Schneier: It's Time to Regulate IoT to Improve Cyber-Security

More realistically, legislators should be crafting incentives. Establish liability statutes. Carve out liability exceptions for companies that can show they used industry best practices, hired engineers that are members of professional/industry organizations, pay for ethics training, establish good faith effort of security development (unit tests, integration tests, traffic encryption, encryption at rest, well designed key exchange architecture, software/firmware update architecture for at least X years after sale, etc).

Conversely, if a company does none of the above, it's easier for a consumer or an Attorney General to bring a case against the company, even if it's years too late to be useful.

The problem with litigation (as well as "free-market" solutions) is that this generally doesn't happen fast enough. The security damage of IoT will be externalized extremely quickly. Being able to identify and sue a foreign company that is far up the supply chain from the end-product.

If we are going to regulate, we need to improve laws for consumer electronics across the board, with all the big players on board and participating.

I mean, I program embedded systems for a living - and I couldn't tell you which IoT dash camera or digital camera with wifi or internet-connected car entertainment system is secure.

That's what insurance is for. Something like this was discussed in my torts class in law school, except that was long before IoT devices existed so it was about things like lawn mowers.

The idea is that it might make the most sense economically to make the lawn mower manufacturer liable when users cut off a finger or toe, even if it was due to consumer stupidity instead of any negligence on the part of the manufacturer, because the manufacturer is in the best position to estimate the risks and purchase insurance to cover them.

Presumably, the manufacturer will pass on the costs of those insurance premiums to the consumers. The manufacturer still has an incentive to try to build safe mowers, because if their insurance company ends up paying out a lot the premiums will go up. They can pass those higher premiums on to the consumers, of course, but that will make them more expensive than their safer competitors.

The manufacturer is in a good position to deal with insuring for these injuries because they know how many mowers they are selling. Other candidates have less useful information. For example, a consumer usually has no idea what their chances are of suffering a lawn mower accident, so have no idea how to decide how much insurances is needed. Health insurance companies will have a good idea in the aggregate of how many of these accidents occur in a year, but they have no idea which of their customers use lawn mowers.

Done right, this should not hurt a market much.

I'm not sure it could work for IoT, though, because a lot of IoT devices are made by new companies that probably will not be around long. With things like lawn mowers, you could takes years to get around to cutting your hand off, and still reasonably expect the manufacturer to be around. Not so with a lot of IoT devices.