The Gulf is Not the Only Place Experiencing an Oil Spill: UPDATE

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[Updated with video]

With eyes and media attention still focused on the Gulf of Mexico and the largest oil spill in U.S. history, it’s no wonder little attention has been paid to, what some are calling, possibly the largest oil spill in the Midwest.

A 30-inch pipeline burst earlier this week and spilled some 800,000 gallons of oil into the Kalamazoo River, which flows into the enormous Lake Michigan. The spill has reached 35 miles of the river and left animals and plants in and along the river coated with oil.

The owner of the pipeline, Enbridge Energy Partners, responded to the leak by placing 28,000 feet of boom and more than 300 clean-up workers at the site. Governor Jennifer M. Granholm criticized Enbridge officials, however, claiming there are too few workers on site for the size of the spill and that the oil had reached farther than previously known.

Other officials also questioned Enbridge’s response. Representative Mark Schauer, a Michigan Democrat, said he was angry that it took Enbridge several hours on Monday to report the leak after it was discovered. He said he feared that the leak may have started earlier on Sunday and that the amount of oil in the river could be much more than the company’s estimate.

The Environmental Protection Agency is involved and recently released a statement that the spill may have exceeded one million gallons. With Lake Michigan only 80 miles downstream from the spill, many are fearing the worst, including Gov. Granholm.

Granholm warned of a “tragedy of historic proportions” if the oil reaches Lake Michigan. “The last thing any of us want to see is a smaller version of what has happened in the Gulf,” Granholm said Wednesday. “From my perspective the response has been anemic.”

Enbridge’s President and CEO Patrick D. Daniel has taken responsibility for the spill, claiming, “This is our mess. We’re going to clean it up.” Hopefully that happens before the oil spreads to the Great Lakes.

Here’s a video of yet another oil disaster:

Data Breaches Breaking the Bank for Businesses

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Hope you enjoyed that headline alliteration.

But let’s talk cyber crime. In 2010 it’s rare to find someone who has never had their email account hacked (happened to me last month!) or their personal information stolen by cyber thieves. But that’s small time cyber crime compared to what’s happening to businesses around the globe.

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According to a new study by Ponemon Institute, an independent research establishment, organizations are getting hit by at least one successful attack per week. Sound like a lot to you? It is. But what’s even more distressing and hard to believe is that the annualized cost to their bottom lines from the attacks ranged from $1 million to $53 million per year.

Ponemon’s first annual “Cost of Cyber Crime” report studied 45 U.S. organizations hit data breaches. It found that the median cost to companies was $3.8 million per year for an attack. Certainly enough for some bottom line blues.

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“Information theft was still the highest consequence — the type of information [stolen] ranged from a data breach of people’s [information] to intellectual property and source code,” says Larry Ponemon, CEO of the Ponemon Institute. “We found that detection and discovery are the most expensive [elements].”

The report found that web-borne attacks, malicious code and malicious insiders are the most costly types of attacks, and social security numbers are the most commonly compromised form of data. According to Datalossdb.org, there have been 10 reported data breaches in the past 13 days alone. Let’s take a look at the largest reported breaches in history, courtesy of the aforementioned website:

data breach

According to the Ponemon study, the 45 organizations studied did not have the right tools or technologies in place to prevent such costly breaches (bad risk management to say the least). The leading types of attacks were malware (25%), SQL (24%) and stolen/abused credentials (16%).

Numerous tech companies, such as Cisco and Symantec, offer data loss prevention products and services.

Without data breach technology in place, a company is throwing away their hard-earned dollars.

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And millions of dollars at that, according to Ponemon.

The 255 Bank Failures Since 2008

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David Hood has been one of the many people noticing the huge uptick in love for risk management of late. And while doing so, he points out something salient about the banking sector.

See, one of the fallouts of the financial crisis has been a return to basic banking practices. Banks, fearing the world of complex securities and swaps that nearly brought the system to collapse, have been running towards “vanilla.” They needed a new influx of capital after finding out just how toxic their balance sheets were and saw checking and other traditional bank products as a safe haven to keep revenue coming in.

Hood explains:

I was reminded of this by a recent article in BAI Banking Strategies titled, Online Account Opening Needed To Fuel Growth. The article rightly pointed out that many banks are going back to basics, building revenue by adding checking accounts and other more traditional products.  However, the recommendation of the article is to embrace the online channel and open accounts for customers outside of a more constrained geographical footprint.  In my opinion this has the potential to materially impact the risk presented to the financial institution.

It made me think about a couple of data points from my research. Namely that accounts opened online are 5x riskier than accounts opened through more traditional channels and that check fraud topped $1 billion dollars in 2008. The online channel represents a huge opportunity, but blindly chasing the revenue opportunity without regard to how an FI will manage the resulting risk can end badly. If the opinions of the risk managers at your institution haven’t been considered when evaluating strategic decisions such as pursuing online growth, it’s time to make room at the table and embrace them.

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Ironic that, in fleeing risk, the companies ran smack dab into risks of another flavor. Vanilla, it turns out, can be just as problematic.

Really, however, this should be obvious. We know risk is everywhere, and thinking that the downside of “safe” products doesn’t need to be analyzed is just as silly as the widespread, 2007 belief that algorithms had made the downside of complex securities disappear.

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There is no way to make risk disappear.

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 There is only a way for it to be managed.

And as we can see here from this map of bank failures since 2008, that’s a lesson many had to learn the hard way. If more attention isn’t paid to the risks of the financial world — both the complex and the “safe” — expect this Wall Street Journal list of failures to grow.

bank_failures

Do You Have Employee Benefits Liability Coverage?

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Ryan Hanley has provided a tale of caution regarding employee benefits liability:

Let’s say you just hired a new employee and it’s their first day.  First you walk them around the office introducing them to each employee and point out the “strategic” bathrooms.  Then you sit them down and talk about how happy you are they’re joining the team and what your expectations are for their first few months of work.  After the pep-talk your “Boss” obligations are over so you take the new employee to see the HR Manager who’s job it is to go through the nuts and bolts of working for your company.

What you don’t realize walking away from the HR Manager’s office is that he had been up till 300am the night before with a sick child and wanted nothing more than to zip through the New Hire presentation and get back to vegetating in front of his computer screen for the remainder of the day.  So the HR Manager begins to skip through sections telling himself that he’ll explain Benefits to the new employee tomorrow.  All that was necessary to explain was the building key-card and computer passwords.  The HR Manager is a good employee, but today he just wanted the new employee out of his office.  As fate would have it the next day was very busy with payroll issues and the HR Manager forgot to go talk to the new employee. And the new employee was so excited about her new job that she completely forgot that she did not sign up for the Benefit program.

Two months later the new employee is involved in a very severe car accident on the way to work.  What do you think her reaction was when she woke up to hear she did not have Health Coverage?

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!

Can you say LAWSUIT!

As Ryan later notes, most companies have some employee benefits coverage within their general liability policies. But fewer know exactly what they would do if the situation described above came true.

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The lesson, as always, is to understand your coverage.

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