The Cost of Ignoring Cyber Risks
The Cost of Ignoring Cyber Risks
Because securing digital assets is as important as locking an office door.
Cybersecurity isn’t just a “nice-to-have” – It’s a must to keep your financial health and reputation intact. The world is changing, and organization must change with it. This includes taking proactive measures to protect digital assets. Together, we will unravel the financial and reputational consequences of a data breach, and how they eat away at your profits and trustworthiness.
The financial consequences of a data breach are both immediate and long-term. At the occurrence, an organization faces a slew of direct financial costs that can send shockwaves through an unprepared budgeting committee. These costs include legal fines and regulatory penalties that vary from industry to industry. Second, there are costs for investigation and remediation efforts. Third, there are costs incurred when communicating the situation to those affected, allowing for transparency and educated consumer decision making.
But the impact doesn’t stop there. The long-term repercussions can be even more profound. Data breaches often lead to a loss of customers after individuals who have data compromised may seek an alternative organization. This results directly in reduced revenue streams and an erosion of market share. Additionally, a tarnished reputation can drag down a company’s stock price and market capitalization, expanding those affected into the investor demographic.
A less apparent financial consequence comes from insurers. Insurance companies tend to respond to these risks by raising premiums! In general, the costs of cybersecurity insurance policies increased 10-30% in 2020, likely due to the increased severity and frequency of attacks. In 2021, the average premium cost increased 25.5% during Q2 alone! The cyber insurance industry is volatile during this time as the nature and scope of attacks continue to change. This is a topic worth adding to your next meeting agenda / insurance consultation.
These financial ramifications put into perspective how wide the impact of a data breach can be, and why proactive cybersecurity measures pay off in the long run.
Beyond the balance sheet, an organization may experience an erosion of trust and credibility. Clients and stakeholders, once confident in the company’s ability to protect data, are left wary of continuing to work with the company. Deloitte wrote an article in 2016 regarding the hidden costs of cyber-attacks that remain relevant today, such as the devaluation of customers, lost contract revenue, and trade names. Negative media coverage and public perception only exacerbate this damage, as headlines and discussions amplify the breach’s impact.
As one could guess, the scars of a data breach are not short-lived. They cast a massive shadow on a brands reputation. The effects are felt deepest within customer loyalty and retention; many individuals may seek alternative providers they perceive as more secure.
A considerable amount of resources must be spent to restore trust and security, varying based on the size of the organization and breach. Additionally, in an increasingly competitive market, a tarnished reputation is the last thing leaders want.
People tend to choose companies they trust, so long-lasting problems show us why it’s so important for companies to be careful with cybersecurity planning and protecting their reputation.
The 2013 Target data breach is a notable cyberattack displaying a strategic hacker’s breach, and organizational repercussions. The breach occurred 10 years ago and was highly publicized due to Target’s popularity among consumers.
Here is a breakdown of the incident:
Date: The breach occurred at the end of November, during a peak holiday shopping season (pretty good timing, right?).
Scope: Due to weak third-party vendor security, hackers gained access to Target’s payment system and point-of-sale terminals, where customer credit and debit card information was processed.
Stolen Data: The breach compromised the personal and financial information of approximately 40 million customers. This included credit card numbers, debit card PINs, card expiration date, and CVV codes.
Discovery: Target didn’t discover the breach until December 15th, and promptly reported it to law enforcement and credit card companies. They also informed the public.
Financial Consequences: The repercussions were substantial, especially since this occurred during a peak shopping season. Target incurred significant expenses for investigating the breach, improving its security systems, and providing credit monitoring services to affected customers. The total cost of the breach, including legal settlements and regulatory fines, is estimated to have exceeded $200 million.
Reputational Consequences: Target’s reputation was severely affected. Customer trust was eroded, leading to a reduction in sales and a decrease in its stock price. The incident also prompted widespread media coverage and negative public perception.
We are coming up on the 10th anniversary of Target’s data breach, and it continues to be a prominent case study for communicating risks effectively. As cybersecurity defense improves, so do hackers. Consider how a similar incident could impact your industry. What might that look like? How would it affect shareholders? Clients? Employees?
The importance of proactivity will never go away, so start having these conversations in the board room. Invest into finding the best solution for your organization. Executive leaders have a responsibility to know the risks or be advised by those who have done the research. Especially when planning a budget for the following year.
Consider this: Just as your filing cabinet is locked in a building with security cameras, your email, Google Drive, SharePoint, etc. should be behind a firewall with cyber defense mechanisms in place.
This blog was reviewed by Matt Perrotti, a Senior Penetration Tester at Zelvin Security with 20 years of experience as an IT professional in various cybersecurity roles.
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