Farber Discusses Importance of Identifying and Minimizing E-Risk

February 4, 2002

Jon Farber, assistant vice president of Global Technology Underwriting for The St. Paul Companies, commented during a meeting of insurance professionals and risk managers at the Insuring E-Business Summit in San Francisco on Jan. 31 that any company doing business on the Internet today faces a wide variety of risks and exposures. Farber added that those risks and exposures could make for huge financial losses if companies don’t address them properly.

Farber said there are potential liabilities associated with the ‘Big Three’ of technology-based risk-namely intellectual property, privacy and network security, noting those risks include things such as copyright and trademark infringement, failure to protect confidential information, computer viruses and denial of service attacks. According to Farber, unfortunately, most corporate risk managers don’t have the necessary tools or background to address these technology risks.

That was the major finding in a study in 2001 conducted by the independent New York-based opinion research firm of Schulman, Ronca & Bucuvalas, Inc. for The St. Paul about e-commerce risks. The survey of 1,500 CFOs, risk managers and insurance brokers at companies in the U.S. and Europe revealed that most businesses do not adequately understand the risks posed by technology, have difficulty identifying potential risk and lack formal processes to both monitor and manage them effectively.

Farber maintains that the insurance industry needs to be proactive in educating corporate risk managers about e-risks. The best way to do so, he said, is to discuss best practices with clients to help identify, quantify, and mitigate risks associated with e-commerce; review traditional insurance coverage for potential gaps related to e-risks; help determine if risk transfer should be part of a company’s technology risk solution; and provide targeted insurance products and services to transfer part or all of this risk.

Farber added traditional insurance policies never anticipated a move from the tangible to the intangible world.

However, many insurance companies are now offering specialty coverages related to e-risk that cover gaps left by traditional insurance coverages.

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