October 28, 2011
Matthew McDavid
Vice President

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
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Section 1

• 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!
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• Other forms of Fraud
– Driver’s License
– Health Benefits
– Insurance Fraud
– Rental Housing
– Utilities
– Government Benefits
– W-2 Fraud
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• 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
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• 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
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• 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”
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• 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
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• 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
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• 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
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• 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
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Section 2

• 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
Malicious Insider or
Malicious Code:
9%
Hacked Systems:
7%
Paper Records:
9%
Electronic Backup:
19%
Third Party or
Outsourcer:
21%
Lost Laptop or other
Device:
35%
Source: Ponemon Institute
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• 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
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• 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.
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• 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.
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Coverage
Security Liability
Privacy Liability
Forensics
Example
Hacking, virus transfer
Customer information breach
Investigation
Limit of Liability
Up to $150,000,000
Up to $150,000,000
Up to $10,000,000
Retention
$25,000 and up
$25,000 and up
Ranges from NIL and up
Privacy Breach Notification Costs
Loss mitigation coverage
1 st Party Data Protection
1 st Party Network Bus. Int. (“NBI”)
State privacy laws require notification
Credit monitoring
Rebuild your damaged data from computer attack
Up to $10,000,000 or
2,000,000 records
Ranges from NIL and up
Up to $10,000,000
Up to $100,000,000
Loss of revenue due to computer attack
Up to $100,000,000
Ranges from NIL and up
$25,000 and up
A 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
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Up to $25,000,000 Ranges from NIL and up
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Potential Risk Event
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
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Likelihood
Potential
Impact
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• 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.
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• $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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