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The average cost of a data breach is $204 per lost record, with more than half of that cost coming from lost customers and the expense of rebuilding the organization's reputation, according to Ponemon Institute's 2009 Data Breach Study.  And according to a study from Marsh and Ponemon, the typical data breach in 2010 resulted in companies and their insurers having to pay an average of $7.2 million to remedy the situation.

The question now is, how can your business be affected by a breach of company information?  And keep in mind, if you have a computer or phone, you have an exposure to breach.

There are several situations in which considerable cost can be involved in remediating data breaches in all types of organizations.  For example1 :

Unauthorized Access:  An international computer hacking group gained access electronically to the computerized cash registers of a restaurant chain and stole the credit card information of 5,000 customers, starting a flood of fraudulent purchases around the world.

Privacy Breach:  An employee of a rehab center improperly disposed of 4,000 client records in violation of the center's privacy policy.  The records contained social security numbers, credit and debit card account numbers, names, addressed, etc.  The center settled the claim with the state of Massachusetts and agreed to pay fines and penalties as well as extend $890,000 in customer redress funds for credit monitoring on behalf of the victims.

Theft of Digital Assets:  A home health organization had backup tapes, laptops and disks containing social security numbers, clinical and demographic information, and in a small number of cases, patient financial data that was stolen.  In total over 365,000 patient records were exposed.  The organization settled with the state attorney general, providing patients with free credit monitoring, credit restoration and reimbursement of direct losses that resulted from the data breach.  The organization was also required to revamp its security policies, implement technical safeguards and conduct random compliance audits.

Human Error:  An employee of a private high school mistakenly distributed via e-mail the names, social security numbers, birthdates and medical information of students and faculty creating a privacy breach.  Overall, 1,250 individual's information was compromised.

Malicious Code:  A juvenile released a computer worm directing infected computers to launch a denial of service attack against a regional computer consulting and application outsourcing firm.  The infection caused an 18 hour shutdown of the entity's computer system.  The firm incurred extensive costs and expenses to repair and restore their system as well as business interruption expenses which totaled approximately $875,000.

These examples show us that anyone with electronically stored information, a website, or electronic customer services is susceptible to a costly data breach.  You can protect your organization against losses with Cyber Liability coverage.  Cyber Liability insurance addresses the first and third party risks associated with e-business, the Internet and networks and informational assets.  It offers protection for exposures arising out of Internet communications.

Traditionally general liability insurance doesn't address e-business exposures.  Cyber Liability insurance will provide protection for that gap with coverage, benefits and services that are specific to data breaches.

For more information on how to protect your business against data breaches, talk to your insurance professional today.

1From Philadelphia Insurance Companies, Cyber Security Liability - Claims Scenarios, 2011.







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