Internet Risk Kevin Rooney General Reinsurance

Date Issue Copyright ©1999, The Industry Standard

Outline New or Increased Risks –Security /operational integrity –Content –Function / technology E&O Traditional coverage Specialty coverage Factors for Actuaries to Consider

New LOB or Exposure?

Not Just Priceline & Amazon... eCommerce business model risks Technology & Internet-enabling risks Standard commercial risks using internet to varying degree: clicks & bricks Personal Home Pages - Home-owners Another way to segment is by Activity: –Access, Presence, Integration, eCommerce

What are the risks? Security /Operational Integrity Content Function / Technology E&O

Security Risks Theft & Extortion: Outsider or insider can steal things or copy secrets, use them or threaten to reveal them publicly. Business Income: Outsider or insider, maliciously or not, can interrupt your business. Liability: –Downtime - interruption can lead to failed obligations –Negligent Netizen - pass virus, launchpad

Security Perils Information Theft Malicious Code Denial of Service Repudiation Access Violations Programming Errors Social Engineering 1st party3rd party

Content Risks Infringement - Trademark, Trade Name, Trade Dress & Copyright Privacy / Publicity Defamation - Libel Slander Content E&O Regulatory

Trademark Infringement Domain Names Cybersquatting Metatags Typo-jacking Keying Traditional Infringement: Confusion, incl. Initial Interest Confusion 1995 Trademark Dilution Act: Famous marks protected from dilution & tarnishment Anticybersquatting Cons. Prot. Act - protects mark holders against bad faith intent to profit actors

Copyright Infringement "Literary," "Musical," "Graphic" & other categories are copyrightable Exclusive rights of the copyright holder - reproduce, prepare derivative works, distribute, perform or display publicly Direct, Contributory, Vicarious DMCA - protects ISP’s

Privacy Law unsettled, Plaintiff’s Bar grabbing at straws –DTPA –Anti-Stalking, etc. FTC Emotional Issue, teed up to get ugly

Jurisdiction Interstate rules established; modification to online fairly well jelled International - who knows? –Need to study local laws of all countries in world. –E.g. - UK Libel-tourism

Outline New or Increased Risks –Security /operational integrity –Content –Function / technology E&O Traditional coverage Specialty coverage Factors for Actuaries to Consider

Traditional Coverage CGL - fair amount of (at least arguable) coverage - P&AI, PD loss of use –seemingly arbitrary applied to this space Property - physical damage to covered property from a covered peril -- safe? –AMERICAN GUARANTEE & LIABILITY v. INGRAM MICRO, INC

Lose / Lose Proposition Standard coverage mismatched with modern world Consumers face uncertainty - consumers lose Loss costs will rise - insurers lose Cries out for change

Outline New or Increased Risks –Security /operational integrity –Content –Function / technology E&O Traditional coverage Specialty coverage Factors for Actuaries to Consider

Market Evolution of Platforms: PI & advertising injury (GL), property and business interruption and crime Miscellaneous E&O, media, tech E&O Elimination of media exclusion, Addition of worldwide coverage Dedicated internet policies Multi-line Aimed at riskier and/or larger end of spectrum

Outline New or Increased Risks –Security /operational integrity –Content –Function / technology E&O Traditional coverage Specialty coverage Factors for Actuaries to Consider

What’s Next? Amazon.Com, eBay, e*trade - specialty? Large swath of “standard” commercial?  –Will this mean risk is ubiquitous, therefore swallowed up by standard policies? –Or are exposures too unique for that platform, spawning new standalone products?

Observations A lot of interest, negligible demand –Awareness issue? An Exposure and a new LOB Many challenges: –Underwriting: “E&O Like” –Rating - black hole –Jurisdiction - crossing their fingers –Technology - what’s a secure socket? How big of a deal is all of this???

Internet Risk Kevin Rooney General Reinsurance