The Direct and Indirect Costs of a Cyber Event
In today's digital age, cyber events have become increasingly prevalent, posing significant threats to organisations globally. At the higher end of the focus for cybercriminals has been the health sector, mainly due to the sensitivity of the data involved and the inability of the target to operate without it. These events, which include data breaches, ransomware attacks, and other forms of cybercrime, can have profound financial implications. Understanding the direct and indirect costs associated with a cyber event assists organisations in understanding the exposure, how and where to prioritise their focus, and how to manage and mitigate these risks effectively.
Direct Costs
Direct costs are the immediate expenses incurred due to a cyber event. These costs are often quantifiable and can be directly attributed to the incident. Some of the primary direct costs include:
Incident Response: Organisations must act swiftly to contain and mitigate the damage during a cyber event. This often involves hiring cybersecurity experts, forensic investigators, and legal advisors. The costs associated with these services can be substantial, especially if the incident is complex and requires extensive investigation. Often, the priority is to bring in an expert service provider to manage the situation early. These costs are substantial but ultimately necessary.
Notification Costs: Organisations are often legally required to notify affected individuals and regulatory bodies in the event of a data breach. This process can be costly, involving creating and distributing notification letters, setting up call centres, and providing credit monitoring services to affected individuals.
Legal and Regulatory Costs: Disclosure of Medical information can cause serious harm, as defined by the Office of the Privacy Commissioner. The Health Information Privacy Code holds holders of medical records to a higher account. Compliance and the costs associated with it can be significant.
Data Recovery and System Restoration: Assessing the integrity of compromised data and restoring and recovering affected systems can be time-consuming and expensive. Organisations may need to invest in new hardware, software, and other resources to ensure their systems are secure and operational.
Lost Trading: When data-reliant businesses suffer a cyber event, trading is generally lost or severely compromised. In the worst scenario, customers need to be turned away. Additional costs may exist to continue trading using manual systems, and resources may not be utilised as productively.
Indirect Costs
Indirect costs are the less tangible, often long-term expenses arising from a cyber event. These costs can be more challenging to quantify but can significantly impact an organisation's financial health and reputation. Common indirect costs include:
Reputational Damage: A cyber event can severely damage an organisation's reputation, leading to a loss of trust among customers, strategic allies, and stakeholders. This loss of confidence can result in decreased sales, brand devaluation, lost goodwill, customer churn, and difficulties in acquiring new business. Rebuilding a damaged reputation and regaining the confidence of your customer base can take years and require substantial investment in marketing and public relations efforts.
Operational Disruption: Cyber events can disrupt an organisation's operations, leading to downtime and lost productivity. This disruption can affect the delivery of products and services, resulting in lost revenue and potential contractual penalties. The longer the disruption, the more significant the financial impact.
Increased Insurance Premiums: Organisations may face higher insurance premiums following a cyber event as underwriters reassess the affected entity's risk metrics. This increase in premiums can add to the incident's long-term financial burden.
Employee Morale and Turnover: The stress and uncertainty caused by a cyber event can negatively impact employee morale and lead to increased turnover. High turnover rates can result in additional recruitment and training costs, further straining the organisation's resources.
A cyber event's direct and indirect costs can substantially affect an organisation's financial stability, reputation, and operational efficiency. By understanding the likely costs of these risks, organisations can better prepare for and respond to cyber incidents, implementing robust cybersecurity measures and contingency plans to mitigate the impact of such events. Proactive investment in cybersecurity can save organisations significant financial and reputational damage from a cyber event.
However, even with the best preventative measures in place, no organisation is immune from the risk of a cyber event, and organisations with the most valuable data will continue to be targets for cybercriminals. That's why it is critical to have a fit-for-purpose cyber insurance program that responds to the costs when the bad guys get in. Because sometimes they do.
