FEBRUARY 2013

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ARE YOU ADEQUATELY COVERED IN THE CASE OF DATA LOSS?

Any business owner knows that once your computers or hard drives have been

compromised for any reason, so too has your business. Recovering electronic data

records, ones strategic asset, is vital to resuming business operations. Industry

statistics tell us that 43 percent of companies who experience a data loss disaster

never reopen, and of those that do reopen, 29 percent close within two years.

Vital information used on a daily basis is too valuable to leave to chance. When

disaster strikes, it can be devastating to the livelihood of many. And yet, says

Warren Bolttler, CEO of PFP Insurance Brokers, a wholly owned subsidiary of

London-based Price Forbes and Partners, data recovery is still a grey area for most

of the businesses we deal with.

Bolttler says this is one of the classic areas where, in order to access the adequacy

of a disaster recovery plan, one really needs to look carefully at how the insurance

dovetails with the businesses overall risk management strategies. The insurance

coverage is somewhat curtailed in that it is only triggered to respond in the event of

actual damage.
It is imperative for business owners to clearly understand what is covered in a classic

multimark-type insurance policy. With specific reference to Electronic Equipment,

computers and data, the cover is provided for any physical loss or damage to the

property which is insured by any cause that is not excluded. In other words, says

Bolttler, you have all risks cover unless something appears in a list of exclusions.

Some of the pertinent exclusions worth checking in the policy include:

Derangement unless it is accompanied by physical damage.

Loss or damage which is recoverable in terms of a maintenance or leasing

agreement

Faults or defects which are known to you, the insured, and not disclosed.

Any form of wear and tear.

Consequential loss.

One of the most important points to note from this list is derangement, unless it is

accompanied by physical damage. This means that if the data on a computer simply

corrupts without resultant damage, there is no cover from the insurance policy, says

Bolttler.

Another important exclusion is consequential loss. This means that if data is

corrupted by physical damage, the insurance response will be limited to indemnifying

the business for the damage to hardware and immediate costs of reconstituting the

lost data, recovering outstanding debtors and the increased costs of working. No
consequential loss will be covered such as loss of future sales which can prove

devastating to a business.

The accounts receivable cover responds in the event that the hardware that houses

a businesss debtors book is lost or damaged as a result of an accident or

misfortune and they are unable to secure payment from those debtors as a result.

This is insured on a first loss limit, and it pays for the difference between the

outstanding debit balances and the total of the amounts received or traced in respect

thereon. It also pays for the additional expenses incurred in tracing and establishing

customers debit balances after the damage.

For businesss that work on a six month cycle between order and payment it is

advisable to check that the limit for Accounts Receivable is adequate to cover this.

It is also possible to purchase a limit that is adequate for their normal debtors book,

and then to specify an increased limit for a specific period when they have a spike in

debtors.

Bolttler says it is also worth noting that this section does not cover electrical or

magnetic damage unless duplicate records are kept; or loss following fraud or

dishonesty of a partner or employee.

The final checkpoint is Reconstitution of Data which refers to data generally - not

simply the debtors book. Again it responds in the event that an insured event

destroys data or programs, and pays only for the cost incurred to reconstitute the

data, up to the policy limit. It wont cover programming errors, incorrect data entry or
corruption of data other than by insured events. This is where the limitation of the

insurance policy comes in.

Business owners need to carefully check their policies and see how they

complement and integrate into their overall disaster recovery planning. This is an

area that is of particular interest to us and we will be working with clients to refine

policies as part of the overall risk strategy, concludes Bolttler.

Ends
PREPARED ON BEHALF OF PFP INSURANCE BROKERS BY CATHY FINDLEY
PUBLIC RELATIONS.CALL CATH JACKSON ON 011 463-6372 OR EMAIL
CATHY@FINDLEYPR.CO.ZA WITH ANY QUERIES