E-Business Coverage Is Critical In Web World

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Insuring your business against property loss is not as straightforward as it once was. Today its not just about protecting your physical plant or the tangible products you make or sell. You also have to consider the “cyber” element that is an integral part of any modern business.

What if you suffer a technology glitch that shuts down your system for several hours? Or worse, you could be a victim of the 200 to 300 new viruses that are unleashed every month, causing millions of dollars in damages.

“Old economy” manufacturers, wholesalers and service providers are every bit as vulnerable to malfunctions or attacks as “new economy” dot-coms or “e-tailers.” Whether your business actually conducts financial transactions over the Internet or simply uses the Web in its daily operations, youre at risk, and you need adequate insurance protection–both the right kind and the right amount.

But figuring out whats adequate is easier said than done. First you have to know what traditional insurance does and does not cover.

General liability policies often wont cover e-business activities because traditional rating models dont address Internet exposures or they limit coverage to specific geographic regions. Property insurance doesnt traditionally cover damage caused by computer viruses or losses caused by programming errors. Errors & omissions policies may cover designers and manufacturers of hardware and software, but dont protect the end user.

All of which leaves coverage gaps.

How do you decide what to budget for the additional coverage, and which additional coverage should you buy?

Can you really afford to pay for new coverage at a time when premiums for traditional property and casualty insurance–which you still need–are rising?

Can you afford not to?

Scary questions, but dont panic. Even though the e-business side of the insurance industry is in its infancy, some guidelines are emerging that can help you determine where to start. To begin with, you can take several basic precautions on your own.

Install up-to-date and effective security measures.

At a minimum, you need a firewall, a top-notch virus protection software program, passwords for access to sensitive information, and daily backup of your own and your customers records.

You should consider an emergency power source and a separate facility for holding back-up records.

Remember that, unfortunately, most computer crime comes from within. You must screen employees carefully (and make sure your vendors do the same), train them to protect information and spot security breaches, and set standards for using e-mail. Restrict employee access to confidential records. If you can afford it, hire a professional Internet security firm and set up system audits and security systems.

Conduct an internal vulnerability profile.

Do you have a high-turnover employee base with little company loyalty?

Is your headquarters in a prominent area that could be the target of a terrorist threat?

Do you keep a lot of confidential customer records on file?

How you answer those questions will help determine how much and what types of extra protection your company needs.

Once youve taken care of the common sense precautions, its time to think about risk transference through insurance products. The amount and type of e-business coverage you choose will depend on your companys vulnerability profile and your budget.

Heres a look at the types of e-business coverages that are available.

Loss of business income.

This is a must for almost any business. Look for policies that protect against lost income resulting from covered e-business related losses, for example, when a network is subject to a denial of service attack or is infected by a virus. Some policies also cover extra expenses, such as the cost of investigating the reason for the interruption and the cost for minimizing or avoiding loss.

Dependent business income.

If you are dependent on vendors for a significant portion of your e-business activities, look for a policy that covers your business income lost as a result of a problem at vendors who provide you with critical resources.

E-business loss event liability.

Just as your business could be hurt by a virus at a vendor, you could be liable if problems at your firm upset business at another company. Look for policies that cover you for financial claims made against you as a result of a covered e-business loss. Some include reasonable expenses incurred in the defense or appeal of claims.

Development cost for intellectual property.

If a proprietary manufacturing service method or database is the linchpin of your company, you need a policy that covers development costs for restoring data and software after a loss event.

Public relations expenses.

Companies that are already in the public eye, or could be in the event of a catastrophe, often need professional public relations help to rebuild their reputations after an e-business loss. Look for a policy that provides coverage for public relations expenses including consultants, complete PR campaigns and media expenses.

Electronic publishing liability.

If you publish anything through the Internet, youll need liability coverage for the publication of protected material and private facts, copyright infringements, plagiarism or misappropriation of ideas.

E-business extortion.

Some policies cover extortion losses and other expenses incurred as a result of a third-party threat to infect your system with viruses, alter or destroy data, steal money, data or resources, or divulge confidential information related to your e-business activities.

Computer theft.

Look for a policy that reimburses you for the value of stolen money, securities, software and other property.

Rewards.

Some policies will pay for information that leads to the arrest and conviction of anyone who commits an illegal act against your e-business activities.

The bottom line: Yes, youll have to pay more for e-business insurance coverage. But you can keep expenses reasonable by assessing your vulnerabilities accurately and prioritizing the coverage youll need. And youll sleep much better knowing that someone else is shouldering the very real risks that go along with the benefits of Internet commerce.

is vice president of e-business solutions for Zurich North America in Baltimore, Md. He can be reached at david.oneill@zurichna.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, November 18, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.