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Banking on 'cyber liability' coverage: give customers the online access they want as well as the protection they need.

Financial institutions face a dilemma: Customers want online access for easy control of their assets, but they want it without the growing risk of security breaches, identity theft and Internet fraud. A look at some statistics illustrates the difficulty of maximizing the opportunity without exposing everyone to greater risks:

* By 2011, more than 100 million people are expected to conduct at least some banking activities online, according to the June 2007 report, Banking and Bill Paying Online: Chasing Those Digital Dollars, released by research firm eMarketer.

* By 2010, the Internet will be the conduit for 31 billion banking transactions annually, compared to 14.7 billion transactions through ATMs, according to estimates from the May 2007 TowerGroup report, Delivery Channel Volumes in the United States, 2006-2010: From 'In Line' to Online.

* In 2006, 78% of large financial institutions confirmed they had suffered an external security breach and 49% reported at least one internal breach, according to the 2006 Global Security Survey released in June 2006 by the Financial Services Industry practices of the member firms of Deloitte Touche Tohmatsu.

* SecureWorks reported in August 2007 that hacker attacks on banks jumped 81% this year compared to last year. Credit unions and community banks saw a 62% increase.

The first line of defense is obvious: state-of-the-art security procedures and systems. But because it is impossible to eliminate human error, even the best security protocols won't always protect an institution from hackers. That makes the second line of defense--liability protection--just as important.

Agents and brokers can play a proactive role by helping financial businesses understand what to look for in "cyber risk" coverage. Three areas of liability exposure are commonly addressed: unauthorized access to customer information by outsiders; inadvertent transmission of a virus from the bank to online customers; and failure to provide timely access to accounts because of bank equipment failure.

The type of coverage provided is what can make the difference between a bank that is well prepared and one that finds out too late that it doesn't have the needed protection.

Key insurance offerings for brokers and agents to identify for customers include:

* Crisis Management: Banks should look for a policy covering the expenses it faces when it has to mitigate negative publicity and restore customer confidence resulting from a security breach.

* Worldwide Coverage: Hackers like to hide in remote parts of the world where legal gray areas make operation easier. Regardless of where the cyber attack comes from, a good policy will have the needed global reach to respond (except where the federal government prohibits U.S. businesses from operating).

* Full Range of Related Coverages: Agents and brokers should look to design a comprehensive array of coverages to address the specific needs of their clients, including coverages for e-commerce extortion threats and professional liability exposures.

Financial institutions know they can promote the ease and convenience of the Internet to attract more customers, but they also recognize the growing danger of security lapses as more transactions move online. Agents and brokers who can help them identify insurance solutions that meet their needs will be valued partners in a dynamic business.

Thomas M. Kunkel is president and chief executive officer of the Bond & Financial Products group of Travelers. He can be reached at
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Title Annotation:Agent/Broker: Selling Insight
Author:Kunkel, Thomas M.
Publication:Best's Review
Date:Oct 1, 2007
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