internet risk kevin rooney general reinsurance krooney@genre.com

Internet Risk

Kevin Rooney

General Reinsurance

Krooney@genre.com

Date IssueCopyright ©1999, The Industry Standard

Outline

• New or Increased Risks– Security /operational integrity– Content– Function / technology E&O

• Traditional coverage

• Specialty coverage

• Factors for Actuaries to Consider

New LOB or Exposure?

Not Just Priceline & Amazon...

• eCommerce business model risks • Technology & Internet-enabling risks• Standard commercial risks using internet to

varying degree: clicks & bricks• Personal Home Pages - Home-owners

• Another way to segment is by Activity:– Access, Presence, Integration, eCommerce

What are the risks?

• Security /Operational Integrity

• Content

• Function / Technology E&O

Security Risks• Theft & Extortion: Outsider or insider can

steal things or copy secrets, use them or threaten to reveal them publicly.

• Business Income: Outsider or insider, maliciously or not, can interrupt your business.

• Liability: – Downtime - interruption can lead to failed obligations– Negligent Netizen - pass virus, launchpad

Security Perils

• Information Theft

• Malicious Code

• Denial of Service

• Repudiation

• Access Violations

• Programming Errors

• Social Engineering

1st party 3rd party

Content Risks

• Infringement - Trademark, Trade Name, Trade Dress & Copyright

• Privacy / Publicity

• Defamation - Libel Slander

• Content E&O

• Regulatory

Trademark Infringement• Domain Names• Cybersquatting• Metatags• Typo-jacking• Keying• Traditional Infringement: Confusion, incl. Initial Interest

Confusion• 1995 Trademark Dilution Act: Famous marks protected

from dilution & tarnishment

• 1999 - Anticybersquatting Cons. Prot. Act - protects mark holders against bad faith intent to profit actors

Copyright Infringement

• "Literary," "Musical," "Graphic" &

other categories are copyrightable

• Exclusive rights of the copyright holder - reproduce, prepare derivative

works, distribute, perform or display publicly

• Direct, Contributory, Vicarious

• DMCA - protects ISP’s

Privacy

• Law unsettled, Plaintiff’s Bar grabbing at straws– DTPA

– Anti-Stalking, etc.

• FTC• Emotional Issue, teed up to get ugly

Jurisdiction

• Interstate rules established; modification to online fairly well jelled

• International - who knows?– Need to study local laws of all countries in world.

– E.g. - UK Libel-tourism

Outline

• New or Increased Risks– Security /operational integrity– Content– Function / technology E&O

• Traditional coverage

• Specialty coverage

• Factors for Actuaries to Consider

Traditional Coverage

• CGL - fair amount of (at least arguable) coverage - P&AI, PD loss of use– seemingly arbitrary applied to this space

• Property - physical damage to covered property from a covered peril -- safe?– AMERICAN GUARANTEE & LIABILITY v. INGRAM MICRO, INC

Lose / Lose Proposition

• Standard coverage mismatched with modern world

• Consumers face uncertainty - consumers lose

• Loss costs will rise - insurers lose

• Cries out for change

Outline

• New or Increased Risks– Security /operational integrity– Content– Function / technology E&O

• Traditional coverage

• Specialty coverage

• Factors for Actuaries to Consider

Market Evolution of Platforms:

• PI & advertising injury (GL), property and business interruption and crime

• Miscellaneous E&O, media, tech E&O• Elimination of media exclusion,• Addition of worldwide coverage

• Dedicated internet policies• Multi-line• Aimed at riskier and/or larger end of spectrum

Outline

• New or Increased Risks– Security /operational integrity– Content– Function / technology E&O

• Traditional coverage

• Specialty coverage

• Factors for Actuaries to Consider

What’s Next?

• Amazon.Com, eBay, e*trade - specialty?

• Large swath of “standard” commercial?

– Will this mean risk is ubiquitous, therefore swallowed up by standard policies?

– Or are exposures too unique for that platform, spawning new standalone products?

Observations

• A lot of interest, negligible demand– Awareness issue?

• An Exposure and a new LOB

• Many challenges:– Underwriting: “E&O Like”– Rating - black hole– Jurisdiction - crossing their fingers– Technology - what’s a secure socket?

• How big of a deal is all of this???

Internet Risk

Kevin Rooney

General Reinsurance

Krooney@genre.com