will:
- increase the demand for cyber security solutions.
- will become obviously a matter of compliance and a condition for doing business
- and will finally have an impact on claims. Although it is still unclear, probably too soon, to see how insurers will price and deal with these threats.
2. Considering what has been said, a major incident, that would disrupt European industries, would require collaboration between governments, companies and insurers to protect critical infrastructures and increase resilience.
In case of catastrophic cyber losses, it will not be possible for the private sector to indemnify alone the liabilities that could arise from a critical infrastructure.
In our response to the Commission consultation on cyber security, FERMA has listed catastrophic cyber losses as one of the 3 main cyber security challenges by 2020.
FERMA recommends setting up a structured dialogue between the private and public sector.
We need comprehensive solutions inspired by certain types of insurance pools or state guarantees, as is already the case to cover terrorism or nuclear risks.
3. The management of cyber risk is too often seen as being the responsibility of the IT-department only. However, the exposure to cyber threats has a potential business impact on the company as a whole.
Cyber risk is not only an IT risk; it’s an enterprise risk.
In that respect, we advocate a central role for the risk management function as regards cyber security in the company.
The risk manager should be the risk expert to support board and the CEO. He or she should work hand in hand with the operational units (IT, Legal, Internal audit, others…) without being an IT specialist.
An integrated cyber security and breach response team is crucial to protecting the organization as a whole.
When thinking about cyber protection, management will logically refer to the IT department in the first place, and if occasion arises Legal will be involved as well. In this case, it will most of the time lead to reinforcement of back-ups and emergency procedures.
However in the companies, where risk management is part of the decision-making process, it will naturally lead to global solutions. Stand-alone insurance coverage for cyber security will be one of them.
This has been illustrated by FERMA’s last European Risk & Insurance Report. It showed that 72% of the risk managers are not enough involved in IT related issues. As a result, there is no adequate stand-alone cyber coverage for their company. Later this year, with the next edition, we will see whether this figure has reduced or not.
It is also important to stress that insurers are, in most cases, not in a position to develop adapted insurance solutions. They are usually only in contact with the risk manager, directly or through the intermediary of the broker. The risk manager does not always have the tools to overview the consequences of cyber risk on the whole company. Mostly, he cannot but rely on specialists separately, e. g. IT and Legal. Suppose that:
The ever-increasing and constantly evolving landscape of breach notification laws leads the chief legal officer of company ABZW to ask his colleague risk manager to seek insurance protection.
The systemic nature of the cyber risks of the company, however, has not been tackled. Possible instability, crisis management, communication, reputation, restoration… these are all cyber issues which need comprehensive solutions.
The trigger for a purchase decision is finally the alignment of views between IT, Legal and the Board about the necessity of a cyber cover.
I’m happy to confirm that a lot of initiatives are coming from the insurance market in order to design products which are an answer to the concerns of the industry.
In my personal opinion, cyber risk protection cannot be put in one of the traditional insurance boxes, such as property, professional liability, crime…but should be a specific, stand-alone product, tailored- to the needs of the industry.
As a conclusion today, I would like you to remind these two things:
- The cyber threats are now of a systemic nature:
- We need to collectively develop innovative financial solutions to protect not only critical infrastructure but our economy as a whole from a digital 9/11
- The cyber security laws and all related initiatives should not forget to include a risk governance part:
- Cyber threats must be understood from the top to the operational level. Here I will again insist on the necessity to give to the risk manager a central place in this cyber risk governance.
Thank you very much for your attention!”