Inside Job

Vulnerabilities

Aon Corporation’s white paper, “Data Privacy and Information Security,” by Kevin Kalinich, co-national managing director, professional risk solutions, lists a host of circumstances that most advisors probably have not considered in judging whether they are protected against liability for data loss. Even something as small as a data stick gone astray or an outside firm coming in to do computer upgrades can compromise an office’s security. Moreover, as Harb points out, loss of client data can leave an advisor open to compliance issues under the Gramm-Leach-Bliley Act.

But there are options for advisors. Harb says that IT Risk Managers sells coverage called database insurance, providing coverage in three categories: personal identity liability (“because if you lose a database of any size, you’ll end up with a class action lawsuit”); regulatory or administrative action (Gramm-Leach-Bliley); and identity event services–the cost of notification, crisis expense, and post-event services (such as credit monitoring).

According to Harb, “The beauty of this program is that we don’t care how you lose the information, whether it is electronically or in the physical world.” So an advisor is protected “whether it’s a rogue employee” or a third party responsible for the loss. The coverage came out at the end of 2006, Harb adds. Cost varies, depending on the size of an advisor’s database.

But the cost to an advisor without coverage can grow swiftly. Harb points out that that advisor with the 5,000-name database can incur costs of close to $200 per name just to notify each client that the database has been compromised–an action mandated by those state laws we mentioned earlier. Then there’s the cost of a regulatory investigation and the need for legal representation. Add in the price tag to pay for credit monitoring services for those clients whose information was compromised, and you’re looking at much more than the price of a policy.