Do you really understand cyber risk?

Concern around cyber risks has grown considerably, placing it among business leaders’ top five risks overall for the first time in the 4^th edition of the UK Business Risk Report.¹

You’ve probably heard all about cyber risk and its potential impact on your business. However, if July’s Crowdstrike outage, which affected tens of thousands of businesses worldwide², taught us anything. Its cyber risk is more interconnected than we thought.

In this article, we aim to shed light on how cyber risk can manifest, and affect, different every aspect of your business.

What is cyber risk?

First thing’s first, cyber risk refers to the potential harm or damage that can arise from the use of digital technology and the internet. It encompasses the threats and vulnerabilities that can compromise the confidentiality, integrity, and availability of your business's sensitive information and digital assets.

Cyber risks can include data breaches, malware attacks, phishing scams, and other malicious activities that can result in financial losses, reputational damage, legal liabilities, and operational disruptions.

1. Operations

Cyberattacks can lead to significant downtime and financial losses. For example, a ransomware attack can encrypt critical business data, rendering it inaccessible until a ransom is paid. This can paralyse day-to-day operations, affecting productivity, customer service, and supply chain management. Additionally, malware infections can cause system crashes, leading to delays in order processing and fulfilment.

2. Finances

A successful cyberattack can result in financial fraud, unauthorised transactions, or theft of sensitive financial information. For instance, a phishing attack targeting employees may lead to fraudulent wire transfers or unauthorised access to online banking accounts. Such incidents can drain financial resources, damage cash flow, and even lead to bankruptcy in extreme cases.

3. Customer trust

Maintaining customer trust is crucial, and a cyber incident can severely impact this trust. A data breach that exposes customer information, such as personal details or payment card data, can erode customer confidence in the business. This loss of trust can lead to customer churn, negative reviews, and damage to your reputation. Rebuilding trust after a cyber incident can be a challenging and time-consuming process.

4. Intellectual property (IP)

Cyber risk can jeopardise the confidentiality and integrity of valuable IP assets. For example, a cyberattack targeting a product design or proprietary software code can result in theft or unauthorised disclosure. This can lead to financial losses, loss of market share, and compromised innovation capabilities.

5. Regulatory compliance

There are various data protection and privacy regulations, such as the General Data Protection Regulation (GDPR). Failure to comply with these regulations can result in significant penalties and legal liabilities. A data breach or mishandling of customer data can trigger regulatory investigations and fines, further straining your financial resources and reputation.

6. Employee productivity

Cyber risk can impact employee productivity in several ways. For instance, a malware infection on an employee's workstation can disrupt their work, requiring time and resources to resolve. Additionally, cybersecurity incidents often necessitate employee training and awareness programs, diverting valuable time and resources away from core business activities.

7. Business continuity

You must have robust business continuity and disaster recovery plans in place to mitigate the impact of cyber incidents. Without proper planning, a cyberattack can lead to prolonged disruptions, affecting your ability to serve customers and generate revenue. The costs associated with business interruption, including lost sales, reputational damage, and recovery efforts, can be substantial.

Managing cyber risk: What can you do?

There are many ways you can help or protect your business with cyber risk management initiatives. You can manage cyber risk with:

• Business interruption reviews.
• Cyber risk management programme review.
• Cyber supplier review.
• Cyber risk assessment and quantification.
• Cyber risk governance and strategy.
• Cyber insurability assessment.
• Incident response plan.
• Targeted cyber training.

Read our 12 key controls to help strengthen your cyber security as a start.

Expert cyber risk advice and insurance

Cyber risk is well and truly interconnected. Not fully understanding the impact of a cyber event, outside of the protection offered by an insurance product, can have a huge impact to your business. We recommend working with your insurance broker or risk management experts to review your cyber risk preparedness, security controls, any insurance gaps, and your cyber insurability.

Sources:

1.      MMC UK Business Risk Report, 2024  

2.      news.sky.com/it-outage-what-we-know-about-the-global-tech-meltdown-cloudstrike-and-microsoft-so-far

^{The information contained herein is based on sources we believe reliable and should be understood to be general insurance and risk management information only. The information is not intended to be taken as advice and cannot be relied upon as such. Statements concerning legal, tax or accounting matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal, tax or accounting advice, which we are not authorised to provide.}