For most businesses, insurance is a necessary protection against situations that may occur with any business. They may suffer a fire, which damages a retail operation, a warehouse or the main office. Inventory could be lost, in addition to the cost of repair or rebuilding of the physical building.
Storm damage is always a risk in a state like Louisiana, where there is the yearly threat of hurricanes, which can devastate entire cites or much of the state in a single storm. Flooding, as occurred last week in South Carolina, is always a risk, and along the Mississippi, flooding could be triggered by torrential rains in far off sections of the watershed. And much of the year, tornados and violent thunderstorms can wreak havoc throughout the state.
However, a new threat is growing for virtually all businesses in Louisiana and elsewhere, and that is cybercrime. Your business and its computer systems are at risk to hacking that can range from stealing customer credit card numbers and other personal information, as occurred in the Target and Home Depot data breaches, to carefully planned assaults on your bank accounts.
Insurance companies are offering more policies to enable businesses to obtain protection from the almost inevitable hacking that is likely to happen. But businesses should be careful in selecting coverage, to make sure that they are buying the coverage they need, and at the same time, insurers must be cautious in offering coverage.
We know the likely result of a weather-related disaster. The property damage that takes place is well understood. The same cannot be said of cybercrimes. The potential for damage is far reaching and there simply is not historical data to allow actuaries to accurately predict risk.
As with any policy, there is also a risk of fraud, which is even more problematic. When the basic threats are not well understood, the risk of insurance fraud is even greater, as it may be difficult to detect the difference between a genuine and fraudulent claim.
Source: npr.com, "As Cybercrime Proliferates, So Does Demand For Insurance Against It," John Ydstie, October 12, 2015