Risk Financing Facilities (RFF), Cyber Liability and Supply Chain Disruption

A recent story from Bloomberg's Business Week highlights two risks: cyber and supply chain disruption.  The story chronicles how the Chinese government inserted a unique microchip on mother boards.  The chips allowed the Chinese military to continually monitor all activity processed through the board.  Here is how the hack worked:

1. A Chinese military unit designed and manufactured microchips as small as a sharpened pencil tip. Some of the chips were built to look like signal conditioning couplers, and they incorporated memory, networking capability, and sufficient processing power for an attack.

2. The microchips were inserted at Chinese factories that supplied Supermicro, one of the world’s biggest sellers of server motherboards.

3. The compromised motherboards were built into servers assembled by Supermicro.

4. The compromised motherboards were built into servers assembled by Supermicro.

5. When a server was installed and switched on, the microchip altered the operating system’s core so it could accept modifications. The chip could also contact computers controlled by the attackers in search of further instructions and code.

That a third party could now monitor an entire computer network clearly highlights cyber liability.  Tech companies would now have to shift their supply chains out of China and into the another country, clearly triggering supply chain disruption.  

Handling both for risks internally through a risk financing facility (RFF) is far more advantageous than utilizing traditional insurance allowing the parent company to process both claims internally and confidentially, keeping key company information away from third parties.

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