Insurance for online businesses: November 2019 guide
If you run a business on the internet you'll still need to consider insurance.
Many modern businesses have an online presence of some kind, whether they operate an ecommerce extension of their bricks-and-mortar trade or are an online-only business in their own right.
Unfortunately, while the Internet opens up whole new markets to business, it also exposes them to a whole new raft of risks, any one of which could damage or even destroy the business.
What types of risks do online businesses face?
Where once a bricks-and-mortar business would face the risk of someone slipping on their wet shop floor and suing them for damages, liability has now moved into the cyber realm.
A business now risks harming its customers through digital means, such as inadvertently spreading viruses or malware in marketing emails or compromising customers’ privacy and personal details via an online security breach.
And unfortunately these new exposures are not instead of the normal risks but as well as, meaning a business must not only insure itself against online risks but also take out other more traditional forms of business cover. These might include product liability insurance if they are selling goods online and professional indemnity insurance if they are offering professional services or advice online.
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What types of insurance should online businesses consider?
While online business insurance has been around for at least a decade in countries like the US, it is still relatively new in New Zealand, where it is usually referred to as ‘cyber insurance’ or ‘cyber cover’. A typical cyber insurance policy might offer the following types of cover:
- Privacy protection. Covers legal costs and indemnification for privacy breaches and loss of customer information.
- Breach costs. Covers data recovery and repair costs following a breach (both physical and reputational).
- Cyber business interruption. Compensates the business for lost profits while it is unable to trade due to a breach.
- Cyber liability. Covers legal costs and compensation for third parties who suffer a loss as a result of the business.
- Hacker damage. Covers the cost of repairing damage caused by a hacker to a website, network or database.
- Cyber extortion. Covers the cost of ransoms and forensic investigation if data is hijacked.
An online business should also have a range of traditional business covers in its portfolio, including:
- Public liability insurance: if there is a bricks-and-mortar aspect to the business.
- Product liability insurance: if you sell goods to the general public.
- Professional indemnity insurance: if you provide professional services or advice.
- Business insurance: to protect your stock, essential equipment etc against theft or damage.
How can an online business minimise its risk?
As well as taking out online business insurance, a business can further reduce its exposure to online risks in the following ways:
- Have a limitation of liability clause and clear terms and conditions on your website
- Have binding end-user licence agreements with your providers to guarantee supply
- Separate your personal assets from the business by incorporating it as a proprietary limited company
- Register your business name and logo to protect your company and intellectual property online