Note to Internet Companies: WATCH OUT FOR POWER INTERRUPTION

Change affects markets and creates dislocations.  Sometimes a  market morphs into a different form and the move from old to new creates gaps.  This is what has happened to insurance for internet –based companies.

If your company is based solely or mainly on the internet, you have probably purchased a Cyber –risk policy.  This will protect you against loss from a malicious attack, and coverage can extend to security expenses and system cleanup, re-creation of data, liability claims, PR expenses and business interruption.

There is another exposure for which we need coverage too: interruption of power and telecommunication service due to weather or any other cause.  For example the flooding from Hurricane Sandy caused massive loss of power in New York City and when the utilities got knocked out, down went internet service on a wide scale basis.

Conventional (non-internet-based) companies can easily buy “Service Interruption” coverage, a form of business interruption, which covers loss of income due to the interruption of power and telecom signals.  This comes as part of their property insurance, is easily available and is not expensive.

The coverage is NOT included in Cyber policies, however.  Since Cyber is where internet companies focus their efforts, they may overlook the service interruption component. Also, online companies are light in terms of actual physical assets on their balance sheets.  Therefore the property insurance policy for them does not generate much premium.  The property underwriter is not willing to pony up the large service interruption limits needed, so the market breaks down at this point.

Know this dislocation exists, and make sure your program addresses it.

May 07, 2015