Dr Mike Lloyd, CTO at RedSeal
How can you tell that cyber insurance is a hot topic today? When lawyers find the amounts of money involved worth fighting over. Major cases are emerging of serious disputes between multi-nationals and the companies they’ve taken out policies with to help mitigate their risk exposure. On the one hand, this is partly to be expected of such a nascent sector. Yet it may also be a sign of a deeper problem: a lack of visibility into which security controls and policies actually reduce risk and therefore need to be mandated as part of a policy. After all, in health care, we know precisely how bad smoking is, and this helps make the insurance market far more effective. We lack a quantified science of how much an organization will lose if they fail to follow any given security hygiene practice.
This is where digital resilience scores can help insurers draw up tighter contracts and reduce the chances of costly legal disputes down the line.
Insurance for everyone
A decade ago, most firms effectively self-insured for any cybersecurity losses. The attitude was that online threats could be pretty easily handled by setting aside a “rainy day fund” to deal with the fall-out of a major incident. Unfortunately, this approach is no longer sustainable at a time when the sheer volume and variety of cyber threats facing organizations has never been greater.
One vendor detected over 48 billion threats in 2018 alone and has been recording 10’s of billions of issues for several years now — an indication of the growing number of covert, targeted attacks. From BEC to phishing, credential stuffing to digital skimming attacks and IoT sabotage to ransomware, the black hats have a huge list of tools and techniques at their disposal, supported by a thriving underground economy.
The financial impact of such threats is growing rapidly. Not only must organizations fork out for remediation, clean-up and investigation of a successful attack, they could be hit by major new regulatory fines under legislation such as the GDPR. Then there’s the impact on corporate reputation which may also affect the bottom line: think tumbling share prices or customer attrition. Legal costs are also increasingly common as consumers band together to launch class action suits.
One report estimates the average cost of a data breach to be nearly $3.9m, which easily reaches the level where boards want to know that they have appropriate insurance coverage. Last year, Lloyds of London released a report estimating that a serious cyber attack on one of the top three global cloud providers could lead to outages costing US firms $19bn. Earlier this year another report claimed a global ransomware attack could cause losses of $200bn. It’s this concern about correlated losses that really holds back insurers, and leaves companies scrambling to stack up dozens of insurance products to give themselves enough coverage.
A brave new world
In an era where no organization is safe, cyber insurance has therefore become hugely popular as a way to transfer risk. An analyst report from last year claimed three-quarters (76%) of global organizations have some form of insurance in place to cover cyber-related losses, although far fewer (around half) had “comprehensive” coverage.
Yet as insurance coverage increases, so do legal disputes. Back in January it emerged that confectionary giant Mondelez was suing Zurich Insurance for failing to pay out following the infamous NotPetya ransomware attack of June 2017. The $100m lawsuit was launched after the insurer invoked an exclusion for any attacks resulting from “hostile or warlike action in time of peace or war.” Although governments including the UK and US have publicly attributed NotPetya to Russia, they have released no evidence to support this, which could make it difficult for Zurich to prove its case. War exclusions are commonplace, but seldom invoked, because most industrial or commercial claims aren’t war related. They exist precisely because of the correlated nature of losses in wars – too many people all claim at once, because we all get bombed together. Is this an appropriate mechanism for cyber warfare? It’s going to be interesting to see how this evolves.
Another major area of dispute in cyber insurance lies with exactly what should be required of companies before they can sign up to a policy and subsequently claim. It recently emerged that law firm DLA Piper is also in dispute with its insurer over a NotPetya-related payout, although this time not over any act of war exclusion. Interestingly, it has been reported that the firm was crippled globally by the ransomware worm because its network structure was too flat. Although the firm is now segmenting those networks, there is a case for arguing it should have been made clear by its insurer right from the start that this security failure would have invalidated cover for such an attack. Perhaps it was — we will no doubt find out in time.
