By Todd Whiteman, V.P. Property/Casualty, NPO Insurance Specialist at Enscoe Long Insurance
Earlier this year, we discussed social media and the liability your organization faces using it. Now we are going to focus on the more tangible items that make up your computer system including:
- Hardware & Software
- Infrastructure & Equipment
Stop reading for just a moment and look around your office, look out the door, down the hall and anywhere else your eyes can wander - how much electronic equipment do you see? If you are like most organizations, it’s all around you - computers, laptops, servers, A/V equipment, cell phones - the list goes on and on. All of that physical property owned by your organization that is used to keep it running full speed ahead.
There are various coverages provided by a standard property policy which can provide protection for your technology assets. Some carriers will include it in the limit of personal property, others will schedule it all as EDP (Electronic Data Processing) equipment while others will provide a specific limit either thrown in automatically or based on the limit you request.
This is coverage for physical damage and theft to the computers and equipment.
Now let’s go back to that quick view of your surroundings and think about all the software you have on that equipment. How much does it cost, how difficult is it to replace and would you replace it with the same software or search for something different? Is it outdated? (This will bring up an important point later in the discussion.) Think about valuation – what is it worth? More or less than you paid?
Infrastructure and Equipment
Behind the scenes is all of the wiring, connections, power supplies, electrical boxes and other equipment vital to your connectivity. What happens in a power loss? What about a fire or flood? Redundancy is good risk management, but regardless, there is potential for downtime and physical damage.
Let’s review the coverages available:
- Property Insurance primarily covers buildings and contents (both on and of premises). As mentioned above, there may be some automatic coverage included for computers but this is typically a low level and is often insufficient. There are a few key items to point out here:
- Limit – do you keep the same limit each year and possibly increase it a few percent? When was the last time you truly reviewed the value of your equipment.
- Valuation – policies can be replacement cost or actual cash value:
Coinsurance – reduction in the amount of loss paid due to underestimating the full values at the time of the loss. Example: $50,000 of coverage on the policy with $100,000 of covered property on premises at the time of loss. Payment will be 50% of the loss.
- Replacement Cost = The amount it would cost to replace an asset at current prices.
- Actual Cash Value = The amount it would cost to replace an asset at current prices less depreciation.
Electronic Data Processing (EDP) equipment can be scheduled on the property policy. This provides specific limits as requested separately for both computers and software. This is preferable because it allows you the opportunity to review your computers, software and other related equipment to ensure that you have the correct limit in place. You can choose various deductibles and valuations and will have more flexibility than including it in the Property Policy. Keep in mind, the same 3 points above will apply to this coverage.
Business Income and Extra Expense is often overlooked, though it is extremely important. Let’s review the following scenario:
Your facility has a fire damaging the first floor which includes your server room. You are able to rent space in an adjacent building and purchase a replacement server in five days. Your staff and your IT vendor spend three days bringing the new server up only to find there was additional damage to the wiring and electric panel in the main building. 10 days later, your're finally up and running. That’s 18 days out of operation, and depending on your operation or mission, this could be significant downtime. Though you are a nonprofit you are still generating needed income daily. This is now a business income loss.
Extra Expense coverage will provide for the third parties that are relied upon over these 18 days (bills from your IT vendor, electrical contractor etc.) as well as overtime paid to your employees and the cost of the temporary space that you are paying for in addition to your normal rent. Not all property policies provide Business Income and many limit the amount of coverage. You can chose a limit based on your specific exposures and risk factors, and may also have the option of purchasing coverage on an Actual Loss Sustained basis. This would remove the limit and provide coverage for the full loss.
Now that we have reviewed the exposures and coverage options ask yourself:
Are We Covered? Are We Covered Correctly?