Following the chaos of Friday’s global IT outage – arguably the worst the world has ever seen – questions are beginning to emerge about who, if anyone, will foot the bill.
Surprisingly, especially given that its share price doubled during the year and was trading at a stratospheric rating, shares of CrowdStrike, the company at the center of the outage, fell just 11%, having fallen twice as much during the year. pre-market. replacement.
This suggests that investors are reasonably confident that the company, previously a Wall Street darling, will be able to salvage its reputation after this disaster and, more importantly, will not be obligated to receive compensation.
There are several reasons for this.
The first is that it is impossible, immediately after the interruption, to establish the absolute amount of losses resulting from it.
Second, even if a business or individual consumer was affected by the outage, it will not necessarily be easy to prove that any losses suffered resulted from the outage.
Third, there is an expectation that CrowdStrike will be covered by insurance.
Air travel loss claim
Among the heaviest losses will probably occur in the aviation industry, as it appears to have been the most seriously affected sector.
Even here, however, the loss claim is unlikely to be clear, especially for airline passengers.
A key question here is where passengers intended to travel to and from – with differing rules between the US and EU on available compensation. It will also not be clear who the passengers intend to claim from.
While refunds must normally be requested first from the airlines themselves, the airlines – as a consumer advocacy group Which? highlighted – they can argue that they are not obliged to pay compensation for delayed or canceled flights because these are “extraordinary circumstances”.
This may result in some passengers who booked with a credit card having to check whether they enjoy sunk cost protection. Also expect discussions about whether passengers with travel insurance benefit from travel disruption coverage – which not all such policies do.
Insurers themselves have suffered some of the worst declines in share prices due to the disruption. Among the biggest decliners yesterday in the FTSE-100 was Beazley, the Lloyd’s of London insurer, which offers insurance against business interruption and cybersecurity attacks. Also lower was its Hiscox pair.
The outage affected computer systems using Microsoft Windows
However, the latter’s experience during the pandemic – when it was criticized by small businesses, especially in the hospitality sector, for failing to pay some business interruption policies – is a guide to what could happen here.
Hiscox and some of its peers argued that the wording of these policies did not oblige them to pay.
Although a negotiated settlement was reached under the auspices of the courts and the Financial Conduct Authority, some companies were left without money. It would be surprising if insurers had not learned from this episode and strengthened their policy formulation.
Therefore, it is by no means certain that losses incurred in this event are even insured. Where they are, it will likely be under a cyber policy that specifically covers a loss of revenue due to an interruption in service from a third-party vendor.
The text may also refer specifically to a malicious attack on a software or IT service provider and also to the period of time that a system was down. Many of these insurance policies only cover losses after a system is out of service for six to 12 hours.
How the outage caused global chaos
Financial Services Compensation
Another key area for compensation will likely be the financial services sector, although this does not appear to have been greatly affected.
Some brokerages around the world – particularly in India, where markets were active when the outage first occurred – are reportedly facing compensation claims from clients who suffered losses because they were unable to exit their positions.
However, disruption to financial markets was kept to a minimum, as Jennifer McKeown, global chief economist at Capital Economics, told clients yesterday: “Sectors that operate with strong IT support systems will be best placed to experience only negative effects. smaller and short-lived.
“This may explain why there has so far been little impact on financial markets – note, for example, that the London Stock Exchange claims to have been almost unchanged.”
She said another reason for the muted impact on markets was because George Kurtz, founder and chief executive of CrowdStrike, ruled out the possibility of a cyberattack.
See more information:
Global IT disruption: All it took was a few lines of code
Who is CrowdStrike?
Flight and grocery banking: Charts show when IT outages peaked
That said, analysts still expect a considerable blow to CrowdStrike itself, particularly in terms of the cost of fixing the problem and subsequently investing to rebuild its reputation. The company had a notoriously large marketing budget.
An update to CrowdStrike’s falcon platform has caused a worldwide outage. Photo: AP
‘There will be financial consequences’
As Keith Bachman, senior research analyst at BMO Capital Markets, told clients: “We believe there will be financial consequences arising from this issue.
“For example, we believe customers will seek redress and compensation for damages, which we believe could include discounts or credits for both new contracts and renewals.
“So we believe there could be an impact on growth rates and cash.”
Some analysts, however, believe the broader IT sector could benefit from the disruption, as customers rush to invest in continuity preparedness.
Shaun Eyal, managing director and senior analyst covering the communications, security and infrastructure software sectors at broker TD Cowen, said: “Businesses will likely examine their incident response capabilities and the need to maintain backup plans.
“We anticipate an emergency-driven spending cycle.”
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So it’s far from clear what the financial consequences of this disruption will be — much less who will foot the bill.
It is a remarkable phenomenon that, following high-profile gun crime in the US, gun sales increase and, with them, stakes in firearms and ammunition manufacturers.
It would be equally ironic if the IT sector benefits from increased customer spending following this disruption.
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