1. Privacy & Cyber Risks Virginia Leaders in Export & Trade October 28, 2011 Matthew McDavid Vice President

2. MARSH 1 May 16, 2015 Agenda Understanding Identity Theft Industry issues Fraud facts (myth busting) The target The thief Case studies Investigating an event Managing an event Best practices Battling Breaches & Protecting Privacy Threat Environment Cost of a Data Breach Available Coverage Overview Your Risk Identification Favorable Case Decisions Insurer Paid Claims Examples

3. Section 1 Understanding Identity Theft The Art of Managing a Crisis

4. MARSH 3 May 16, 2015 Identity Theft & Fraud Industry Issues –FTC Estimates nearly 10 Million victims per year –Many victims don’t know or don’t report –Fastest growing white collar crime in America –Average 175 hours and $1,500 to resolve –Tremendous media exposure Common Types of Fraud –Current Credit – Credit Card, Debit Card, Phone Card –Identity Fraud using: ­Your name and SS# to: ­Establish new credit ­Commit other criminal activity ID Theft goes far deeper than your credit!

5. MARSH 4 May 16, 2015 Fraud Facts Other forms of Fraud –Driver’s License –Health Benefits –Insurance Fraud –Rental Housing –Utilities –Government Benefits –W-2 Fraud

6. MARSH 5 May 16, 2015 The Target Absolutely everyone with identifying information –Average consumer is most common victim –If you have: ­A Social Security number ­Credit worthiness is a bonus –Few consumers become victims because of their internet use Common Identity Thief’s MO (Volume, not Value) –Gain access to large numbers of potential victims –Keep a low profile –Victimize average consumers over long periods –Sell or Trade Identities

7. MARSH 6 May 16, 2015 The Thief Shadow Crew –E-bay-like environment for buying/selling identities Job Fairs –Improper vetting of employers Methamphetamines and Gangs –Boxes of physical papers of identities –Hospitals, Auto Dealerships Fraud Rings –Collaborative hiring W2 Fraud and Arizona –#1 ID Theft circumstance –#1 State for ID Theft Broken Business Practices –Your employees –Human factors are at hand Identities are a currency

8. MARSH 7 May 16, 2015 Case Studies Internal Fraud (40 cases last year) Laptops – Laptops - Laptops Healthcare Provider loses 20 years worth of data HR Employee takes work home over the weekend Foreign National takes money and identities Healthcare Provider believes it loses data on 275,000 patients Employee receives email and sends it to personal email, then forwards again Company instructs victims to “Freeze their Credit”

9. MARSH 8 May 16, 2015 Your Risk What is your breach universe? –What do you think the most likely cause is of an event? –Hacking –Extortion –Policies and procedures –Internal fraud –Disgruntled employee

10. MARSH 9 May 16, 2015 Identifying an Event Do you have an investigative procedure? Validate what information was lost, regardless of media –Laptop, CD, thumb drive, I-Pod, PDA, back ups, paper files, third party, rogue employee –External counsel –Forensics investigator –General investigations –PR & Communications

11. MARSH 10 May 16, 2015 Managing the Event How do you notify victims of the event? –Mail? Email (E-sign act)? Publicly? What is your deliverable to the victims? –You can’t just say “We breached your data and here is a list of things you can do to protect yourself” Notify correctly vs. quickly –What should you say? Call center (questions and answers) Credit reports and monitoring Insurance vs. Resolution Additional exposure –Current victims ­Audience segments

12. MARSH 11 May 16, 2015 Best Practices for Breach Preparedness and Prevention Pre-Arrange a Breach Service Provider, External Counsel and Reputational Risk Advisor – all specializing in Privacy Law and “Breach” Crisis Management Provide “Certification” through e-Learning to employee base on safeguarding data Develop an Incident Response Plan –Internal Staff –Outside Counsel –Reputational Risk Advisor –Breach Service Provider Conduct annual Risk Assessments and Tabletop Exercises Hold an internal “Privacy Summit” to identify vulnerabilities –Risk –Compliance and Privacy –HR –Legal –IT –C-level representation (CFO) –Physical Security / Facilities

13. Section 2 Battling Breaches & Protecting Privacy Risk Review & Discussion

14. MARSH 13 May 16, 2015 Threat Environment Lost or stolen laptops, computers or other computer storage devices Hackers breaking into systems Employees stealing information or allowing access to information Internal security failures Viruses, Trojan Horses and computer security loopholes Info tossed into dumpsters- improper disposition of information Web 2.0 Social Media/Cloud Computing FTC and State AG Regulatory Actions Source: Ponemon Institute

15. MARSH 14 May 16, 2015 Privacy Event Quantification

16. MARSH 15 May 16, 2015 2010 U.S. Cost of a Data Breach Ponemon Institute Data breach incidents cost US companies $204 per compromised customer record in 2009, compared to $202 in 2008 The average total cost per incident increased to $6.75M, up from $6.65M in the previous year The cost of a data breach as the result of malicious attacks were more costly and severe Negligent insider breaches have decreased due to awareness and training on protecting private information. 58% have expanded their use of encryption Third party organizations accounted for 42% of all breach cases. These remain the most costly due to additional investigation and consulting fees The most expensive case in the study cost nearly $31,000,000 to resolve, the least was $750,000 The study was comprised of 45 breaches with a range of 5,000 to 101,000 compromised records

17. MARSH 16 May 16, 2015 Available Coverage Overview Network Security Liability: Liability to a 3rd party as a result of a failure of company's network security to protect against destruction, deletion or corruption of a 3rd party’s electronic data, denial of service attacks against Internet sites or computers; or transmission of viruses to third party computers and systems. Privacy Liability: Liability to a 3rd party as a result of company's failure to properly handle, manage, store or otherwise control personally identifiable information, corporate information identified a confidential and protected under a nondisclosure agreement and unintentional violation of privacy regulations. Regulatory: Defense expenses and civil fines or penalties paid to a governmental entity in connection with an investigative demand or civil proceeding regarding actual or alleged violation of privacy laws Identity Theft Response Fund: Expenses to comply with privacy regulations, such as communication to and credit monitoring services for affected customers. This also includes expenses incurred in retaining a public relations firm for the purpose of protecting/restoring company's reputation as a result of the actual or alleged violation of privacy regulations.

