When it comes to cyber-space hacking and the compromising of customer data, you may think of this issue as only affecting banks or credit unions. But the reality of it is that any business – whether small, medium or large – that collects and stores customer data is susceptible to increasingly complex cyber liability issues. And with that comes a whole new avenue of risk exposure that is complicated and constantly evolving.

If your company’s computer system was hacked by either an internal employee or a vendor, or if a laptop was stolen and customer data was compromised, is your company covered for the loss?

As your company becomes increasingly dependent upon the Internet to do business, you’ll face a new class of threats to your bottom line and income statement. In the rapidly changing technological environment, many business owners have limited understanding of resulting legal responsibilities, especially due to new legislation being introduced. Traditional liability insurance does not cover Internet exposures and the inherent risks involved.

Unfortunately, cyber threats and data loss in the marketplace are very common today, often testing even the best-laid plans and data security policies. Consider these key causes of loss:

• Lost/stolen portable computers or media
• Lost/stolen backup devices
• Computer hacking
• Employee misuse
• Negligent release of data
• Vendor negligence
• Improper disposal of paper documents or computer equipment

How Will Risks Affect My Company?

Not only can these situations wreak havoc on your ability to keep your data safe and secure, but it can also be expensive to restore security and consumer confidence afterwards.

A company’s technological networks pose a huge loss potential, with risk of hackers, viruses and malicious code that can damage an entire virtual enterprise. Damage to your own computer system can also have a dramatic impact on your corporate stakeholders and extended partners.

Whether your company experiences direct damage (first party) or liability claims (third party), the security breach in your system may also cause damage to networks owned by others that are linked to your system.

≠If your system experiences a security breach, you have a responsibility to protect a number of varying entities. Consider how you would handle a wide range of issues:

• Customers – If sensitive customer information is compromised, how would you assess the impact and handle future business?
• Suppliers/Vendors – If a hacker used your system to attack your supplier, how would the supplier respond? Would it initiate a retaliation attack? What could help the relationship survive?
• Executives/Boards of Directors – What would be the cost to your board of directors and corporate executives? How would they view the responsibility for e-business interruption?
• Shareholders/Investors – If your e-business failed, how would shareholders and investors respond? Consider how e-business activities could harm the trust between you and your investors.
• General Public – If users on your system sent out malicious code, what could be the implications?

Why You Need Cyber Liability Insurance

Traditional liability products do not cover the wide spectrum of risk exposure in Internet business and e-commerce. That is why it is so important to consider a cyber liability policy that will protect your business interests.

Business owners or decision makers should perform a thorough review of their current insurance plans, since it is likely that cyber liability may be needed as supplemental coverage. Granted, every business has different types of exposure, so you don’t want to assume a cookie-cutter approach will work.

If your sensitive information is compromised in a breach of data security, cyber liability insurance is available to help defend you against financial loss, penalties and defense costs.

As you consider policies, you’ll want one that gives you peace of mind and benefits, such as an up-front payment structure on your company’s behalf, a pre-determined limit of identity theft protection and recovery if personal data is compromised. You’ll also want to ask whether the policy carries protection against lawsuits that may occur as a result of malicious cyber activity.

In addition, consider the following key features when searching for a cyber liability policy:

• Electronic Media Liability, which covers display of electronic content on your company’s Web site
• Financial damages arising from unauthorized disclosure or general corruption of personal data
• Defense costs and damages for regulatory agency investigations or requests associated with control and use of personally identifiable information
• Coverage for regulatory penalties to the extent allowable by law, including any resulting from the FTC Red Flag guidelines
• Customer notifications about an issue and how it will be handled
• A comprehensive amount of coverage for your particular business

Planning for cyber liability protection may seem complicated and overwhelming, but all business owners with a Web presence owe it to themselves and their customers to be prepared with appropriate coverage.

Look for a dedicated insurance group that provides strength, stability, stellar service and expertise. Then partner with an experienced, knowledgeable insurance agent who can help you understand the cyber liability risks that are specific to your business. You’ll be glad you did.

Jeanne Reddrick, CPIW, is an account executive with SWBC Insurance Services, a local provider of comprehensive commercial and personal lines insurance. She can be reached at 210-525-1242 or at swbcinfo@swbc.com.