If you are planning to start an online business, along with regular fire and natural peril insurance for your office premises, and protection for your employees, you must secure your company against cyber crime. Cyber liability insurance will protect your company from online frauds and data breach and their consequences. While demand for such policies is still low, awareness is slowly increasing, say experts.
“For start-ups, the priority is customers and often their information technology systems and process are also geared towards providing customer convenience. They may tend to overlook the security part of their processes. That is why, in their case, it becomes even more important to have insurance in place,” says Sushant Sarin, senior vice-president (commercial lines) at Tata AIG General Insurance.
For online companies, data is the biggest asset and it is not tangible. This data could be information about customers such as credit card details. This could be stored on the companies’ servers, as it will make it easier for customers to carry out their transactions. This could be linked to the customer;s profile, such as preferences, likes and dislikes. This information is used to help the customer make the decision quicker while shopping. However, there is a chance of data breach from e-commerce firms that store this kind of data.
Other than the stored and controlled data with e-commerce firms, a lot of IT companies deal with processed data, which is also vulnerable to breach. Such companies, too, should have cyber liability insurance.
“As per law, any person whose data is leaked, can sue the company and if the company does not maintain confidentiality, it has to pay a penalty or compensation to the customer,” says Sarin.
In case of a data breach or leak, the company has to notify all customers whose data has been leaked. It could be a leak due to a hacker, an insider such as an employer or due to faulty systems.
“Cyber liability insurance will cover any compensation the company may have to pay, forensics to determine how the data branch happened, expenses incurred to notify all customers and expenses incurred for good public relations which is important to restore customers' faith in the company,'' says Sarin.
How much cover you need will depend on the volume of data, how sensitive the data is and where the customers are based. For instance, a company that has records of 100 million customers will require more cover than a company that has records of one million customers. A company that has personally identifiable information of customers might not require as much insurance as a company that has financial or health-related data about customers. If the company's customers are in foreign markets, it will require more data than a company that caters to domestic markets. In case of the former, reaching out to the customers and notifying them in case of a data breach will cost more. Also, the company might have to pay compensation according to the rules of the foreign country. Broadly, for a cyber liability policy with cover of Rs 5 crore, the premium will work out to Rs 5-6 lakh annually.
Cyber liability policies are global in scale and, therefore, have the capability to provide worldwide coverage, says Mukesh Kumar , executive director, HDFC ERGO General Insurance Company.
Since start-ups tend to be people-intensive, they can also consider an ‘errors and omissions’ policy, Kumar says. This could cover financial loss due to breach of contract owing to negligent act, error or omission in performance of services and a commercial crime policy to cover loss of money, securities and tangible property due to fraud committed by employees alone or in collusion with others, he adds.
Key-man insurance for the founder is also critical for start-ups. “In a start-up, there may not be a well-established machinery in place in case something happens to the promoter. At least for the fist two years, not having a chief executive officer could impact the fortunes of the company in a big way,” says Arvind Laddha, CEO, Vantage Insurance Brokers.