RISK CONTROL IN CHALLENGING TIMES

Economic conditions influence risk trends for 2023

By Eric Spacek

Rising interest rates and high inflation are expected to continue to put the squeeze on Americans in 2023. These economic conditions are likely to spur an uptick in insurance claims related to the heightened cost of living. From a risk control perspective, we’re focusing our efforts on risks related to the financial impact of a challenging economy.

I anticipate an increase in fraud and opportunistic crimes this year due to financial desperation and the criminals who capitalize on it. In this economic environment, people are not only more likely to turn to committing crimes for financial gain but are also at greater risk of falling victim to scams that promise fast, easy cash.

All flavors of cybercrime

Cybercrime continues to evolve with technology, and criminals are ready to seize any new opportunities, while keeping a line in their favorite “phishing” holes. Hot spots for cybercrime will include scams that involve cryptocurrency and social media.

Social media is full of information criminals can exploit. Today’s social media scams typically involve being contacted by someone behind a fake account. In risk control, we emphasize that customers should be suspicious of unexpected communication and make sure they know whom they’re really interacting with online. The more a criminal knows about you, the easier you are to target. Keeping your accounts private and not oversharing on social media go a long way toward staying safe online.

We also advise to use strong passwords, which are vital to protecting computers and networks from data breach. Using a combination of upper- and lowercase letters, numbers, symbols or special characters, for example, helps create strong passwords. People get into trouble when they share passwords or pass phrases and use the same password or phrase on multiple accounts.

Cyber criminals are always busy thinking up new ways to trick people into disclosing sensitive information. For your business customers, human beings are their greatest vulnerability. Even customers in the nonprofit space need to be wary. Training employees and volunteers to spot scam attempts is the best defense against a data breach. Some of the biggest data breaches we’ve seen worldwide were aided by a successful phishing attempt. For customers that run organizations that maintain a database of sensitive information on their computer systems, it’s important to have cyber liability coverage.

With the proliferation of cryptocurrency has come—not surprisingly—an increase in related scams. According to a June 2022 Federal Trade Commission report, people reported losing more than $1 billion in crypto since the start of 2021. Social media is closely tied to crypto scams, as more than half of victims said the scam started with something they responded to on social media.

People chasing the easy dollar are getting caught up in fraudulent block-chain pyramid or Ponzi schemes. It’s important to remember that crypto isn’t insured by the FDIC the way traditional currency is. It’s best to advise that only scammers will promise big returns on crypto investments. If it seems too good to be true, it probably is.

With the proliferation of cryptocurrency has come–not surprisingly—an increase in related scams.
… [R]emember that crypto isn’t insured by the FDIC the way traditional currency is.

Property crimes take a hike

Looking at 2022 crime trends report-ed on by the Council on Criminal Justice, homicides and gun assaults declined, but property crimes are up. Aggravated assaults and robberies went down in the first half of 2022 compared to the first six months of 2021. However, residential burglaries (+6%), nonresidential burglaries (+8%), larcenies (+20%) and motor vehicle thefts (+15%) all increased. In our claims data, we are continuing to see a rise in opportunistic burglaries from buildings and cars. I expect this trend to continue in the projected economic climate of 2023.

Property crime prevention includes making sure that the areas around buildings are well-lit and don’t provide places for intruders to hide. Keeping ladders stored away and tree branches trimmed makes it more difficult for criminals to access your roof or upper stories. Surprisingly, property owners often forget the basics of window and door security to keep intruders out. For organizations that have multiple employees and volunteers with keys to their buildings, they should always know who has keys and, when a keyholder leaves the organization, get the keys back and change the locks.

Thefts of catalytic converters from vehicles rose sharply with the pandemic. We’ve seen those thefts stabilize in recent months, but people continue to steal them to cash in on the valuable materials. Safeguards to deter catalytic converter theft include keeping vehicles locked and parked in a secured, well-lit area when not in use; parking close to building entrances; considering the use of security surveillance cameras in the area where vehicles are parked; adjusting or calibrating the sensitivity of your vehicle’s alarm so that vibration will activate the alarm; and having the vehicle identification number (VIN) engraved on the catalytic converter. Catalytic converter-specific aftermarket devices such as straps, clamps, cages and alarms can also help deter theft.

Copper in every form remains a popular target for thieves, who sell it to scrap yards for cash. The most commonly targeted items are outdoor air-conditioning units. Buildings left unoccupied at night, as well as those located in rural areas, are considered easy targets. Also, these types of facilities tend to have large or multiple air-conditioning units with a greater amount of copper than a single residential unit.

Other sought-after items for copper scrap metal include wires, plumbing pipes and rain gutters. The high price they can get for copper has made thieves bolder and more inventive than ever before. One scheme we’ve learned of involves thieves posing as construction or repair workers to gain access to copper components inside buildings.

Supply chain disruptions remain

The ongoing impact of supply chain disruptions this year is another issue to watch for, raising the importance of risk management and business continuity planning. Speaking of the supply chain, vendors and contractors often have access to your customers’ data and systems. Any lapses in the security practices of these contractors and vendors could spell trouble for the customer. It’s not just about whether a third-party is trustworthy with sensitive information; it’s how diligent they are with their own security practices.

If we learned anything from the COVID-19 pandemic, it’s that every organization should be prepared for disruptions to their operations. In fact, nearly one in five businesses experienced some type of disruption every year. There are numerous causes, including natural disasters, accidents, sabotage, power outages, environmental disasters and cyberattacks. Some disruptions can last only a few hours, while others may take months or years—if ever—for the organization to recover.

Research suggests 80% of businesses without a business continuity plan that experience a major incident either never re-open or close within 18 months. However, planning and practice can brighten the outlook. As we navigate a challenging economy and deal with the lingering disruptions of the pandemic, the insurance industry can help protect customers and avoid some claims by focusing risk control efforts on the threats associated with this economic climate.

The author

Erik Spacek is assistant vice president–risk control at Church Mutual Insurance Company, S.I. He earned a bachelor’s degree in English from Eastern University in St. David’s, Pennsylvania, and his juris doctor degree from American University in Washington, D.C. He earned the Associate in Risk Management (ARM)designation and has received the Cambridge Certificate in Risk Management for Churches and Schools. Spacek serves on the board of directors of the Iowa Prayer Breakfast Committee and on the board of directors of the Friends of Youth Justice Initiative in West Des Moines, Iowa.