E-Business Coverage Risks Could Outweigh Rewards for Insurers

With only a small amount of insurers jumping into the e-business insurance marketplace, a recent Conning & Company study reports that businesses’ increased use of the Internet is making for a substantial growth opportunity for the emerging e-business insurance market. The study, however, also reports that e-business insurance may not represent a good market for every insurer, recommending a cautious approach.

Many questions arise about both the short-term and long-term viability of e-business insurance that are difficult to answer such as how rapidly the market will grow and how the industry can manage the global scale risk for Internet-related catastrophes.

Conning’s study, “E-business Insurance Products—Emerging Market or Specialty Coverage?” reports that insurers need to consider many factors before entering this marketplace with an estimated 100 percent annual premium growth rate.

However, there may be substantial rewards for successful insurers. If the e- business market expands rapidly, Conning forecasts that premiums can mushroom to $6 billion by 2006.

“It’s easy to see the rise in e-business loss exposures; it is more difficult to predict how these exposures will translate into insurance coverages and premium dollars,” says Clint Harris, vice president and author of the study. “E-business is redefining the what, when, where, how and how much of business loss exposures. When things go wrong on the Internet, they do so at lightning speed. Devastating losses can hit businesses anywhere in the world.”

Hackers and viruses threaten any business connected to the Internet, even those just receiving email. Indications are that threats will continue to escalate as virus creators are able to exploit increasingly sophisticated malicious code and as businesses become more dependent on the Internet for their internal operations as well as customer service and sales.

The study reports that the e-business insurance market has not yet evolved as rapidly as the associated risks.

Despite the growth in e-business loss exposures there are few insurers offering standalone insurance coverage for both first and third party e-business exposures. As a prerequisite for market entry, insurers must understand, anticipate and quantify individual risk and accumulation loss exposures that are still rapidly evolving. Changes in technology, statutes and case law precedents add extra complexity to the development of coverage, loss control, pricing, and distribution strategies. Insurers face a multitude of considerations in order to determine “if,” “when” and “how” to enter the e-business insurance market place.

Conning’s new study provides an environmental scan of the current e-business marketplace and introduces three market growth models-Rapid Expansion, Assimilation and Divided Markets. The study also identifies and analyzes market entry and exit considerations that are unique to e-business insurance.

Topics Carriers Commercial Lines Business Insurance Market