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WILL WE EVER WITNESS UNHACKABLE BIOMETRIC SECURITY?

We often hear the word biometric, but what exactly is a biometric? A biometric usually refers to a device that can sense, record, and then process data based on some natural and sufficiently unique characteristics of the human body such as the fingerprint, face, voice, etc. which is stored in a database and accessible via computer. This is generally with the purpose of providing secure and hard to falsify authentication of an individual’s identity.

According to David Orme from Finance Derivative, By 2023, the global biometrics market is predicted to grow by more than 15%, to over $24 billion. This means that not only Americans are embracing the security of biometric authentication, emerging regions such as Latin America, Africa, and Asia are on this trend too. Over the years biometrics are getting sophisticated, just like a laptop to an ultrabook. Well, biometrics are improving too, but is a biometric unhackable?

 

Biometric Data Types

Face recognition

By measuring unique patterns of a person’s face such as face contours. It is widely used in smartphones and laptops, google is currently in the process of opening support to facial recognition with the ChromeOS platform.

Iris recognition

The person’s iris is very unique in that it is considered more secure than fingerprint, an iris is the colorful area of the eye surrounding the pupil, but it’s not widely used because of the high cost.

Fingerprint scanner

This is widely used in smartphones and laptops to unlock screens, it is capturing the unique patterns of ridges and valleys on a finger.

Voice recognition

The device would measure the unique sound waves in your voice as you speak to match in the database for identity, most banks use this to identify your identity when calling the about your account to prevent identity theft.

Hand Geometry

This is typically used in security applications, it’s about measuring and recording the length, thickness, width, and surface area of your hands.

Behavior characteristics

It analyzes the way you interact with a computerized system, like keystroke, handwriting, the way you walk, how you used the mouse, and other movements that can assess who you are.

 

Is Biometric Unhackable?

The truth is, biometrics are hackable. There are many ways to hack a biometric, it’s not that easy but it’s not that hard either. There are many brilliant people out there who always finds a way to hack something, take the anonymous as an example. The biometric manufacturer tries to build a formidable biometric, but someone out there can reverse engineer those and could find loopholes in its security.

 

Problems with Biometrics

Biometrics are not private

You may think that biometrics are sucre, after all, you are the only one owning your eyes, ears, fingerprint, etc. but that doesn’t guarantee safety. Your biometrics are exposed to the public.

Your biometric data features are exposed everywhere, it’s just a matter of strategy on how to get and use them, your fingerprint is found on anything you touch and there’s a way to acquire it, your face can be easily captured and used, your voice could be recorded. Yes, almost all of those are easy to acquire.

Biometrics can be forged

There are many recorded successful hacks on biometrics, in fact, once a hacker gets a picture of your biometric data such as eyes, finger, ears, etc. they can easily gain access to your account. Let’s take Apple’s touchID as an example, famous hacker Jan Krissler beat the technology just a day after the iPhone was released.

It’s very easy to steal anyone’s identification, the hacker just needs a high-resolution photo of your biometric data, one example is the German Minister of Defense Ursula von der Leyens, it only took a photo of his finger and reconstructed the thumbprint using VeriFinger and just like that Krissler gained access.

If you believe that an eye scan is more secure then you are wrong, a hacker fooled Samsung’s S8 iris recognition and it wasn’t even a high priced hack, it was executed by juts placing a contact lens made from a photo of the user’s eye.

Hack consequences on biometrics

The stolen user’s identity can be used to falsify documents, criminal records or passport which could do more damage beyond imaginable. The worst part of biometric data is that if stolen you have another eye, ear, voice, etc. means you can’t replace physical identifiers.

Biometric may provide another level of security but it’s not that foolproof, maybe in the years to come biometric companies could develop more secure identification through the use of biometric to deter inherent downfalls and possibly build an unhackable one.

 

Conclusion

As of now, biometrics have many things to improve. But nonetheless, it provides another level of security, it just a matter of how an organization implements it. Just like any other security, biometrics could be more secure if used correctly, like multiple authentications instead of solely relying on biometrics. We’ll never know in the future, biometric companies may develop an unhackable biometric that would strengthen the security around the globe.

 

Finance

FIDUCIARY MANAGEMENT

by Devan Nathwani, FIA and Investment Strategist at Secor Asset Management

 

Defined Benefit pension schemes are one of the most significant institutional investors, representing c.£1,700 billion[1] in assets. With investments becoming increasingly more complex, regulatory and reporting requirements increasing and markets generally being volatile, making investment decisions is taking up more of the governance budget. This has been further highlighted in the recent Covid-19 crisis where pension schemes were faced with falling equity markets, collateral calls and new investment opportunities arising from market dislocations. Corporate sponsors saw their pension scheme deficits widen at a time when free cash flow was needed to maintain working capital. There is a vast array of investment or de-risking products that claim to have low governance requirements, however often they can require giving up investment freedom and transparency or have high costs. This is where partnering with a Fiduciary Manager can help.

