Cost and impact of data breaches on the rise

26 Jan 2010

Data breach incidents cost companies US$204 per compromised customer record in 2009, compared to US$202 in 2008, according to a US Cost of a Data Breach Study by the Ponemon Institute. The average cost per incident cost each firm close to US$7 million.

The study found that despite an overall drop in the number of reported breaches (498 in 2009 vs 657 in 2008, according to the Identity Theft Resource Centre), the average total per-incident costs in 2009 were US$6.75 million, compared to an average per-incident cost of US$6.65 million in 2008.

The study found that the cost of a data breach as the result of malicious attacks and botnets were more costly and severe.

Training and awareness programs regarding data security

Negligent insider breaches have decreased in number and cost most likely resulting from training and awareness programs having a positive effect on employees’ sensitivity and awareness about the protection of personal information. Additionally, 58pc have expanded their use of encryption up from 44pc last year.

Organisations are spending more on legal defence costs, which can be attributed to increasing fears of successful class actions resulting from customer, consumer or employee data loss.

Average abnormal churn rates across all incidents in the study were slightly higher than last year (from 3.6pc in 2008 to 3.7pc in 2009), which was measured by the loss of customers who were directly affected by the data breach event (ie, typically those receiving notification).

The industries with the highest churn rate were pharmaceuticals, communications and healthcare (all at 6pc), followed by financial services and services (both at 5pc).

Third-party organisations accounted for 42pc of all breach cases, dropping from 44pc of all cases in 2008. These remain the most costly form of data breaches due to additional investigation and consulting fees.

The most expensive data breach event included in this year’s study cost a company nearly $31 million to resolve. The least expensive total cost of data breach for a company included in the study was $750,000.

“In the five years we have conducted this study, we have continued to see an increase in the cost to businesses for suffering a data breach,” said Dr Larry Ponemon, chairman and founder of The Ponemon Institute.

“With a variety of threat vectors to contend with, companies must proactively implement policies and technologies that mitigate the risk of facing a costly breach.”

Data security study by the Ponemon Institute

The study, sponsored by PGP Corporation and independently conducted by the Ponemon Institute, takes into account a wide range of business costs, including expense outlays for detection, escalation, notification, and after the fact (ex-post) response. The study also analysed the economic impact of lost or diminished customer trust and confidence, measured by customer churn or turnover rates.

“As breaches are becoming all too commonplace, US businesses can’t afford to ignore protecting the valuable, sensitive data they have been entrusted with,” said Phillip Dunkelberger, president and CEO of PGP Corporation.

“Our study with the Ponemon Institute continues to demonstrate that companies whose data is not protected are not only facing expensive direct costs from cleaning up a data breach, but also a loss in customer confidence that has long lasting ramifications.”

The US Cost of a Data Breach Study was derived from a detailed analysis of 45 data breach cases with a range of about 5,000 to 101,000 records that were affected.

The study found that there is a positive correlation between the number of records lost and the cost of an incident.

Companies analysed were from 15 different industries, including financial, retail, healthcare, services, education, technology, manufacturing, transportation, consumer, hotels and leisure, entertainment, marketing, pharmaceutical, communications, research, energy and defence.

By John Kennedy

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years