World Wide Web risks Featured

9:19am EDT July 31, 2006
Every company conducts business over the Internet. And whether it’s selling products, sending information via e-mail or simply hosting a Web site, there are risks involved.

Hackers can break into a company’s network and obtain confidential documents or post false information. Spammers can shut down an organizations’ Web site, while viruses can destroy critical data as well as be passed on to other entities.

To combat such activities, many businesses are turning to Internet liability insurance and are re-evaluating their previous policies. “We’re seeing broader exclusions that encompass the Internet because of potential claims that weren’t contemplated in the original coverage forms,” says Julia Murakami, vice president of Sander A. Kessler & Associates Inc.

Smart Business spoke with Murakami about how Internet liability insurance can help protect a company, what aspects should be considered when putting together such a policy and how Internet risks can be minimized.

What types of cyber risks do companies face?
Companies face a lot more cyber risks than you might think. Technology has changed so quickly over the 20 years. Our communication used to be primarily by mail or memos, and now it’s primarily by e-mail. Just the fact that we’ve changed from paper to an electronic form of communication has increased our cyber risks.

Advertising for businesses has changed. Before it was common to hand out brochures or flyers about the business, but now the common question is, ‘Do you have a Web site?’ That has completely changed how we do business. If you’re an e-commerce entity, you think about the cyber risks, but Main Street businesses have exposures that they don’t even think about.

Do traditional insurance products like fidelity bonds or property policies protect a business in the case of Internet attacks?
Some do and some don’t. In the late ‘90s, Y2K exclusions were included on policies because of the fear of what would happen with computers and how bugs could damage not just your computers, but also potentially send out something that would damage other computers. That ended up not just on the property side for your own computers, but also the liability side because of potential damage to others. This has remained on the policies, but now it’s a lot broader than just the Y2K exposure.

How can Internet liability insurance help protect a company?
It fills the gaps in your insurance policy. As a business owner, you think about your own computer equipment, but you might not think about how the virtue of having that equipment could damage someone else’s equipment: Web sites, e-mail viruses, etc. Those are all excluded under regular polices, but the Internet liability polices would fill that gap.

Should a business that does not conduct electronic transactions, but does host an informational Web site, consider purchasing Internet liability insurance?
Absolutely. That’s the hidden exposure that businesses face. The Internet is considered to be like the Wild West. It’s a new technology, and everyone else is doing it, so in order to maintain your competitive edge you need to post a Web site too. It’s the same thing with e-mail. The first thing you ask when you meet a new business associate is, ‘Can I get your e-mail address so I can e-mail you some information about our company?’

What are some issues for a business to consider when putting together an Internet liability insurance policy?
First, you should look at your existing general liability policy to see if it does or doesn’t cover your Internet exposures. One of the things that we are starting to see with greater frequency is the emergence of Internet extension endorsements. This moves the liability from your brick-and-mortar exposure into the cyber world by extending or changing the definitions of your liability policy. Such an extension makes it clear that damage doesn’t have to happen in a specific location or on your premises. Ultimately, anything that derives from a Web site injury or an injury caused by your Web site would be covered.

How can a business minimize its Internet risks?
You have to look at not just the insurance side, but also the risk management side by controlling what you do on the Internet and having an e-mail use policy.

Minimizing exposure on your Web site is very important. Because it’s a new technology and a new environment, people are freely linking to sites they think would be useful for their clients, but it could also expose you to some liabilities. Perhaps you are infringing upon the other Web site owner’s business rights and they might not welcome the association. It’s always safest to get permission before you link.

JULIA MURAKAMI is vice president of Sander A. Kessler & Associates Inc. Reach her at (310) 309-2231 or