Average data breach cost falls for first time in seven years

The average organizational cost of data breaches has decreased for the first time in seven years, according to a study released by Symantec and the Ponemon Institute on Tuesday.

In 2011 the average cost of a data breach was US$5.5 million, 24percent less than in 2010, according to the 2011 edition of the annual”U.S. Cost of a Data Breach” study. The cost per compromised record hasalso decreased, by 10 percent, and stands at $194.

The study’s results are based on information collected from 49 U.S.companies spanning 14 industry sectors that experienced data breacheslast year.

Catastrophic data breaches resulting in over 100,000 compromisedrecords have been excluded from the study because they could haveskewed the results, said Larry Ponemon, the chairman and founder of thePonemon Institute.

The most important category from a cost perspective is that ofso-called “lost business” costs. This includes abnormal turnover ofcustomers, increased customer acquisition activities, reputationlosses, as well as diminished goodwill. The costs that fallinto thiscategory have decreased by 34 percent compared to 2010, Ponemon said.

Fewer customers are now abandoning companies after data breaches,reducing “churn” — the replacement of a departing customer by a newone — and the costs associated with that, according to the report.

Reasons for lower costs
Customer churn levels differ from one industry sector to another, withfinancial services and healthcare organizations beingsusceptible to ahigher churn.

Companies that suffer data breaches as a result of malicious attacksusually experience higher costs — $222 per record compared to theaverage of $194. The number of data breaches resulting from maliciousattacks has also increased and now accounts for 37 percent of thetotal, 6 percent points higher than in 2010.

The reason why companies that experience a malicious attack sufferhigher data breach costs is because they need to do more things afterthe fact, Ponemon said. “It’s harder to do the forensics and understandwhat the issues are.” The customer churn rate experienced by suchcompanies is also slightly higher.

The most common type of malicious attack associated with data breachesis malware infection, and is seen inhalf of all incidents. This isfollowed by malicious insider actions, which occur in 33 percent ofdata breach cases.

One cause for the decrease of data breach costs is companies steppingup their notification and response processes as a result of increasedregulatory action, Ponemon said.

However, the study found that rushing these processes can actuallyresult in higher costs. Quick notifications and rapid responses cancost organizations $33 more per compromised record than on average.

Companies need to spend more time doing forensics and discovery to makesure they understand which consumers are at risk, said Robert Hamilton,Symantec’s senior manager ofproduct marketing for enterprise security.Failing to accurately determine the number of affected individuals canresult in notifying more people than necessary, which can lead tohigher churn and other cost-increasing factors.

“The key is balance. You want to be timely and not take forever toreport the breach, but you also want to be accurate,” Hamilton said.However, this type of process could conflict with future European dataprotection regulations that might require companies to disclose databreaches within 24 hours of their discovery.

Accuracy vs expediency
It’s not reasonable to expect a good quality notification in 24 hoursand it might actually be more harmful to the public, because theinformation will be less accurate, Hamilton said. “Ultimately peoplewant an accurate disclosure, but it shouldn’t take forever. Itshouldn’t take months, but days or weeks.”

The study also found that organizations experience lower costs if theyhave a chief information security officer (CISO) or can afford to hireoutside consultants to assist with the data breach response. Suchcompanies are generally better-prepared to deal with data breaches,Ponemon said.

Avoiding data breaches requires the proper identification andclassification of confidential information inside the organization, theeducation of employees regarding information protection policies, thedeployment of data loss prevention technologies and the enforcement ofstrict access controls and authentication, Hamilton said.

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