According to a report released this morning by IBM and the Ponemon Institute, the per-record cost of a data breach reached $154 (€141.5) this year, up 12% from $145 (€133.25) in 2014.
In addition, the average total cost of a single data breach rose 23% to $3.79 million (€3.48 million).
This is a dramatically different result then Verizon’s 58 cents (€0.53) per average record breached estimate which came out last month.
“A factor that increased costs was the need to bring in outside consultants”
Verizon’s calculation, which was part of their annual data breach investigations report, was based on 191 cyber insurance claims. However, insurance claims do not show the whole picture, said Ponemon Institute chairman and founder Larry Ponemon.
Insurance cover
Companies usually do not have enough insurance coverage to cover the total cost of a breach, he said, and the insurance does not cover indirect costs or loss of business. For example, he said, Target’s latest breach is estimated to cost the company over $1 billion (€918 million), but it was only insured for $100 million (€91.8 million).
In general, he said, companies buy enough insurance to cover 50% of the value of their fixed assets — but only 12% of the value of their digital assets.
Loss of business is also a significant, and growing, part of the total cost of a data breach. Higher customer turnover, increased customer acquisition costs, and a hit to reputations and goodwill added up to $1.57 million (€1.42 million) per company, up from $1.33 million (€1.22 million) the previous year.
“We spent a lot of time building an analytical model based on real costs,” he said, adding that Ponemon has been collecting this data for ten years. This year, Ponemon analysed results from 350 companies in 11 countries, each of which had suffered a breach.
Finally, he said, Verizon’s regression analysis, while interesting, is based on a very small number of data points which are also not necessarily statistically representative.
“But the main part of the Verizon data breach investigations report is very interesting,” he said, advising that the company focus on that in the future. “They should stick to their knitting.”
At a minimum, a company with a data breach has to send out letters notifying customers that they were breached, said Caleb Barlow, vice president at IBM Security, and pay for credit monitoring.
“Normally, Verizon does some great work,” he said, “But we had to discount this because 58 cents doesn’t even cover the cost of the postage and printing the letter.”
Geographical variation
According to the Ponemon report, data breach costs varied dramatically by industry and by geography.
The US had the highest per-record cost, at $217 (€199), followed by Germany at $211 (€194). India was lowest at $56 (€51) per record.
Sorted by industry, the highest costs were in the healthcare industry, at an average of $363 (€334) per record.
The reason, said Barlow, is because the information in a medical record has a much longer shelf life than that of, say, a credit card number.
“With credit cards, the time frame from the breach to mitigation is very short,” he said.
The credit card company just has to cancel the old credit card number and issue a new one, he said.
“But the healthcare record can be used to establish access in perpetuity,” he said, pointing out that healthcare records include a wealth of personal information as well as Social Security numbers and insurance numbers.
“It can be used to establish credit or steal your identity 10 or 15 years from now,” he said. “Once this information is out there, you can’t get the genie back in the bottle.”
And that doesn’t even include the costs of healthcare fraud, he added.
Number of factors
The Ponemon report looked at a number of other factors that could potentially influence the cost of a breach, and, unlike industry or geography, many of these factors were under management control.
For example, having an incident response team available ahead of time reduced the per-record cost by $12.60 (€11.6). Using encryption extensively reduced costs by $12 (€11). Employee training reduced costs by $8 (€7.35).
If business continuity management personnel were part of the incident response team, costs fell by $7.10 (€6.52). CISO leadership lowered costs by $5.60 (€5.15), board involvement lowered costs by $5.50 (€5.05) and cyber insurance lowered costs by $4.40 (€4.04).
“Companies that have thought about this ahead of time, that had their board involved, that had insurance protection, that had practiced what they would do, they had a much lower cost per breach,” said Barlow. “This is really compelling. We have tangible evidence that those who were doing that had much lower costs. You don’t have days to respond — you don’t even have hours. You have minutes to get your act together.”
A factor that increased costs was the need to bring in outside consultants, which added $4.50 (€4.13) per record. If there were lost or stolen devices, costs increased by an average of $9 (€8.27) per record.
And the single biggest factor was if a third party was involved in the cause of a breach. That increased the average per-record cost by $16 (€14.7), from $154 (€141.5) to $170 (€156.2).
Time to find
Ponemon found a positive relationship between the time it took to identify a breach and the total cost of the breach, as well as between the time it took to mitigate the breach and the cost.
On average, it took respondents 256 days to spot a breach caused by a malicious attacker, and 82 days to contain it.
Breaches caused by system glitches took 173 days to spot and 60 days to contain. Those caused by human error took an average of 158 days to notice, and 57 days to contain.
Maria Korolov, IDG News Service
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