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Could a Greater Investment in Cyber Insurance Have Saved Anthem?

March 12, 2015
by Rajiv Leventhal
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Natalie Lehr

According to the Identity Theft Resource Center, last year saw 287 breaches and more than 7.7 million records compromised in the medical and healthcare industry alone. Healthcare breaches have made up more than 10 percent of the year’s attacks, proving what those in the industry already know—personal health information is valuable and sought after by hackers.

To this end, the recent breach of the Indianapolis-based health insurer Anthem was a massive one, exposing the personal data of approximately 80 million of its plan members. Shortly after the breach, it was estimated that the hack of Anthem could end up costing more than a billion dollars in total. "It's that big. We wouldn't be surprised to see the costs of the Anthem breach exceed a billion dollars,” said Daniel W. Berger, president and CEO of Redspin, a Carpinteria, Calif.-based health IT security consultant.

What’s more, according to a Business Insurance report, Anthem has $150 million to $200 million in cyber insurance, including excess layers of cyber coverage, sources told the publication. Anthem's primary cyber insurer is Lexington Insurance Co., a unit of American International Group (AIG), Business Insurance revealed, explaining that Anthem has $10 million in primary cyber coverage above a $10 million self-retention with Lexington. However, when a company has up to 80 million current customers, former customers, employees and investors to notify—in addition to lawsuits— this amount may not be enough, says Natalie Lehr, co-founder of cybersecurity firm TSC Advantage, based in Washington, D.C.

Indeed, various news media outlets have suggested that Anthem’s insurance policy could be exhausted. Lehr says that generally speaking, when companies put together their investment for security, they look for a standard where they meet their compliance obligation. The challenge with cases such as Anthem, Lehr says, is that even when the organization’s investments in security are to meet those standards, it’s still insufficient because it may not protect you against the ongoing liability, in this case on the class-action lawsuit side. “This is one of the big reasons why I see this as a watershed moment for the industry in terms of the scale of data taken,” Lehr says. “The intangible financial loss that a company could face can exceed the insurable loss calculation that has historically taken place with the transference of risk to the insurers.”

As such, Lehr notes that if organizations exceed the standard, it reduces the likelihood of compromise, and also the probability of compromise in the future. “It is a testament to any organization that invests in maturity beyond the standard,” she says. “Part of what we have done with our insurance partners is set up a way to measure the security level so clients who do exceed the standard can get a discount on their premium. Historically, that’s not part of the dialogue or pre-binding process thought,” she adds.

Lehr further says that with Anthem specifically, a sophisticated data loss prevention solution could have been put in place, so if the bulk of material from the file transfer protocol (FTP) network, the organization could look through that traffic and look for categories of data that include social security numbers, for instance. “We don’t know for sure if they had that in place, but it seems that with the bulk of the losses that occurred with Anthem, there was a determination made that it was internal data, which wasn’t necessarily required to be encrypted from a compliance standard,” she says. “But there’s a whole host of additional controls that could be applied, and it’s about the nature in which organizations address that.”

At the end of the day, Lehr says while that no one ever envisioned anything being stolen on the scale of what happened at Anthem, it is critical to make sure that you’re leading in terms of security posture, and that you’ve focused your investment around the core parts of your business. “If we look at the past as a marker of the type of cyber breach we’ll see in the future, we’re sort of kidding ourselves,” she says. “We talk to our clients about making sure their strategy isn’t to respond to an incident. That’s not enough. Investment in prevention is testament to investment in future.”