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