Cybercrime by wire fraud – what’s covered?

Think your cyber liability insurance will protect loss of funds? Read the fine print.

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Thinkstock

Perhaps the only thing worse than falling victim to a business email compromise or “CEO fraud” that results in millions of dollars in wire fraud theft – is wondering whether your insurance will cover any of the loss.

Take Ubiquiti Networks Inc., for instance. The networking firm disclosed in August that cyber thieves recently stole $46.7 million using a growing scam in which cyber criminals spoof emails from executives at their company in a bid to initiate unauthorized international wire transfers.

The San Jose-based company said it discovered the fraud on June 5, and that the incident involved employee impersonation and fraudulent requests from an outside entity targeting the company’s finance department. The funds were then transferred by a company subsidiary incorporated in Hong Kong to other overseas accounts held by third parties.

Ubiquiti was able to recover some of the money, but it continues to pursue $31.8 million in lost funds. “The company may not be successful in obtaining any insurance coverage for this loss,” the company said in a statement on August 8.

Such is the problem with many companies that think their insurance covers wire fraud incidents where cyber criminals get employees to wire cash to a fraudulent bank account and then disappear along with the funds. Since the funds are seemingly wired voluntarily, most commercial insurance policies don’t cover the loss.

Out of 31 leading cyber insurance providers, only eight cover fraudulent wire transfer, according to a 2015 cyber and privacy insurance survey by The Betterley Report. Of those eight insurers, “a lot have further restrictions if the insured is involved in the wire fraud,” says Garrett Droege, executive director of TechAssure,an international association of technology-related risk insurance experts. “That’s a problem with CEO fraud because the insured is almost always involved whether or not they know it. It’s one of those things that gives insurance a bad name.”

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