 |
 |
|
E-Commerce
Insurance
By William Poe
Commercial
insurance firms offer risk management services and insurance
policies to protect
e-commerce ventures.
Above:
George Gladis, vice president of Welsch, Flatness & Lutz,
Inc.
Many
businesses that are exploring the World Wide Web with electronic
commerce ventures are failing to adequately prepare for
risk, area insurance experts say.
"The
world of e-commerce carries significant potential for economic
loss, and many companies are unknowingly putting their net
worth on the line" says George Gladis, vice president and
certified risk manager with Welsch, Flatness and Lutz, Inc.,
a large St. Louis commercial insurance firm now offering
risk management services and insurance policies to protect
e-commerce ventures.
"Companies
doing business on the Web just don't appreciate the level
of exposure their e-commerce activities present to their
businesses," agrees Bill Wittenberg, vice president of C.J.
Thomas Company, another area insurance firm involved in
e-commerce protection.
Wittenberg
says companies selling goods and services on the World Wide
Web should be especially concerned with the potential pitfalls
involving credit card transactions.
"Companies conducting transactions on the Internet are recording
credit card numbers and holding them in a database," Wittenberg
says. "What are these companies doing to protect that database
from unauthorized viewing and the potential theft of credit
card information? If credit card numbers and information
are stolen, who is responsible?"
Unwittingly
prophetic, Wittenberg made his comment just a few days before
two 18-year-olds were arrested in Britain for allegedly
breaking into e-commerce Internet sites in five countries,
stealing information on more than 26,000 credit card accounts
and posting some of that information on the Web. Many of
these credit cards belonged to U.S. citizens, officials
said. The cost to the credit card industry of closing the
affected accounts and issuing new cards was initially projected
to be $3 million.
Receiving
more attention early this year was a widespread series
of "denial of service" attacks against a number of Internet
sites. During sieges, attackers use computers--many of
them "hijacked"--to barrage Internet sites with data to
overwhelm the site and shut it down.
Gladis
says the denial of service attacks have not yet prompted
claims of economic loss by either buyers or sellers. But
he predicted
that claims of loss will be made, and rather quickly,
too. The only question, Gladis says, is how successful
the claims will be.
"The
judicial world is very green to e-commerce," Gladis
says. "Case law must still be established."
While
legal theories in e-commerce are still in the formative
stages, Gladis and Wittenberg agree that the areas of
potential risk are well known:
* Media
liability--Even
companies that merely advertise on the Internet with a
simple web site can be liable for unauthorized use of
copyrighted material and trademarks, along with issues
relating to libel, slander, defamation and privacy.
* Errors
and omissions--Businesses
that design and program web sites for others, for example,
can be held accountable for mistakes that cause problems
on their clients' computer networks.
* Loss
of service--Companies
engaged in widespread Internet commerce will inevitably
face downtimes when transactions cannot be conducted on
the Web.
"These
are not problems that your regular insurance policy
is going to respond to," Wittenberg says. "At best,
what is covered
is a gray area. At worst, the problem might be specifically
excluded."
"General
liability policies cover legal defense and compensation
for claims of bodily injury and property damage as
a result of negligence," Gladis notes. "They do not
provide for the kinds of problems presented by e-commerce."
Many
businesses are just now becoming aware of the risks
of e-commerce and Internet technology, experts agree.
"Companies
do ask about their risk," observes Jeff Morgan, principal
of E.Com Solutions, a Creve Coeur-based firm that
designs and builds e-commerce web sites."
Businesses
express more concern about performance issues than
they do security issues, says Matt Warmack, vice president
of creative services for Solutech, an online services
and Internet vendor.
"Clients
and prospective clients seem more interested in the
steps we take to keep them up and running than they
are in business loss risks," says Warmack, whose St.
Charles-based company has offices in 14 states.
Insurers
have begun to offer protection products that fill
the gap between commercial liability polices and the
risks of e-commerce. These so-called e-commerce policies,
Gladis says, "are essentially professional liability
policies to cover economic losses."
American
International Group, Inc. (AIG), for instance, offers
its "netAdvantage" in the form of three policies for
companies that have different levels of liability
exposure. Limits up to $25 million are available.
At
the most basic level for firms using the Internet
for advertising purposes such as the posting of home
pages or banners, AIG coverage is provided for claims
alleging defamation, libel, slander, infringement,
and invasion of privacy arising from content published
on the Web. The minimum annual premium is $2,500.
For
companies that are using e-commerce to sell products
and services, AIG protects the policyholder from claims
arising from acts, errors and omissions in the insured's
computer and Internet services. The minimum annual
premium is $7,500.
At
the top of the AIG policy ladder is protection for
full-fledged Internet businesses such as Internet
service providers and browsers. Coverage encompasses
claims for computer virus transmission and loss of
service arising from allegations of acts, errors or
omissions in Internet services including web casting
and hosting.
The
minimum annual premium is $20,000.
"These
policies are not cheap, but these prices may come
down," Wittenberg says. "And you have to weigh the
cost of protection against the potential cost of
exposure."
Gladis
says many small Internet companies have few assets
and, in the case of uninsured claims, "are essentially
financing their losses with their company's net
worth. If you don't want to play craps with your
net worth, provide for insurance."
Some
larger companies, for which the Internet is a sideline
activity, are self-insured against initial losses
and have insurance in place to provide protection
over a certain threshold of losses, Gladis says.
He
further notes that the vast majority of businesses
are outsourcing their web site development.
"Ask
for the vendor's certificate of insurance just like
you would for a roofer," Gladis advises.
William
V. Poe is principal of Poe Communications, a St. Louis
advertising and marketing communications firm.
|
|
|
|
|
-
- - - - - - - - - - - - - - - - -
-
- - - - - - - - - - - - - - - - -
-
- - - - - - - - - - - - - - - - -
-
- - - - - - - - - - - - - - - - -
|