Focus on resilience scoring
The problem for insurers is that they’re used to dealing with underwriting physical things like houses or cars. Cyber risk is more nebulous and harder to define. Yet it is important they do so in order to produce more accurate, watertight policies with less risk of dispute in the future. With third-party risk scoring tools they can take a “virtual x-ray” of a client network to see how resilient it is to cyber-threats. They can then assess whether a company is ready to sign up to a specific policy and/or attach various preconditions to it. In this way, a lack of adequate security processes and controls could increaser premiums or invalidate a policy altogether, for example. However, this only works if the risk measurement is really a view inside the organization, not just an outside view. Some insurers have turned to external scan techniques, but this is similar to giving a doctor a selfie the patient took rather than an x-ray.
In the case of DLA Piper, the policy itself wasn’t even a specific cyber-insurance contract but something more general. A seemingly similar dispute between a Virginian bank and Everest Insurance hinges on whether the former was covered under a separate rider for computer crimes. This is another sign of the relative immaturity of the sector.
Both sides could do better: insurers should work towards reducing the ambiguity of small print policy details, using reliable third-party risk scoring to help them draw up better policies and conduct more effective due diligence. But companies also need to be more transparent about their cybersecurity posture, and realistic about how far coverage can reach. If a firm bolts its digital front door but then leaves all the windows open, it should be in no doubt that any policy claims will be invalidated.
Much of the current churn is only good news for the lawyers. But in time, the rulings from these disputes should provide more legal clarity over who is liable for what. All parties have a reason to want insurers to improve their assessment of cyber risk: it will make the underwriters more competitive and profitable, and force their clients to improve baseline security across the board.
THE END OF YEAR TAX CHECKS THAT COULD SAVE YOU THOUSANDS
Charlie Reading, Founder and MD of Efficient Portfolio
After HMRC’s tax return deadline at the end of January, it can be tempting to drop your guard, believing that your new tax bill is a long way away.
It’s true, you’ve got a whole year until the next bill is due. What most don’t consider, however, is that there is a range of checks that you can do reduce that bill significantly.
Astute investors make use of their tax-free allowances every year and save thousands of pounds in the process. With such massive savings on the line, it’s a strategy to certainly consider.
With that, here are some easy checks and tips from Charlie Reading, Founder and Managing Director of Efficient Portfolio chartered financial planners, that could start you on your way to a much leaner tax bill:
1. Maximise Your ISA Allowances
Good returns, flexibility, diversity and tax efficiency should be key components in your financial strategy, and the ISA helps to deliver all of these. Historically, ISAs have been at the cornerstone of tax-efficient saving and are often referred to as one of the essential steps in your strategy, as they can help your wealth grow without you being penalised by heavy tax charges. They are an incredibly useful way of saving, and, as such, it is generally encouraged that people take advantage of their benefits. However, the ISA allowance is offered on a ‘use it or lose it’ basis, so if you fail to maximise it, you can’t make up the funds later on.
Up until 5th April 2020, you can contribute up to £20,000 into an ISA, and a further £20,000 from 6th April 2020, thereby sheltering up to £40,000 per person, as long as you’re over 18.
2. Top Up Your Pension While You Still Can
At the time of writing, the highest level of State Pension you can receive is £129.20 a week, which is frankly a paltry sum to live on. That’s why saving for the future is so important. It might seem wise to enjoy life now and worry about retirement later, but you’d only be damaging your future quality of life.
Pensions are a highly tax-efficient way of saving and now offer a great deal of flexibility in retirement, as when you retire you can gain access to 25% of your pension pot as a tax-free lump sum, with the remainder taxed at your marginal rate.
The current pension annual allowance is set at £40,000, so if saving for your future is a priority, it is worth investigating which pension is right for you, sooner rather than later.
3. Protect Your Estate from Tax
Inheritance Tax (IHT) is a concern for people from all walks of life. If you are hoping to leave a legacy to your loved ones, the last thing you would want is for that legacy to be taxed at 40% and lost to the Government.
