Cyber Liability Becoming More Common

Although not a new issue for real estate professionals, computer related losses are starting hit main street with increasing storage of customer data. Lawmakers have taken note and the requirements (i.e. costs) of properly responding to a breach of privacy have greatly escalated in the past several years. With increased expensess and burdens placed on business, insurance companies have responded by offering cyber insurance. The coverage is new, not standardized and the terms are evolving quickly.

Historically there was some coverage under standard insurance policies. Damage to your computer system or destruction of your data could be covered under a well crafted property policy. Also, lawsuits for damages to third parties from the exposure of their data could possibly be covered under a standard liability policy. However, as cyber insurance has become recognized as a separate coverage policy forms and court rulings have evolved to exclude coverage for network intrusions and loss of personally identifiable information from standard insurance policies – making the need for cyber insurance all the greater.

We are seeing society push towards tighter enforcement of breaches and we are seeing a greater frequency in breaches. This will lead to more costs with each breach due to the lawyers, forensic accountants, IT investigations and PR professionals that come along with them. A typical real estate brokerage has hundreds – or thousands – of clients that have passed through their system and many brokerages store sensitive client data for each of these clients electronically. All this can make a data breach extremely expensive to respond to.

The biggest value in buying the insurance is access to response services. Most agents would not know where to begin if they suspected an incident, but all the major insurers issue policies with a toll free number staffed around the clock who will help a firm discover an attack, repair the damage and comply with any state or federal laws if information was stolen.

Although cyber insurance is not yet widely purchased by general industry it’s a quickly growing segment. The coverage is starting to work it’s way into standard contractual insurance requirements and the SEC has published a pretty extensive framework for public companies to disclose costs from uninsured cyber risks
Determining whether to purchase coverage should involve a look at the companies risk appetite and exposures. Do they want to self insure the cost of responding to an unexpected event? Do they have the resources internally to dedicate to the effort? If not, then they should consider a network security policy.

Buying an actual cyber insurance policy, especially for a real estate broker, is more complicated than other lines of insurance. Using a specialized broker is important as unlike other coverages the terms and policy wording vary greatly between carriers. A buyer should ask about any sublimits of coverage, coverage extensions available, whether the policy is for first party losses, third party losses or both, and about resources available if a breach is suspected. Because of this spectrum of coverage options and good broker can present a first time buyer with a continuum of coverage and pricing options.

Contact today to discuss better protecting your real estate firm from computer hacking or accidental loss of client information.