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Insuring against cyber attacks

By Jay MacDonald · Bankrate.com
Tuesday, September 21, 2010
Posted: 7 am ET

When we consider insurance, we tend to focus on the physical: our homes, our vehicles and our bodies. And certainly, homeowners insurance, auto insurance, health insurance and life insurance form a pretty good  goal-line defense against life's unpredictable offense.

But businesses of all sizes today face a threat they can neither touch nor see: cyber crime. Unfortunately, the effects of cyber attack can be just as devastating to a business as the physical threats from flood, fire or other manmade or natural disasters.

 As the business world moves from paper trails to vapor trails and data increasingly migrates into "the cloud," data breaches have become the great bank robberies of our day, with this difference: cyber robbers steal consumer trust in the breached company along with the purloined data.

The "Big I," aka Independent Insurance Agents & Brokers of America, just released a prototype data security plan it hopes will help its network of 300,000 agents and brokers shore up their digital barricades as soundly as homeowners insurance or auto insurance. It's far from easy given the e-conveniences we enjoy today via websites, e-mail, texting and cell phone aps.

The insurance industry has responded to this virtual threat with real insurance known as cyber-risk coverage. According to the Insurance Information Institute, insurers usually issue cyber insurance as a stand-alone policy that covers the costs of specific risks, including loss or corruption of data, business interruption, liability, identity theft and crisis management. Cyber policies also may cover the cost of offering a reward for information to catch the hacker or to settle a cyber extortion threat to a company's network.

Cyber-risk coverage can cost from several thousand dollars for a small business to several hundred thousand for major corporations, according to the III. If you think businesses are not beating down their agent's door to sign up, you're right: a 2008 Ernst & Young report found that only 13 percent of those surveyed had such coverage and only 20 percent had a cyber-risk strategy.

So cyber insurance is out there, it's real, and so far it's prohibitively expensive for many businesses.

But what about those millions of consumers whose identities are compromised? Sure, the credit card companies offer zero liability on card attacks (the last thing they want is for consumers to lose confidence in online shopping), but they offer little help in putting your life back in order when your identity has been hijacked.

Who's got your back in this invisible, digital world? I'm not talking about the identity theft products out there, most of which have serious gaps or financial drawbacks. I'm suggesting something on the order of a homeowners insurance rider or even a health insurance rider that would shoulder some of the risk we now carry alone.

Got an insurance solution to consumer cyber attacks? Please send me your thoughts.

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