E-Banking Risk Coverage

The currently available bond and D&O policies do a great job of taking care of the primary (and greatest loss potential) exposures that come with Internet banking. Computer fraud, data destruction by hacker, extortion, and destruction by virus are all part of most Financial Institutions Bonds.

That being said, some insurers have designed special forms to provide supplemental coverage. Each insurance carrier's form is unique and must be studied carefully. Here are some common coverage considerations:

Policy Aggregate

The total amount of payments the insurer will make; the combination of all coverage sections and claims.

Business Income Loss

Provides protection from the loss of income that results from a bank's e-banking system being inoperable.

Dependent Business

Provides loss of business income protection for the loss of services provided to you by others for Web services, e-banking support, and the like.

Intellectual Property

Indemnifies the bank from the liability presented for use of the intellectual property of others on a Web site or e-banking facility. Can include copyright infringement, theft of ideas, and trademark misuse.

Public Relations

Provides payment for the use of public relations firms and advertising to mitigate the damage to public perception should an e-banking breach occur.

Loss Event Liability

Broad coverage for liability that arises out of any unauthorized use of, or unauthorized access to, electronic data or software within your covered electronic business systems.

Coverage is also included for:

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  malicious, subversive or unauthorized introduction of any computer code, program or other data into, or attack upon, the bank's covered electronic business systems, causing the alteration, distortion, deletion, destruction, degradation, corruption, malfunction, compromise or loss of access to the bank's computer systems;
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  computer theft, extortion, or any unintentional act, mistake, error or omission made by your employees or subcontractors, in the course of their duties, in connection with the creation, development, modification or implementation of any set of related instructions to direct the operations and functions of your covered computer systems.

A Few Thoughts on E-Banking Insurance I am not a big fan of the current crop of e-banking insurance policies. While these policies have their place, I question the value of the insurance contracts for most community banks, given the breadth of coverage available in the bond, directors' & officers', and package policies. Is the premium spent on these policies better used increasing the limit of coverage in the bond, D&O, or umbrella liability? Review the e-banking forms offered by your insurance company. Discuss the specific coverage included in your traditional insurance program. Ask what gaps exist in the bond for a hacker getting account numbers or moving funds between accounts. Ask what liability issues presented by e-banking are not addressed by the general liability or directors' & officers' insurance. Consider what your true loss of business income would be if your e-banking system were to go down for a week or two. To be clear, I'm not saying there is no need for this policy. I'm saying that the coverage provided may not be as valuable as other protections. Last point, this is a quickly evolving part of bank insurance. Every renewal should be reviewed carefully for these issues.