Many of our clients wonder whether digital assets, such as data, digital media, and other intangibles, are covered by insurance. The answer to that question – like many things in the insurance world – is complicated.
Data has value. Whether it's marketing information, business IP, or digital media, data is worth something to the company that owns it. Unfortunately, it's hard to evaluate that data and even harder to insure it.
Some insurance companies actually put a dollar amount on your data. They'll investigate your network and test your security before offering you an insurance plan to cover proprietary data. But this process is expensive, and it doesn't make financial sense for most small businesses and IT contractors.
However, there are ways to practice data risk management. To make sense of your data liability, let's take a closer look at the four risks IT consultants face.
4 Risks Threatening Business Data
While every business has a unique risk profile, IT companies have four main sources of data risk:
- Data loss. Whether it's a hard drive crash or user error, there's always the risk that your company's data could be lost. After data loss, you could see slowdowns in productivity, increased repair costs, and a whole lot of stress.
- First-party liability (lawsuits over data lost from your network). You can be sued if private data (e.g., financial information) is stolen from your computers. Many IT professionals don't store protected data on their own networks (though some DBAs and consultants might). If you keep sensitive data, remember that you're liable for its security.
- Third-party liability (lawsuits arising from a client's data loss). IT professionals are responsible for a client's security. If their security breaks down and data is lost, they could sue you.
- Interruption. A server outage or stolen data can lead to ongoing problems if your business can't get back to work. For example, if a fire burns down your office, you probably won't be up and running for weeks. Property damage risks like fires and storms also threaten your data as they could destroy your servers, backups, and other physical storage devices.
The big question remains: does insurance cover any of these risks? Yes and no.
Insurance Protection for Digital Assets
Errors and Omissions Insurance covers your third-party cyber liability, which includes lawsuits over client data breaches and data loss.
Property Insurance won't cover the lost value of your data, but it can cover business interruption. Property Insurance policies with Business Interruption Insurance reimburse you if you're unable to work after a storm, fire, or theft drags your business to a halt for an extended period of time.
Many Business Interruption Insurance policies also cover supply chain interruptions. If a storm knocks out your cloud service provider, your insurance company can actually cover the income you lose during the outage. Not all Property Insurance policies have this coverage, so make sure to check with your insurance agent. (If you need quotes on IT insurance, use our online insurance form.)
While you can get insurance for lawsuits and business interruptions, your insurance won't reimburse you for stolen or lost data in the same way it would if you lost physical property.
That means you'll need to take extra precautions to secure your business's data and make sure your clients do the same.
If You Can't Insure for Lost Data, What Do You Do?
At this point, you've probably grown tired of hearing people warn you about backing up your data, but it's important. Remember, too, that your clients have probably heard this advice so many times that they've begun to ignore it.
You'll need to ensure clients are regularly backing up data. While cloud-based backup is automated and simple, some industry regulations make it more expensive and difficult. If your clients store medical data, make sure their data backup meets HIPAA standards.
Here's a quick reminder on data backup techniques:
- Use multiple backups.
- If you back up on hard drives, always store one in an offsite location. That way, in case of a fire, you'll still have your data.
- If you store financial data or other protected data, always make sure it's encrypted. A stolen hard drive with non-encrypted data could lead to data breach lawsuits.
- If feasible, take advantage of scalable cloud-based backup. However, make sure you have protections in place that limit access to sensitive data.
If you have questions about what your insurance covers, talk with one of TechInsurance's agents. We specialize in making insurance simple for IT professionals, and we can build policies that cover your lawsuit and business interruptions risks.