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E-commerce Surge Sparks Internet Insurance Demand
By Connie Mabin   Associated Press
AUSTIN, Texas — As federal authorities investigate a recent string of computer hack attacks that temporarily shut down some of the Web's most popular sites, a growing number of insurers are offering policies that cover Internet losses.

Marsh Inc., a San Francisco-based insurance broker, recently began offering up to $200 million in coverage in its NetSecure policy. A handful of smaller firms offer similar policies.

Coverage options vary, but typically clients pay to protect against revenue lost due to widespread Internet outages or if their site is inaccessible to consumers for any number of reasons — from a service outage to a hacker attack.

Marsh has sold about 100 policies so far, and has seen a fivefold increase in inquiries about the coverage since recent Web attacks, said Bill Power, a managing director in Houston.

"Technology is not bulletproof," said Emily Freeman, director of the company's e-business division. "It's a business-risk issue and needs to be addressed."

Handango, a Dallas startup that sells hand-held technology and offers software downloads through its Web site, bought "cyberspace liability coverage" earlier this year after an internal review revealed potential for heavy Internet losses.

The Internet "is everything that we do," said CEO Laura Rippy is CEO. "Insurance is a security blanket in a Web world that does not provide a whole lot of security."

Net insurance is a budding market that has growth potential as online business continues to expand, said Martin Sheffield, vice president of the PC ratings division at A.M. Best Co., an Oldwick, N.J.-based firm that tracks the insurance industry.

"Certainly it's a niche," Sheffield said. "I think as the Internet exposure becomes more apparent, there will be more products that align themselves with that exposure, and with any innovative enterprise the insurance industry comes along to fill in any of those risks."

Sean Kaldor, an e-business analyst for Internet researchers International Data Corp., said there are "a few" insurers who currently offer Internet policies, but the number is growing steadily because of the demand.

Most big sites such as Yahoo! and eBay are insured, but generally don't discuss it because businesses — not customers — are covered by the policies, Kaldor said. Smaller sites and traditional businesses that have Web sites will need Internet-specific coverage, he said.

"I think that anyone doing business online realizes that it presents unique risks. Any way you can mitigate those risks is going to make your investors feel more comfortable doing business with you as well as your customers," Kaldor said.

For now, large insurers are steering clear of the Web because there is no definitive data showing how big a liability the coverage could be, Sheffield said.

In addition, Kaldor said, there are other issues that need to be ironed out, such as who will evaluate and set rates and what happens if there is a major online disaster.

There's also a risk that the cushion of an insurance policy could compromise security awareness, he said. "What we don't want to see is online merchants getting sloppy and saying, 'Oh if this happens we'll be covered."'

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