CYBER-INSURANCE OFFERS PROTECTION AGAINST HACKERS

Feb 1, 2006 12:00 PM

Cyber-extortion schemes are becoming increasingly common. For instance, Time magazine reports that 21-year-old Web entrepreneur Alex Tew received a $50,000 ransom demand when hackers had kidnapped his advertising Web site, crippling it with a flood of data.

Targets of this kind of attacks have another choice: cyber-insurance. Demand for this emerging category of insurance, which will even cover a ransom payment, has jumped as more companies depend on digital networks to do business.

Time reports that written premiums topped $200 million in 2005, up from $100 million in 2003, according to Aon Financial Services Group managing director Kevin Kalinich.

There are two sides to cyber-insurance: First-party coverage helps companies recover losses owing to, say, a network outage. Many first-party policies also include payments to hackers holding a Web site or customer data hostage, ACE USA underwriter Brad Gow tells Time.

Third-party liability covers legal expenses if security fails and someone sues. Annual premium payments range from $7,500 for a medium-sized ($25 million in sales) company to hundreds of thousands of dollars for a multi-national corporation. To qualify for coverage, companies must adhere to internationally accepted security standards.

The cyber-insurance market has been boosted by new legislation, in effect in some 20 states, that requires companies to notify customers when their personal data may have been compromised. There were 134 such breaches last year, potentially affecting more than 57 million people.

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