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Cost of a data breach climbs higher

March 8, 2011, 10:00 am

Most privacy advocates and people in the data protection community believe that data breach costs will start coming down eventually because consumers will become somewhat immune to data breach news. The idea is that data breach notifications will become so commonplace that customers just won’t care anymore.

But, that hasn’t happened yet. The latest U.S. Cost of a Data Breach report, which was just released today, shows that costs continue to rise. This year, they reached $214 per compromised record and averaged $7.2 million per data breach event. The fact is that individuals still care deeply about their personal information and they lose trust in companies that fail to protect it.

It’s not only direct costs of a data breach, such as notification and legal defense costs that impact the bottom line for companies, but also indirect costs like lost customer business due to abnormal churn. This year’s study showed some very interesting results. In my view, there are a few standout trends.

Rapid response to data breach costs more. For the second year, we’ve seen companies that quickly respond to data breaches pay more than companies that take longer. This year, they paid 54 percent more.

Fueling this rush to notify is compliance with regulations like HIPAA and the HITECH Act and the numerous state data breach notification laws. It seems that U.S. companies have this urgency to just get the notification process over with. Unfortunately, these companies are in such a hurry to do the right thing and notify victims that they end up over-notifying. This causes customers who are not actually at risk to lose trust in the company and abnormal customer churn increases. Companies that take a more surgical approach and spend the time on forensics to detect which customers are actually at risk and require notification, ultimately spend less on data breaches.

Malicious or criminal attacks are causing more breaches. This year malicious attacks were the root cause of 31 percent of the data breaches studied. This is up from 24 percent in 2009 and 12 percent in 2008. The significant jump in malicious attacks over the past two years is certainly indicative of the worsening threat environment. Malicious attacks come from both outside and inside the organization, ranging from data-stealing malware to social engineering.

What’s more, these data breaches are the most expensive. Malicious attacks create more costs because they are harder to detect, the investigation is more involved and they are more difficult to contain and remediate. Another reason malicious attacks are so expensive is the criminal is out to monetize their work; they’re trying to profit off the breach.

However, it’s not always the bad guys doing bad things that cause data breaches. It’s often your best employees making silly mistakes. Negligence is still the leading cause of data breaches at 41 percent.

There is good news. Companies are more proactively protecting themselves from malicious threats. Three response characteristics increased in frequency: the number of organizations responding quickly (within 30 days), those putting CISOs in charge of data breach response, and those with an above-average IT security posture. Moreover, breaches due to systems failures, lost or stolen devices and third-party mistakes all fell. And, average detection and escalation costs went up by 72 percent, suggesting that companies are investing more resources in prevention and detection. Taken together, these figures may indicate organizations are taking more active steps to thwart hostile attacks.

So, what’s a company to do with all of this data breach cost information? Calculate your potential cost of a data breach. This year, in conjunction with the report, Symantec and the Ponemon Institute have launched the Data Breach Risk Calculator. This free online tool let’s companies connect the dots between all of this research and what it really means to them. The Data Breach Risk Calculator lets you estimate how a data breach could impact your company. You can check it out at www.databreachcalculator.com


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