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, one's strategic asset, is vital to resuming business operations. Industry statistics tell

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 business's 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 business's 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 won't 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.