Monthly Archives: July 2011

Cavalcade of Risk #135

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The Cavalcade of Risk series is a great way to read about everything risk-related in industry blogs far and wide. This latest CoR gives us a glimpse into the risks of e-commerce and sharing information online, why taking a risk with your insurance coverage can sometimes be justified, absurd workers compensation claims and how the Dodd-Frank Act could affect larger insurance companies and their affiliates.

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Check out the latest edition of Cavalcade of Risk, presented by the Notwithstanding Blog.

2011 Sets Record for First-Half Catastrophe Losses

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This year has been truly disastrous for nearly all parts of the globe.

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The Japan tragedy. New Zealand quakes. Midwest tornadoes. Flooding everywhere.

Mother Nature has been relentless.

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So much so that in terms of both overall economic losses and insured losses, the first six months of 2011 have set a record for the most damage, according to Munich Re. The company tallies the overall losses at $265 billion with insurers being on the hook for $60 billion of that.

Both are unprecedented (with the insured loss number being nearly five times the average first-half total since 2001) and the $265 billion worth of carnage is not just the most ever for six months — it’s more than any other yearly total. Based largely on the destruction of Hurricane Katrina, 2005 was the previous worts loss year with about $220 billion.

The Financial Industry: Cyber Security Laggards

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We have seen it all around us lately — the financial industry’s inability to guard against major data breaches.

Just last month, Citibank, the third largest bank holding company in the U.
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S., experienced a data breach when hackers obtained information on more than 360,000 credit card accounts of North American customers. And just last week, Morgan Stanley announced that data of 34,000 clients was lost or stolen.

According to two letters sent to clients, and obtained by Credit.com, the information [of Morgan Stanley customers] includes clients’ names, addresses, account and tax identification numbers, the income earned on the investments in 2010, and—for some clients—Social Security numbers. The data was saved on two CD-ROMs that were protected by passwords, according to the letters, but the CDs were not encrypted. The company mailed the CDs containing information about investors in tax-exempt funds and bonds to the New York State Department of Taxation and Finance. It appears the package was intact when it reached the department, but by the time it arrived on the desk of its intended recipient the CDs were missing, Wiggins said.

The Citibank breach has been referred to as the largest direct attack on a major U.S. financial institution. Since the attack, the Federal Deposit Insurance Corporation has been preparing new measures on data security, which proves to be much needed.

The financial industry has become somewhat of a laggard when it comes to data security initiatives and the risks of data theft are rising.

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According to a June report by IDC Financial Insights, “As financial institutions expose more capabilities to their clients through their digital channels, they must introduce more sophisticated mitigation and control techniques at a similar pace.” The report points to mobile applications as the next new target of cyberattacks.

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(Check out the next issue of Risk Management for more on this topic — online August 1st).

To approach these inevitable risks, there needs to be a change in the role and focus of enterprise risk functions, according to the IDC Financial Insights report. “Cyber risk is an enterprise risk issue, not an IT issue, and as such needs to be addressed from a strategic, cross line-of-business, and economic perspective. The CFO, not the CIO or CTO, is the most logical person to set strategies and lead the efforts required to address the cyber risk challenge.”

The following is a chart that shows that cyber risk is an operational risk component, according to IDC Financial Insights.


Do you agree with these findings? If not, how do you think the management of cyber risks fits within the realm of business’s risk management plan?

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No One Knows if Texting While Driving Bans Have Prevented Car Crashes

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Logically, you would think that imposing a statewide ban on mobile phone use while driving would have to make the roads safer. Distracted driving has become the scourge of the roads, according to many (including Oprah), so anything that helps curb such behavior would have to prevent accidents.

That very well may be the case.

But according to a recent long-term study conducted by the Governors Highway Safety Association, no one can prove it.

The report—produced with a grant from State Farm—says limited research suggests cell phone use does increase crash risk, but no one knows by how much. Additionally, there is no conclusive evidence about whether hands-free cell phone use is any safer than hand-held use.

State Farm could not immediately be reached for comment.

Texting “probably” increases risk, but no evidence exists to prove if cell phone use or texting bans reduce accidents.

Therefore, among a handful of recommendations, GHSA advises states that do not have handheld bans to wait until more research is done before passing laws. In the meantime, the association urges states with bans to enforce them.

So … thanks, researchers.

That really clears up nothing.

Map via Property Casualty 360