As the cybersecurity landscape continues to evolve, it’s essential to reconsider your security priorities. Many businesses that have strong internal cybersecurity measures in place may still be vulnerable to an often-overlooked threat: third-party risk.
In recent years, third-party risk has become a significant concern, especially as businesses increasingly rely on external vendors and software providers. These vendors play an essential role in day-to-day operations, but if something goes wrong with one of them, it can have devastating consequences on your business continuity. In fact, new data from our company’s portfolio reveals that third-party incidents have caused significant financial losses for the first time, accounting for 23% of material claims in 2024—up from zero the previous year.
While data breaches have long been a focus, third-party risks are now more likely to manifest in the form of business interruptions, especially caused by ransomware or system outages. These disruptions can be far more damaging to your operations, leading to a cascading effect that impacts your revenue and overall stability.
The Rising Threat of Third-Party Risk
Recent incidents have highlighted how vulnerable businesses are to third-party risks. For instance, the ransomware attack on Change Healthcare disrupted payment processing systems across hospitals and clinics in the U.S. Similarly, a ransomware attack on CDK, a software provider for car dealerships, caused significant operational disruption, resulting in a $1.02 billion loss.
These examples demonstrate just how reliant industries are on software vendors, and how a single cyberattack can lead to widespread operational failure. The breach of PowerSchool in December 2024, which compromised millions of student and teacher records, further underlines the risk posed by third-party vendors. It also shows how a lack of basic security measures—like two-factor authentication—can lead to severe data breaches.
The Shift in Cybersecurity: Big-Game Hunting
As cyber threats evolve, attackers are shifting towards big-game hunting, where they target larger organizations that hold sensitive data and have deep pockets for ransom payments. This often means that attacks on large organizations can have far-reaching consequences for the smaller companies in their supply chain. These events can cause widespread data exposure, operational disruption, and financial losses that ripple through the entire supply chain.
For example, in 2024, ransomware was responsible for 61% of all claims leading to financial losses, and if demands for ransomware payments increase, the damage could extend even further.
Understanding the Impact on Critical Sectors
Industries like manufacturing, healthcare, and transportation are particularly vulnerable due to the extensive networks of third-party vendors they rely on. A major breach or system failure in these industries can lead to severe disruptions—whether it’s in healthcare, where time-sensitive medical procedures could be delayed, or in transportation, where a breakdown in operations can ground planes or delay shipments.
These sectors highlight the need for comprehensive third-party risk management strategies. A breach that affects one company can lead to downstream disruptions that impact multiple businesses, further emphasizing the importance of protecting your entire network of vendors.
How Prepared Are You for Third-Party Risk?
As the digital landscape becomes more interconnected, it’s essential to evaluate the cybersecurity measures of your third-party vendors and ensure they meet your security standards. Businesses should take proactive steps to assess and mitigate third-party risks. Here are three key questions to consider when evaluating your preparedness:
- Are your vendors meeting your security standards?
When you engage with a vendor, you inherit their security vulnerabilities. It’s critical to assess potential risks upfront and develop a comprehensive mitigation strategy to protect your business. - What are the financial impacts of a third-party incident?
Understanding the immediate risks is just the first step. You must also evaluate how these incidents can affect your business’s financial health, and what long-term effects they may have on your continuity and bottom line. - Are decision-makers aware of the financial implications of third-party incidents?
It’s important to break down silos within your organization and foster collaboration across departments. Communicating risks in financial terms will ensure that key decision-makers understand the potential impacts of third-party incidents.
Conclusion: Prioritize Third-Party Risk Management
The growing interconnectedness of today’s business world means that third-party cybersecurity risks are more significant than ever. Proactive risk management is no longer a luxury—it’s a necessity. By taking steps to assess and mitigate third-party risks, you can protect your business from financial loss and operational disruption, ensuring you are well-prepared for any challenges ahead.
Ensuring robust third-party cybersecurity measures is vital for maintaining business continuity and avoiding the far-reaching impacts of supply chain and vendor disruptions. Don’t wait until a crisis strikes—invest in understanding and managing third-party risks today.
