CEO's Notebook

Read short, practical articles about topics such as insurance for your e-business, a major change in patent law, and what to do if your flight is canceled.

Hands On

A Security Blanket for Your Web Site

Do you need insurance to protect your E-business against risks like viruses, hackers, and overloaded servers?

By Ilan Mochari

Thomas Shipley likes to play it safe. He pays about $14,000 a year for a policy to insure the Web branch of his $10-million company, T. Shipley, a seller of business accessories based in Altamonte Springs, Fla. Though he has yet to make a claim, Shipley cherishes the policy. It spares him, just a bit, from worrying about the impact that a virus or other threat might have on his site (which handles 30% of his total sales).

It's one thing to be cautious like Shipley. But is Web insurance a must for anyone with Net sales? Historically speaking, the answer is no. Internet policies have been available only since late 1998. So what did E-giants such as Amazon.com and Dell do before that time? "I couldn't say for sure, but my suspicion is that they were going uncovered," says Robert Hartwig, chief economist of the Insurance Information Institute, in New York City.

Both Amazon and Dell declined to discuss their insurance histories with Inc. But if it seems far-fetched to think that such prominent online sellers would forgo Internet insurance, consider the case of Cameraworld.com, in Portland, Oreg., whose Web sales total about $50 million annually. According to chief financial officer Curt Scheel, the company doesn't have an Internet insurance policy, although it is exploring the issue with a local risk-management firm. That fits with what experts say: Internet policies have yet to take root. "There's lots of interest at this point, but actual buying is not there yet," reports Don Urbanciz, CEO of InsuranceNoodle, a Chicago-based online insurance broker.

Insurance lawyers, however, think it won't be long before Internet policies gain acceptance as an extension of traditional policies. "The language of standard policies clearly doesn't cover many of the potential liabilities of an Internet scenario," says William Shelley, a partner at the Philadephia-based law firm Cozen and O'Connor. Tamara Wolfson, a partner at Palmer & Dodge, in Boston, agrees, stressing that "in general, traditional coverages apply only to physical damages, not to intangible things like the loss of electronic data."

Small-business Internet policies range in price from $2,500 to $100,000 a year. Still, the question remains: Is another policy really necessary? There are a few holdout lawyers who think Internet damages can be covered by standard property insurance. If you choose to believe them, remember this: it's far cheaper to buy a policy than to fund a lawsuit in defense of one.

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Is an Internet Policy Right for You?

Like any insurance choice, the decision to buy Internet coverage depends on two factors: the risk tolerance of the buyer and the balance between the cost of the policy versus the cost of a catastrophe. Here's a checklist of factors to consider when researching policies:

See what a risk analysis tells you. Most insurers offer some kind of risk assessment to prospective customers. You'll learn where your site is vulnerable to hackers and viruses. You'll also get a sense of what your premiums would be.

Compare brokers carefully. This is important in a new area like Internet coverage, where norms and standards have yet to be established. For example, some policies claim they'll replace any revenues you lose during a site crash. Others claim they'll replace only your lost net income.

Scrutinize your other policies. There are several types of Internet insurance policies. Some pertain to Web-specific circumstances, such as a "business interruption from a virus." But other categories, such as "advertising injury," might overlap with your existing third-party coverage.

Ask vendors for indemnification. It can lower your risk and save you a bundle on premiums. --I.M.

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Hot Tips

Ever worry that your employees may be struggling with non-work-related problems but are unable to talk to someone about them? Take a cue from Ipswitch Inc. in Lexington, Mass. The Inc. 500 company pays a measly $8,000 (or $65 an employee) annually to provide a 24-hour employee-assistance program. The program, which connects employees and their families to live, certified counselors by means of a national hot line, provides aid that is free and confidential. The company monitors the volume of usage, which, according to human resources vice-president Betty Lang-Holmes, is a real plus. "If the report says that a lot of people are struggling with work-family issues, then we can put more programs in place to help," she says. --Anne Marie Borrego