Demands for coverage increase as Cyber-Terrorism risk is realized. (Property/Casualty).

Cyber-terrorism may be the next big threat against the United States.

To address this emerging risk, insurers and brokers like American International Group, Chubb and Marsh are stepping up to the plate to offer coverage for this new wave of terrorism. Coverage for these attacks is relatively new and growing, with most companies coming out with some type of cyber-protection products in the last two years. One large insurer wrote tens of millions in premiums for its cyber-protection product in 2000 and is expecting to double that in 2001.

The Sept. 11 events have shrunk the capacity in the London markets for cyber-risk coverage, making them relatively small players in the market, said' Ty Sagalow, executive vice president of AIG's eBusiness Risk Solutions.

In the United States, less than 5% of companies buy products that specifically protect online risks, according to Marsh. But since Sept. 11, the broker said it has become "very busy" with those interested in the coverage.

"There is lots of interest in industries like financial institutions, but there is a long buying cycle to go through," said Mary Guzman, a senior vice president at Marsh. Risk managers or those in charge of information security for, corporations must first convince the company's top brass of and educate them about the need for the coverage.

Cyber-terrorism is different from the computer viruses that frequently strike U.S. businesses, because cyber-terror attacks are politically motivated and are designed to cause destruction to the country's critical infrastructure, such as financial institutions, power companies, hospitals and manufacturers. And a few years ago, no one was concerned about cyber-terrorism, Sagalow said. People had been more focused on low-hanging fruit like the recent Melissa virus, he said.

Reflecting its concern about cyber-terrorism, the U.S. government created the President's Critical Infrastructure Board to study ways to protect the country's information networks. Fortune magazine reports that corporate America is vulnerable to politically motivated attacks that could causes billions of dollars in business-interruption losses.

"The most devastating scenarios we look at today that are not chemical, biological or radiological tend to be cyber-attacks," Neil Livingston, chief executive officer of GlobalOptions, a risk-management firm, told Fortune.

The Center for Strategic & International Studies reports that almost all of the Fortune 500 companies' technological infrastructures have been hacked into by cyber-terrorists. The center also reveals that it would take fewer than 30 computer hackers strategically placed around the world with a budget of less than $10 million to decimate the technological infrastructure of the U.S. economy.

Speaking in Paris recently, Chubb Chairman and CEO Dean O'Hare said, "The bad guys have their sights set on the Internet as a way to terrorize or steal from us. Our responsibility is to thwart their evil intentions."

As a broker, Marsh offers all the major writers' products and tailors endorsements to the specific needs of its customers. For example, Marsh writes endorsements for technology that is outsourced and covers business interruption and liability if a Web-hosting company crashes and its client loses business or creates a domino effect to the client's customers.

Marsh's Guzman also warns businesses that cyber-terrorism isn't limited to companies that sell products online. Hackers can use a company's Web site or e-mail system as a portal to get to critical infrastructure that houses the database of information on customers, competitors and employees. "Hackers can use a company's Web site to launch an attack and run the risk of releasing private information," Guzman said.

AIG has a 70% market share of the cyber-coverage business, spread out among 1,200 clients. Its AIG NetAdvantage is a suite of products that offers "cradle to grave" coverage for cyber-attacks. "Using NetAdvantage, our clients can choose what is right for them, depending on their maturity in cyber-space," Sagalow said.

AIG offers a free, online assessment of the level of cyber-risk, but if a company applies for more than $5 million of coverage, experts go on site and perform a cyber-security assessment free of charge. NetAdvantage coverage includes Web-content liability, errors and omissions, network-security liability and crisis communication-management funds.

Network-security liability covers a policyholder if the company's Web site accidentally transmits a virus to a third party or if hackers break into a site and steal confidential information, such as credit-card numbers. Sagalow said business interruption coverage is especially needed in today's brutally competitive e-business environment.

"In brick-and-mortar companies, if a fire occurs and you shut down, chances are a customer will wait until you reopen before they buy a product. But in the cyber-world that's not going to happen--the customer will click on another site," Sagalow said.

AIG also covers extortion. For example, if a hacker steals credit-card numbers from a Web site or threatens to crash the site, AIG provides cyber-investigators, pays off extortion demands and pays the fees of a public-relations firm to handle the story. "The coverage is extremely robust; we help after the fact to rebuild," Sagalow said.