U.S. debate predicts “E-Revolution” for insurance

The property and casualty insurance industry in North America will have to come to grips with the growth in e-commerce — in terms of client demands for cover as well as managing their own exposures to the Internet, a national live broadcast debate recently held by the U.S. Chartered Property Casualty Underwriters Society (CPCU) decided.

The insurance industry is on the “verge of a revolution,” remarks James Mullarney, director of customized solutions at Fidelity and Deposit. With the current growth trend in e-commerce, estimated to have been US$300 billion for 1998 with further significant gains expected for 1999, the industry can ill afford to ignore Internet-related business if it plans to remain a competitive force in the commercial risk market, he adds. As such, Mullarney expects “big changes” ahead for insurers over the next 18 months with regard to development of new products and the redesigning of existing coverages.

Tom Finger, vice president of South Point Insurance Agency, warns against industry complacency to e-commerce. “The insurance industry tends to lag in technical issues…it’s amazing that more people aren’t getting involved.” As e-commerce becomes a regular means of trading, the business community will demand coverages for new exposures. If insurers are unable to deliver the wares, businesses will turn elsewhere for their needs, he notes. This argument was supported by Jeff Behm of Atlantic Mutual Companies, pointing out that, as e-commerce grows, so will the number of “cyber catastrophes”. Companies will become less complacent with these exposures and will demand additional coverage and services, he predicts. As such, insurers have to invest in the knowledge of rating cyber-related risks in order to develop appropriate coverages. “Additional coverages and services will need to be developed by the insurance industry or someone else will come in and do it for us.”

Current exposures

The debate also focused on industry concerns of potential e-commerce exposures under existing coverages, as well as the difference between standard business operational exposures and those relating to Internet trading.

Responding to the latter, Behm observes that e-commerce is “information driven” with speed in transacting a critical key to success. Security, ensuring against business disruption due to lost data and “down time”, are central concerns for insureds, he says. In that respect, attaching a value to “lost business” due to any of these factors is extremely difficult for insurers, Behm adds, “how does one place a dollar value on this intellectual property…Traditional property policies may cover the computers and other hardware…While these tangible items are easily replaceable, the data that could be lost is not.”

Furthermore, Emily Canelo, senior vice president underwriting at Zurich Reinsurance (North America) Inc., says insurers could already be exposed to e-commerce risks under general business policies. “Insurance companies shouldn’t assume that because they don’t have specific provisions for these exposures that they won’t be paying for them.” Canelo points out that, being a new area of business, there are no legal precedents pertaining to e-commerce to determine the extent of exposure an insurer may have through its coverages. “Since no case law precedents currently exist, it will fall to the courts to determine liability in many cases.”