 

What is Fiduciary Management?

Fiduciary Management is essentially a form of delegated investment decision making. Fiduciary Managers partner with pension schemes to give advice on scheme investments and are responsible for the implementation of that advice. Fiduciary Management relationships are often highly customised and do not have to be “all or nothing”. A simple Fiduciary Management partnership could involve a Fiduciary Manager managing a fund-of-hedge-fund portfolio. A more comprehensive partnership could involve a Fiduciary Manager using their investment expertise to make investment decisions on the entire scheme portfolio. In practice, these partnerships can take many different forms and the best relationships are often highly customised, be it in the services received, the portion of the assets covered or the decisions that are delegated.

 

Devan Nathwani

Why Fiduciary Management?

Every pension scheme is different and in practice will choose to partner with a Fiduciary Manager for different reasons. Some common reasons for partnering with a Fiduciary Manager are:

Independent investment expertise

Over the last 10 years pension scheme investments have become increasingly more complex, with alternative asset classes becoming a core component of the strategic portfolio. Asset classes such as Private Equity, Private Credit and Property require in-depth knowledge of the different strategies deployed within them and often require portfolio management expertise to deal with capital calls and distributions and the sizing of commitments. Independence can be crucial here as these asset classes often carry high investment fees and require careful investment due diligence. A Fiduciary Manager typically has deep investment experience in a broad set of asset classes that a pension scheme can in-source without the cost of building an in-house team. Independence can be very important as a Fiduciary Manager that has no association with the underlying managers that a pension scheme invests with, can make investment decisions with minimal conflicts of interest.

Precision and speed

As highlighted by the market impact following the Covid-19 pandemic, it is important for pension schemes to be able to implement their investment decisions with speed and precision. Markets move every single day and investment opportunities can often arise and pass more quickly than a typical pension scheme governance structure can tolerate. Risk management is one of the most important objectives for a pension scheme, with unrewarded risks needing careful management and rewarded risks needing to be sized appropriately. Fiduciary Managers monitor their client portfolios daily and can act quickly to take advantage of investment opportunities or rebalance the portfolio as markets move.

Transparency

As regulatory requirements have increased, pension schemes are increasingly being asked to monitor their investment decisions with more scrutiny. Regulation requires them to consider Environmental, Social and Governance (ESG) factors in their investment decisions and understand the performance of their investments in detail, including the impact of explicit and implicit transaction costs. In addition, as funding levels improve, pension schemes and their sponsors are looking for tighter control and greater transparency over the scheme’s risks. This is particularly important as schemes approach their desired “End Game”. Good Fiduciary Managers typically have proprietary tools and systems that facilitate better performance and risk measurement. As regulations form and evolve, Fiduciary Managers adapt their investment decision making processes to account for them making compliance much easier.

Limited resources

Typically pension schemes and their sponsors have limited internal resources with limited time to spend on both investment and non-investment related matters. Most companies do not have dedicated pensions treasury teams so it can be difficult to devote the sufficient time that is required to both monitoring investment performance and making investment decisions. Where new asset classes are added to a pension scheme’s portfolio, additional training may be required which can take a considerable amount of time, particularly for more complex asset classes. Partnering with a Fiduciary Manager can supplement any existing governance structure by re-focusing pension scheme resources on more strategic matters.

Accountability

Pension schemes typically receive advice from investment consultants who do a good job of advising on strategic matters but are ultimately not accountable for the performance and the outcome of that advice. Pension scheme representatives are increasingly looking for their advisors to be accountable for their advice and the performance relative to the liabilities. Fiduciary Management solutions typically focus on liability relative scheme performance and are governed by the GIPS Fiduciary Management Performance Standard, to ensure a consistency in performance measurement.

Value for money

Fiduciary Management relationships are often all-encompassing and typically cover all investment related matters for the pension scheme. Through economies of scale, Fiduciary Managers negotiate more favourable asset management fees on behalf of pension schemes and are able to get schemes of all sizes access to investment opportunities that would historically only be available to larger schemes. The combination of investment expertise and accountability under a single Fiduciary Management solution, is expected to deliver better funding and performance outcomes which ultimately offers better value for money.

 

Why now?

Fiduciary Management as an investment solution is arguably more relevant today than historically. The recent crisis has highlighted the need for an investment partner who can help manage the downside risks associated with investing in equities, manage the collateral behind important hedges and take advantage of market dislocations. Many corporate sponsors will have seen their pensions contributions eroded and balance sheet deficits widened during the Covid-19 market crisis and a Fiduciary Management partner could have helped better navigate the volatility.

As corporate sponsors begin to consider the “End Game” for their DB pension scheme, they are increasingly faced with the dilemma of entering low-governance investment solutions that may be poorly constructed or paying an insurance premium to “Buy-out” the scheme.

