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Retailers Need Cyber Fraud Coverage

News >> Business Insurance

An article on the Lloyd’s of London web site notes that while millions of people have been out an about shopping this Christmas New Year season, “an increasing number are choosing to shop from the comfort of their homes – and offices – using the internet.” However, the “growth in internet shopping brings new risks for retailers.”

There is “cyber and payment fraud insurance” that can protect companies during critical trading periods like Christmas.”

It is likely we will see a general trend towards more online transactions as more and more consumers turn to the internet to find products and make purchases. We have seen internet sales grow substantially as consumers go in search of better promotions.

2011 has not been a good year for Australian retailers and it appears to be a worldwide trend.  Increasing internet purchases can have even greater implications for retailers.

As sales volumes rise, potential problems can increase. The spokeswoman also noted that “last Christmas the delivery of internet orders was affected by flood and cyclonic conditions. But retailers have learned the lessons of last year’s bad weather and have developed ‘click and collect’ which allows customers to pick up their goods from a nearby store.”

The move to online shopping presents retailers with a host of new risks, There is a risk of network outage or downtime during a busy trading period, with potentially disastrous consequences for a company’s finances and reputation.

Traditional property insurance will not cover internet downtime. However, specialist cyber insurance can protect against some non-physical damage losses triggered by a virus or a hacking.

An emerging and increasingly important risk for retailers is protecting their customers’ data.

Lloyd’s have highlighted the recent number of instances when retailers have suffered “costly data breaches, often involving consumers’ sensitive credit card information. Earlier this year, electronics firm Sony suffered a major breach that is expected to cost the company $1 billion.”

Cyber privacy and security is a big issue for retailers as they increasingly move online and as they hold more sensitive information on customers such as credit card details.

Cyber insurance provides retailers and other companies that hold sensitive personal data with cover in three main areas.

  1. the cost of responding to a breach,
  2. fund the expense of dealing with regulatory investigations and
  3. defending civil litigation.

Insurers recently expanded cover to include the risk of falling foul of data security standards set by the big credit card transaction companies.

Most retailers in the US now are purchasing specialist cyber insurance, as “tough data protection laws in the US make dealing with a data breach very costly. And evolving data protection laws and a growing awareness of the reputational damage of a major data breach are likely to lead to more retailers buying cyber cover in Europe.

He also noted that “regulation tends to drive the purchasing of data breach insurance, and as European rules get tougher we will see a flurry of interest in cyber insurance from retailers and other sectors that handle personal data

It is likely Australia will follow in the same way.

Turning to the ever present problem of dealing with hackers, A large data breach of customer credit card details could prove costly, both financially and for a retailer’s reputation.

As the average transaction value increases, it gives cyber criminals and fraudsters more opportunity and increases the potential severity of the consequences.

Insurers are able to adapt cover to respond to busy periods like Christmas. For example, insurers can provide higher limits at peak times.

Cyber attacks were ranked as the twelfth most concerning risk by 500 business leaders in Lloyd’s Risk Index 2011. The survey, carried out by the Economist Intelligence Unit, was described by Richard Ward, Lloyd’s Chief Executive, as a “snapshot of two years of economic and political turmoil”. Find out more about the findings in Lloyd’s Risk Index 2011.

Source: Lloyd’s of London

Read more about managing these Cyber Risks here

  

Last changed: Jan 09 2012 at 9:09 AM

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