18. MARSH 17 May 16, 2015 Available Coverage Overview Network Business Interruption: reimbursement of the company's own loss of income or extra expense resulting from an interruption or suspension of its systems due to a failure of network security to prevent a security breach. Data Asset Protection: recovery of the company's costs and expenses incurred to restore, recreate or regain access to any software or electronic data from back-ups or from originals or to gather, assemble and recreate such software or electronic data from other sources to the level or condition in which it existed immediately prior to its alteration, corruption, destruction, deletion or damage. Cyber Extortion: ransom or investigative expenses associated a threat directed at the company to release, divulge, disseminate, destroy, steal, or use the confidential information taken from the Insured, introduce malicious code into the company's computer system; corrupt, damage or destroy company's computer system, or restrict or hinder access to the company's computer system.

19. MARSH 18 May 16, 2015 Coverage Overview with Examples CoverageExampleLimit of LiabilityRetention Security LiabilityHacking, virus transferUp to $150,000,000$25,000 and up Privacy LiabilityCustomer information breach Up to $150,000,000$25,000 and up ForensicsInvestigationUp to $10,000,000Ranges from NIL and up Privacy Breach Notification CostsState privacy laws require notification Up to $10,000,000 or 2,000,000 records Ranges from NIL and up Loss mitigation coverageCredit monitoringUp to $10,000,000Ranges from NIL and up 1 st Party Data ProtectionRebuild your damaged data from computer attack Up to $100,000,000$25,000 and up 1 st Party Network Bus. Int. (“NBI”)Loss of revenue due to computer attack Up to $100,000,000A combination of the greater of $25,000 + or 8 to 12 hours Defense Costs/Fines & Penalties for Regulatory Actions FTC or AG claims for privacy breach Up to $25,000,000Ranges from NIL and up

20. MARSH 19 May 16, 2015 Risk Identification Potential Risk EventLikelihood Potential Impact Website copyright/trademark infringement claims Legal liability to others for computer security breaches (non-privacy) Legal liability to others for privacy breaches Privacy breach notification costs & credit monitoring Privacy regulatory action defense and fines Costs to repair damage to your information assets Loss of revenue due to a failure of security or computer attack Loss of revenue due to a failure of security at a dependent technology provider Cyber Extortion Threat

21. MARSH 20 May 16, 2015 Favorable Case Decisions In re: Hannaford Bros. Co. Customer Data Security Breach Litigation, (D. Me., May 12, 2009). –4,000,000 + records exposed –Alleged failure to protect cardholder data and notify customers –Judge Hornby ruled without any actual and substantial loss of money or property, consumers could not seek damages –Consumers with no fraudulent charges, or those that had them reversed, could not seek damages under Maine law Ruiz v. Gap Inc. (N.D. Calif. 4/09) –Theft of two laptop computers from Vangent Inc., a Gap vendor processing job applications containing personal information, including social security numbers, on roughly 750,000 Gap job applicants. –Court ruled that the plaintiff's proof he was at "significant risk" of identity theft as a result of a laptop containing unencrypted personal information was not a sufficient damage to make out a viable negligence claim. –Affirmed on appeal June 2010 - The district court did not err in granting summary judgment on Ruiz's state law negligence claim. The elements of a negligence cause of action under California law are (1) the existence of a duty to exercise due care, (2) breach of that duty, (3) causation, and (4) damages.

22. MARSH 21 May 16, 2015 Insurer Paid Claims $20,000,000+ Hacking Incident: Payment card processor’s system was hacked compromising credit card data. Insurer paid over $20,000,000 in legal defenses and crisis management related expenses. $16,000,000 FI Security Breach: Hackers broke into the insured’s system and inflated the balances of 100 issued payroll and prepaid debit cards to $250,000 per card. Counterfeit cards were used repeatedly in over 300 ATM locations, located in 20 countries over a seven day period. Approximately $14,000,000 in such transactions were ultimately processed. The insurer paid the $14,000,000 loss and $2,000,000 for crisis management, notification costs, and public relations services. $15,000,000+ Rogue Employee: A rogue employee used a personal USB drive on the company computer system to steal and sell the identities of over 4,000,000 customers and applicants. Proposed settlement exceeds $15,000,000 and includes credit monitoring services, identity theft insurance, and attorney fees. $1,400,000+ Database Breach: Hackers broke into a credit card processor’s database and accessed consumers’ personal data. This resulted in a class action lawsuit, which was filed against the insured alleging that the insured improperly stored unencrypted customer data, and failed to maintain proper firewall protection. Settled for $1,250,000 and paid over $160,000 in defense costs. $3,000,000+ Lost/Stolen Equipment: E-mail server and external hard drive containing personally identifiable customer information was stolen while in the custody of an outside vendor. The information was in the possession of the vendor to facilitate an investigatory request. An employee of the outside vendor has been implicated. While no lawsuit was filed, the insurer paid out over $3,000,000 in crisis expenses for legal advice, public relations, forensics, and notification costs.

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