Solutions such as Cashflow Driven Investing (CDI) tend to overemphasise portfolio construction to be based on uncertain cashflow profiles, and excessively exposing the pension scheme to risky credit allocations, which in a post Covid-19 world could expose pension schemes to adverse funding outcomes.

For corporates who prefer to avoid a large cash lumpsum payment for insurance-based buy-outs, a Fiduciary Manager can offer an alternative solution to reaching the required funding level for such a transaction to take place. By slowly growing the asset base while carefully managing risks, pension schemes can become buy-out ready allowing their sponsors to reinvest free cashflow in existing or new business lines.

Partnering with a Fiduciary Manager today could give pension schemes the tools to better manage the next crisis and offer more flexibility in reaching the desired End Game.

 

[1] The DB Landscape – Defined Benefit Pensions 2019 – The Pensions Regulator dated January 2019

 

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TIME TO THINK OUTSIDE OF THE BLACK BOX

Mike Brockman, CEO, ThingCo

 

If you have the unbridled joy of parenting a teenager you’ll probably know what telematics insurance is.  In very simple terms, telematics or ‘black box’ insurance enables insurance companies to track driving behaviour using technology fitted to the car or via a smartphone app.  It is the first practical example of IoT – machine to machine communication of real-time data.

Telematics has been crucial to helping thousands of young people get experience on the road who would otherwise have found the cost of insurance too high.  When you look at the number of road casualties in the UK over the last nine years there is a clear correlation between the rising adoption of telematics and a fall in young driver casualties[i].  The problem is that as soon as they can, young drivers chuck in telematics and take traditional insurance.  As such telematics insurance has got stuck firmly in a rut.

So why is that a problem?

First, telematics saves lives – think what it could do if more drivers had it.

Secondly motor insurance costs are linked to claims costs – if we can bring down the cost of claims through the engagement, speed of response in accidents and anti-fraud benefits of using telematics data to its full potential, everyone could access cheaper insurance.

Mike Brockman

Thirdly we are living in a world deeply impacted by COVID-19.  Travel trends were already altering prior to the pandemic but have changed and could remain significantly changed for the foreseeable future.  Consumers are beginning to think more deeply now about their motor insurance and value for money.  This may create demand for motor insurance cover that is more responsive to people’s individual driving behaviours – why pay an annual premium when you only use the car once or twice a week?  On the flipside, those nervous of using public transport could see an increase in their car use.  Telematics allows insurance providers to offer insurance based on actual rather than predicted use.

The fundamental reason for telematics getting stuck in a rut is insurance companies are not offering something consumers actually want and they are not deriving value from their investment in the technology.  Different telematics devices give different qualities of data and that data determines the economic equation they have to resolve in terms of how much they pay for the technology and what value they get from it.

Another key factor is that if you give something away – as the insurance industry has done with telematics ‘black boxes’ – you are sending a strong signal to the customer that the technology is of no value to them and only there to serve the insurer’s need.

You need to make the device a desirable piece of technology that consumers would value in their own right – rather than something that is imposed on them to get cheaper insurance.   By introducing new technologies into these devices such as Voice, camera, ADAS, black spot warnings, it becomes a truly connected device that not only helps the driver but also creates incredible amounts of data that’s useful to the insurer to manage risk and provide better customer services.

With next generation telematics, the data is no longer a one way street direct into the insurer.   You can feed that data back to the customer and develop additional services such as a voice alert when they have been driving for too long without a break, an incentive of a coffee at the next rest-stop.

Telematics also transforms the claims process for the customer and the insurance provider. A crash alert can kick in and activate a voice command in the device and that will ask the driver if they had an accident, whether they need help and will alert emergency services if necessary.

This is where the data brings huge value to the insurance provider providing a whole range of detail – like a liability assessment, video footage, fault, g-force etc.  This data is dynamite to First Notification of Loss team with an insurance provider.

But the biggest difference next generation telematics offers is it really strengthens the relationship with customers and insurers can make it fun as well.  Insurance and fun aren’t usually two words you see in the same sentence but unlike traditional insurance, or old school telematics, it allows engagement and the opportunity to provide incentives without any big brother feeling about it.

Technology has changed massively over the last ten years, the quality of devices has developed and the Cloud has opened the potential for telematics products to be designed for customers in the most attractive way.   Barriers around trust and big brother can be broken down by being absolutely clear that the data belongs to the driver – they can choose how it is used to their benefit, spelling out the advantages, being transparent and flexible.

COVID-19 is providing an opportunity to stand back and think about telematics differently – how to make it customer friendly and how to make the economics work.  By leveraging next generation telematics technology the insurance market has a window of opportunity to turn the motor insurance grudge purchase into something consumers really start to value.

 

[i] https://blogs.lexisnexis.com/insurance-insights/2019/04/the-road-to-safer-driving-infographic-how-telematics-can-be-directly-linked-to-reducing-casualties/

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