Hacker Attacks Will Bring Profits to Insurance and Security Firms

This week’s denial-of-service (DoS) attacks on high profile Web sites such as Yahoo!, eBay and Amazon.com have the potential to translate into future profits for companies that offer protective online services such as insurance and security software.

In the evolution of electronic commerce, insuring e-tailers and associated businesses against unpredictable crises and events that can bring business to a halt has not been a prominent part of the picture to date. Now, however, some industry insiders are speculating that a whole new arm of online commerce could emerge from this week’s debacle.

The DoS attacks have reportedly sparked a flood of calls to insurance brokerages. According to the online commerce-backed Insurance Information Institute, a non-profit organization sponsored by the property/casualty insurance industry, sales of e-commerce insurance policies could exceed the $2.5 billion (US$) now spent on directors’ and officers’ liability insurance policies.

E-Commerce Insurance Policies

The organization said that an e-commerce policy “can include loss of business income, public relations, intellectual property, difference in conditions, interruption of service and electronic publishing liability. In general, companies with revenues of $1 billion or less can expect to pay premiums of about $25,000 to $125,000 for at least $25 million in coverage. Coverage limits can be as high as $200 million.”

The institute added that coverage includes sending security consultants to the attacked site to help stop the attack and to determine how to prevent future attacks.

If insurance companies stand to gain mightily from the recent DoS attacks, security companies could conceivably experience a whole new level of respect in the industry, as well as future profits.

The Cost of Online Crime

It is too early to tell how much this week’s intrusions cost e-tailers and other online services, but losses to just one e-tailer could be in the millions.

According to Emily Freeman, who leads the e-business unit at Marsh, Inc., the brokerage division of mammoth insurance broker Marsh and McLennan, those losses are fully unexpected and catch e-tailers by surprise.

“If they’re relying upon traditional insurance products that were invented prior to last year, they may find some gray areas where claims aren’t covered,” Freeman said.

Many e-tailers may not even be aware of insurance products that could have covered this crisis, she added. Marsh, Inc., for example, covers up to $200 million of losses per year from online business interruptions, crime or professional liability. It draws on insurance from an international group of insurance entities, including AIG and Lloyd’s of London.

It seems apparent to many that as long as there are vulnerabilities in computer systems, there will likely be hackers. This week’s massive attacks may be the wake-up call that breathes new life into online insurance.

So far, the companies that were victimized are not revealing if they were insured. Even if they were, however, traditional insurance products generally do not cover lost sales, commissions or advertising revenue caused by hackers.

Preventing and Confronting Online Attacks

The real lesson of this week’s ordeal may be the critical importance of preventing similar crimes in the future, and the necessity of having systems in place to confront crises if they do occur.

Unfortunately, most sites have vulnerability to attack, according to Simon Perry, the security business manager for business software company Computer Associates International, Inc.

“The recent security risk represents a danger to the vast majority of Web servers deployed today,” he said. For its part, Computer Associates was quick to respond to an unfortunate new market opportunity by offering a free download of its eTrust Intrusion Detection software.

In fact, most security companies stand to benefit in some way from this week’s intrusions. The crisis sparked a wild run on Wall Street this week, with online security-related company stocks reaching new heights.

One of the big winners, WatchGuard, shot up 46 percent to close at 49-1/8 on Wednesday, while Entrust shares were up 6-13/16 at 70-5/8.

VeriSign gained 5-3/8, closing at 194-13/16.