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Cyber Liability Insurance

February 23, 2012

The FTC estimates that as many as 9 million Americans have their identities stolen each year.  This is an insidious crime and in most instances can go undetected until long after the damage is done.  In the past, the theft of personal identifying information such as name and Social Security number, credit card numbers, or other financial account information was somewhat challenging but now, thanks to thumb drives, cell phones and internet hacking, identity theft has never been easier.

As a business owner you are responsible for protecting your customer’s personal identifying information.  In most states this now includes notification and credit monitoring when personal data is lost whether or not theft was involved.  Here is a sobering statistic: on average more than 600,000 laptops are lost at US airports; travelers in security checkpoints account for many of these.

Cyber liability insurance provides coverage for the risks associated with the Internet, computer networks, e-business and privacy. Claims can be for either first-party loss (involving only the insurer and insured) or third-party loss (involving a non-insured person; i.e., a person making a liability claim) and generally includes:

First Party Loss:

Loss of Digital Assets: Coverage for the cost to recover digital assets, such as electronic records and data

Cyber Extortion and Cyber Terrorism: Covers costs associated with a crime involving a cyber attack or threat of attack

Customer Notification and Credit Monitoring: Average cost is $50 per customer record

Non-Physical Business Interruption and Extra Expense: Coverage for the loss of profits and continuing fixed expenses due to a break in business activities due to a cyber loss.  (Note: cyber loss is not usually covered under a standard Business Owner Policy)

Reputation Management: Public Relations Expenses coverage available to repair insured’s reputation as a result of a data breach

Regulatory Fines and Penalties: Damages from alleged violations of HIPAA, state and federal privacy protection laws and regulations

Third Party Loss:

Network Security and Privacy Liability: Damages to third parties caused by a breach of network security or the loss of paper documents

Electronic Media Liability: Coverage for infringement of domain name, copyright, trade name, slogan, on Internet or Intranet site

So, while computers and the Internet have simplified many things, the use of these tools now exposes business owners to new and complex liability concerns.

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