News

News

E-Business

Summer ‘01

It has become widely acknowledged that companies both large and small will rely more and more on e-commerce to transact business. Instead of using traditional methods of exchanging information, e-commerce involves the use of the Internet or other computer networks to exchange information or perform transactions online. This information could be sale-purchase information, customer use information, user information or advertising.

The acceptance of e-commerce by all categories of business has generated new exposures to financial loss that may not be sufficiently covered by traditional insurance policies. Risks include both first and third party exposures to loss.

Conventional property and inland marine policies are triggered by first party losses resulting from “direct physical damage”. In the e-commerce world, loss from nonphysical events, such as a voluntary shut down, hacking or corruption of electronic data may not trigger coverage. There are also third party liability exposures unique to e-commerce, which include the spread of a computer virus, infringement of intellectual property, invasion of privacy, and defamatory conduct. It is questionable if traditional insurance policies will provide coverage for these exposures.

Even if your firm does not advertise or transact sales on the Internet, security issues are of great concern to all companies connected to the web. You may be exposed to cyber loss through electronic crime or theft of company trade secrets.

Covering these exposures on existing insurance policies may become more challenging, as beginning in October, standard coverage forms will include specific exclusions related to e-commerce. As a result, a handful of insurance companies have developed policies designed as a solution to close these gaps in coverage.

At a minimum, depending upon your exposure, you should be instituting the following loss control procedures:

· On-site generator or alternate power supply to run computers.

· Power surge protection

· Construction of a firewall

· Anti-virus programs should be updated weekly

· Daily/weekly back up of programs with data stored off site

If you are hiring an independent contractor to provide computer services they should provide evidence of coverage for third party loss and errors and omissions coverage. If the project is large it may also be advisable to require a performance bond.