As Cyber Threats Rise, Need for Insurance Grows
BOARDMAN, Ohio -- A momentary lapse of judgment could cost a business and its clients nearly everything.
Say a professional or business owner accidentally leaves behind his laptop or electronic tablet at a restaurant or park bench. No matter. The devices can be replaced and are often covered by property insurance the business or owner carries.
What many don’t know is that while insurance might cover the cost of laptop, the data it contains are not, thus inviting identity theft or cyber hacking based on every scrap of information the device holds.
“I don’t think that people realize that cyber liability is not covered under standard and property casualty policies,” says Stephenie Maroni, operations manager at James & Sons Insurance, Boardman. “Someone may want to steal your iPad for just the iPad, but they may also want it for some malicious intent.”
When any sort of data protection is breached – whether through theft of a device or by cyber hacking – the costs can prove enormous for a small business and its customers, Maroni continues. Not only is your information at risk, but that of your customers or clients as well, she warns.
“If somebody does have their data stolen, you’re liable for that,” Maroni says.
Tom Costello, president of James & Sons, says his company provides policies that can help those affected by cyber attack to repair their databases and their reputations.
Under state law, for example, it’s incumbent on the network or owner of the device to notify all who might be affected by the breach, Costello says. “On average, it costs about $188 per customer” to go through the notification process, he says. “If you have 5,000 customers – that’s an awful lot of money very quickly.”
These costs don’t take into account the burden of retrieving records, rebuilding a website, rescuing any data or rebuilding a company’s reputation, Costello says, which the policy would also cover. “Doctors’ offices, dentists, accountants – think of all the personal information that’s on there. Today, everything is submitted electronically,” he adds, increasing the risk of cyber infiltration.
The public hears mostly of the high-profile cases, Maroni relates, such as the network security breaches at Home Depot and JP Morgan Chase. “You don’t go a day anymore without hearing about it,” she says.
However, 30% of all cyber attacks target businesses with fewer than 100 employees, Maroni says. “It’s happening all the time to small businesses. You just may not be hearing about it in the media.”
Today, people carry considerable and varied information on their mobile devices without realizing their levels of exposure to theft, Maroni notes. “In a more mobile society, how many of us walk around with our iPad or iPhone. Just think about the information contained on these devices.”
Understandably, more mobile and electronic devices lead to more cyber attacks, Maroni says. In 2013, for example, the number of cyber attacks increased 42%, and it’s likely that the number this year will go even higher, she reports.
“These hackers are smart,” Maroni says. “They’re not just domestic, but international. They’re Russian, Chinese – and they’ll be able to get through firewalls.”
According to a report released last year by Ponemon Institute LLC, an independent information management research firm that surveyed 54 companies across 14 industry sectors, 41% of data breaches reported were spurred by malicious intent, 33% resulted from human error, and 26% from a systems glitch. The average business loss because of a cyber breach stood at $3.03 billion in 2012, the report said.
The report shows that 35% of organizations experienced a data breach as a result of lost or stolen devices, including laptops, desktops, smart- phones, tablets, or USB drives.
Depending on the amount of information in need of protection, cyber insurance premiums can range between $500 and $2,500 a year, Costello says. “Insurers look at things like how many files need protected and what kind of security systems you have,” he says.
Thus far, no client of James & Sons has reported any breach of its networks, Maroni says. However, the agent did receive a call from a client concerned about a laptop stolen from an employee’s house. “The real issue for us was how much client information was on that laptop,” she says.
Cyber liability insurance today is the fastest-growing segment in the industry. “Before cyber, it was employment practice liability insurance,” Costello says.
James & Sons is one of the oldest privately owned insurance agencies in the area. Established in 1921, the company has withstood the Great Depression, Second World War and most recently, the Great Recession, Costello says.
Brothers Gib and Bill James, still principals of the company but semi-retired, joined their father in the business in 1946, he says, and the current management team has been in place “for several years now. …
“We do all kinds of insurance,” Costello continues, “but our specialty is commercial property casualty insurance.” All of employees of James & Sons, he emphasizes, are licensed insurance agents. “When you call here, you’re talking to a licensed agent.”
Most of James & Sons’ business is with corporate clients in Mahoning, Trumbull and Columbiana counties, but these companies often have plants or offices that stretch across the country. Today, the agency, 4444 Market St., Boardman, employs 14.
Aside from cyber liability and standard property insurance, all companies should look into providing some means of protecting all of their assets, Costello advises, especially in a society that continues to grow ever more litigious.
Take a business owner, for instance, that a disgruntled employee has sued. Even though the employer might not be at fault, Costello says, it still costs money to offer a legal defense. “How much will it cost to defend yourself?” he asks rhetorically. “The world is changing.”
Moreover, business owners sometimes fail to carry insurance adequate to protect all of their assets. In the case of a lawsuit for damages, for example, the business owner’s personal property could be at risk if the policy’s liability coverage isn’t enough.
“Umbrella policies are also very good for businesses and individuals. They provide higher limits of liability and they’re extremely affordable,” Costello says. Recently, James & Sons wrote a $1 million policy for a local business client for just $185 a year.
That’s a small price to pay considering the risks, Costello says. One case, he recalls, involved a client physician whose wife accidentally rear-ended another vehicle in Florida. The driver in the other car – a young woman in her 20s – hit her head on the steering wheel, resulting in damage to her eyesight.
“We settled it for $1.5 million,” Costello says. “Had that doctor not had an umbrella policy, he could have lost his house.”
Costello jokes that ultimately he’s a “spare tire salesman. Insurance is something you want in your trunk but pray you never need to use.”
The industry’s products are constantly evolving, as advances in technology and new avenues of business expose companies to additional risks.
“We’re always trying to find out, ‘What’s the next trend? What’s the next cyber liability issue? What’s the next employment practices issue and how does it affect our clients?“ Costello notes. “It’s a constant job.”
Pictured: Stephenie Maroni is operations manager at James & Sons Insurance. Tom Costello is president of the agency, founded in 1921.
Copyright 2014 The Business Journal, Youngstown, Ohio.
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