One simple way of combatting this is to consider using your annual IHT allowance. During your life, you are allowed to give away £3,000 per year without incurring any IHT charges upon your death. There are of course downsides to this, in that you lose all access and control over the money, but it may be a tax-efficient strategy to consider.
4. Don’t Overpay Your Capital Gains Tax
The final tax consideration at this time of year is Capital Gains Tax, which is also given on a ‘use it or lose it’ basis and is currently set at £12,000. The issue of Capital Gains Tax is most acute if you hold investments which have grown above your tax-free allowance.
To ensure you make the most of your Capital Gains Allowance, it is generally recommended to sell down a portion of your portfolio to realise the growth made, but only enough to maximise your allowance, is the most prudent strategy.
These funds can then be used to fund any outstanding allowance on your ISA, for example. The advantage of doing so is that by placing your money from a taxable to non-taxable environment you have the potential for further growth, and you benefit in the longer term by potentially reducing a future bill.
There’s plenty of time left before the taxman comes knocking once again, but there’s no better time than the present to start looking into how you can save you and your business thousands of pounds simply through tax allowances you might not have previously been aware of.
HOW TECHNOLOGY IS FUTUREPROOFING STOCK MARKET TRADING
Tony Shaw, Executive Director, London Office and Head Sales UK & Ireland at the Swiss Stock Exchange
Markets are shifting, there’s no doubt. Amid all the disruption and volatility from the past year, the Swiss Stock Exchange asked traders about what they expected in 2020 and beyond in our industry survey. The findings point to a rise in digital to help traders content with external forces.
First and foremost, traders are enthusiastic about what digital assets can offer.
Two thirds of traders polled said they’d had a marked rise in interest from their clients for digital assets and crypto-products. Given the interest, traders are increasingly bullish about the potential of these products – so much so that 80% have predicted an increase in overall demand in the long term. Market users believe these assets will help generate cost synergies and streamlining trading and settlement processes by creating efficiencies and ultimately reducing costs.
Our 2019 results reflect what traders have told us when it comes to digital assets and products. Last year, we saw significantly higher trading volumes from products with crypto currencies as underlyings. Overall volumes grew by +8.5% over 2018, but the increase in crypto products alone was +17%, reaching CHF 518.2 million ($534.54 m). There was a year-on-year increase in the number of transactions, as well (+21%): 19,636 trades in total.
The potential digital assets hold is clear – evidenced by the building of the SIX Digital Exchange (SDX), a fully integrated issuance, trading, settlement and custody infrastructure for digital assets.
According to traders, artificial intelligence (AI) is expected to bring further benefits to market operations.
Two thirds of our survey respondents anticipate AI will create more opportunities for the traditional equities business, while a similar number expect it to reduce the cost of trading. Innovation in AI is already – and will continue to be – a key driver in making our industry more effective at withstanding future risks and challenges both within and beyond the market itself.
In Europe, there is growing momentum behind calls for shorter trading hours – this trend was reflected in our survey as well.
Industry groups such as the Investment Association are advocating for stock market trading hours to be cut from 8.5 to 6.5 hours to open the industry to working parents and women who cannot commit to such long workdays. We found traders were largely supportive of this, with many saying that it could even facilitate operational benefits. The roll of AI is clear here in improving efficiency while minimising time wastage: 36% of traders said the introduction of shorter trading hours would prompt greater market liquidity.
Beyond the market itself, geopolitics continue to shape wider market sentiment.
It comes as no surprise that four fifths of traders said their strategies have been – to some extent – influenced by Donald Trump’s tweets. Interestingly, only 39% of those polled viewed Brexit as an influencing factor in trading activity, while three quarters believe the US election will drive trading activity in 2020 and 65% acknowledged trade wars would also have an impact.
More broadly, traders are split on the state of the global economy – 58% are bracing for a global recession while 42% predict stable macro-economic conditions over the next three years. What seems clear is that whatever happens in the wider economy, traders are making headway with new technologies that can improve their strategy, efficiency, and overall market health.
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