The Rising Tide of Cyber Crime

01 Jul The Rising Tide of Cyber Crime

The FBI Internet Crime Complaint Center recently released its 2024 report, revealing a record $16.6 billion in cybercrime-related losses, primarily driven by fraud. Ransomware incidents have risen by 9% year-over-year compounded. It’s important to note that this data only reflects reported incidents; many victims choose not to report due to embarrassment or concerns about their reputation.

Cybercrime is evolving. The days when phishing scams could be easily identified by bogus email addresses and numerous grammatical errors are long gone. Fraud syndicates now monitor an individual’s digital activities for months or even years to learn about their communication style, behaviors, even who their financial partners are. They then strategically execute AI-aided email or phone impersonations just as real estate or other transactions are about to be completed.

High-net-worth (HNW) individuals face increased exposure. They are more likely to be targeted by criminals or fraud syndicates and often have managers, professional partners, and other parties who can serve as additional access points for cybercrime. Claims involving HNW individuals often exceed $1,000,000. Financial losses are recovered less than 20% of the time, and this percentage declines even further if recovery is not made within the first 24 hours.

How can HNW clients guard against the disruption and financial losses caused by cybercrime? A thoughtful Personal Risk Management framework will contain two key components: Risk Control and Risk Transfer. Effective risk management that both reduces the potential for loss and responds to the emergency and financial needs of an incident include:

• Strong Financial Transaction Protocols
• Family & Account Manager Training
• Enterprise-Grade Network Security
• Specialty Cybercrime Insurance
• Incident Response Plan

As respect to the Risk Transfer component (insurance), understanding the limitations that may be available through a Homeowner Insurance policy and the differences among Cybercrime Insurance options is critical. Some homeowner carriers offer Cyber Crime endorsements. However, in most cases, the limits, exclusions, and provisions are woefully inadequate to effectively address the exposures. Just as effective wealth management employs a portfolio strategy, separate specialty fraud insurance forms, at this juncture, are typically required to properly secure all exposures, family members, entities (e.g., trusts), and asset classes (e.g., cryptocurrency), with the broadest available language (e.g., Telephonic Fraud or Non-Cyber Originated Wire Fraud). Beyond the insurance contract language, the carrier’s claim and incident response team should be evaluated. HNW clients need to have highly focused and experienced cybercrime professionals on call for when extortion, ransomware, or other breach events occur.

Given the sophistication and evolving nature of cybercrime and the number of global bad actors in this arena, it is prudent to safeguard HNW clients not just for if, but rather when, they will experience a breach and need to execute incident response and engage insurance for financial loss reimbursement.