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Counting the cost of CrowdStrike: the bug that bit billions

July 27, 2024
in Business
Counting the cost of CrowdStrike: the bug that bit billions
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Shweta Sharma

News

Jul 26, 20244 mins

Business ContinuityDisaster RecoveryEndpoint Protection

Cyber insurance coverage is set to cover only a fraction of the losses, leaving affected businesses to grapple with substantial uncovered expenses.

As eye-popping estimates emerge for the cost to enterprises of dealing with aftermath of last week’s CrowdStrike-induced outages, it’s crucial to break down the sources of these expenses and understand how much of the financial burden will be absorbed by cyber insurance.

Parametrix, known for its cloud monitoring and insurance solutions, has pegged the total loss for the 25% of Fortune 500 companies affected (excluding Microsoft) at a staggering $5.4 billion.

They’ll be covering most of that bill themselves, Parametrix said: “The portion of the loss covered under cyber insurance policies is likely to be no more than 10% to 20%, due to many companies’ large risk retentions, and to low policy limits relative to the potential outage loss.”

When IT hits the fan

In a high-impact scenario like the CrowdStrike goof-up, companies incur costs for multiple reasons. Experts highlight revenue lost due to downtime, increased operational expenses, and remediation costs, among others.

“Costs most likely come from loss of trading due to unavailability of systems,” said Duncan Brown, group vice president, research at IDC said. “This would be followed by loss of productivity and operational costs (such as planes and trains in the wrong place), followed by remediation activities to fix the problem, much of which require manual intervention.”

According to a study by J. Gold Associates, each affected machine, on average, would cost an organization $82.50 to fix by an internal employee. Costs may jump three-fold if the company were to hire external help. With Microsoft estimating that there were 8.5 million affected Windows machines, the remediation costs alone from the incident come to over $700 million.

Operational expenses and loss to business would differ greatly from organization to organization, and segment to segment. Parametrix, using its service monitoring sensors, estimated healthcare suffering the most at $1.94 billion in direct losses from the incident, with banking and transportation closely behind at $1.15 billion and $0.86 billion, respectively. It estimated the loss per company for these three segments at $64.60 million, $71.8 million and $143.38 million, respectively.

Chris Steffen, vice president of research at Enterprise Management Associates, said the numbers could actually be much higher. “Parametrix claims that there was only $146 million in direct loss to the airline industry,” he said. “But several airlines experienced multiple days of outage (Delta was finally cleared up and running on Wednesday this week). Even if you consider monetary fines associated with delays and rebookings, never mind brand reputation and other unrealized costs, $146 million seems very low.”

Apart from the direct losses, the additional hidden costs from the incident are likely to include customer compensation for loss of service and non-compliance fines, Brown added. Discussion on what those figures might look like are currently underway.

Additionally, there will be reputational costs to the brands experiencing customer distress. CrowdStrike itself, Steffen pointed out, was severely hit with its stock declining by more than 20%— a loss of over $15 billion in value for shareholders.

No malice, no money

Insured losses from the incident are likely to range from $0.54 billion to $1.08 billion, Parametrix estimated, assuming the ratio of insured loss to financial losses at 10-15%.

The estimate is somewhat supported by cyber-risk intelligence firm CyberCube. The firm’s Cyber Aggregation Event Response Service (CAERS) team made a general estimation of insurance payouts at around $1billion.

“CyberCube’s cyber catastrophe model estimates preliminary insured losses from theJuly 19 event for the standalone cyber insurance market at between $400 million and $1.5 billion, representing a roughly 3-10% loss ratio impact on global cyber premiums of $15 billion today,” CyberCube said in a blog post.

The non-malicious nature of the event impacts the insurance coverage triggered by policies, according to the firm. Business interruption due to ‘system failure’ is likely to be the primary loss trigger and this type of coverage is often not included as standard in many policies and, when available, is frequently subject to sub-limits, it added.

As the CrowdStrike mess starts to settle, there’s growing concern that costs might surge past current estimates. Affected businesses should pool their resources to bounce back quickly before losses snowball.

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Tags: businessCountingCrowdStrike
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