Robots, internet of things and the coming cyber liability revolution

Cyber liability remains one of the most prevalent and hottest topics in insurance — and will continue to be so — especially with high profile cyberattacks against companies like Home Depot, Deloitte and, most recently, Equifax.

Small and midsize businesses tend to limit their perceived risk to a narrow set of circumstances; if they don’t take credit card information, there’s no reason to buy cyber liability. However, the risk of a data breach can take many forms, including stolen credentials, malware/extortion, social engineering and even disgruntled employees.

“While cyberattacks take place on a daily basis across the world, we face a somewhat unique exposure here in Northeast Ohio — the growing number of robots being used in industrial and manufacturing settings,” says Chas Lowe, commercial insurance specialist at Zito Insurance Agency, Inc.

The Brookings Institute ranked Ohio second in the nation for the number of robots being utilized in industrial processes in 2015. In fact, the number of robots in the workforce grew by 143 percent between 2010 and 2015, and that number is expected to compound over the next decade.

These interconnected robots can communicate with each other, which opens the door for hackers to reprogram these robots remotely to inflict as much damage physically, financially and technically to the companies using them as possible.

Smart Business spoke with Lowe about these evolving risks moving forward.

What’s an example of what a hacked robot could potentially do?
Take, for instance, a robot that’s designing an integral part of an engine. A hacker could reprogram the robot to inject small defects by remotely changing a configuration file. Should these defects successfully evade detection by a vendor’s quality control program, and depending on the nature of the engine’s final use, it has the potential to cause injury or even a fatality down the line.

While this example highlights potential physical harm, it doesn’t include the cost of the manufacturer’s product recall, business interruption, cost of finding and fixing the problem and the costs of potential lawsuits as a result of the error. Needless to say, without the right insurance coverage, these hacks could financially devastate a company.

What is the internet of things exactly? What potential threats may result from it?
In layman’s terms, the internet of things is the concept of connecting any device, machine or object to the internet to transmit data between each other or with a company. An example would be your alarm clock notifying your coffee maker to start brewing coffee. The potential to implement the internet of things in transportation networks, smart cities and in manufacturing/industrial uses is truly boundless.

A report by Research and Markets estimates that anywhere from 20 to 100 billion devices will be connected by 2020. This brings the issue of privacy and security to the forefront. Each device connected to the internet within your home or business becomes a point of vulnerability.

The real questions moving forward will be how will all the data these devices are collecting be secured? How do we prevent hackers from taking control of these devices in real time? How do we prevent hackers from gaining access to a city’s or company’s critical infrastructure?

How will robots and the internet of things affect the insurance industry and, more specifically, cyber liability insurance?
Robots and the internet of things have the ability to boost productivity and create efficiencies. Unfortunately, these same advancements have created more opportunities for cybercriminals. In the past five years, cyber insurance has expanded as a distinct line of business. These policies have been designed to primarily cover claims for data breaches and privacy violations.

Moving forward, more nuanced policies should be designed to address specific issues facing internet of things claims (i.e. value of stolen intellectual property). There are going to be industry growing pains as claims involving robots proliferate, with questions like whether liability falls to the manufacturer, software developer, company using the robot or another party in the supply chain. As the technological landscape continues to evolve, reviewing your cyber liability policy is more important than ever.

Insights Business Insurance is brought to you by Zito Insurance Agency, Inc.