Insurance coverage should factor in e-com exposures

ALEXANDRIA, Va. – With more e-com operations comes more exposure risk. Credit unions should make sure their insurance coverage is adequate to cover potential risks of e-commerce products and services’ said NCUA in a Letter to Credit Unions. The regulator warns that the typical fidelity bond may not protect e-commerce related losses. It asks credit unions to continually evaluate their risks as they launch new e-commerce products, or change e-com vendors. NCUA does not require credit unions to have specific e-com insurance coverage. However, Part 713 of NCUA’s Rules and Regulations does require credit union boards to do an annual review of the adequacy of their insurance coverage. “A thorough risk assessment process would assist in the determination of the adequacy of the coverage in relation to the credit union’s activities – including e-commerce,” stated NCUA in the letter. Roger Nettie, risk specialist for CUNA Mutual Group, said CUNA Mutual has seen varieties of e-com related claims this year that it hasn’t seen in the past. For example, home banking claims related to fraudulent transfers from a line of credit; Web defacement; and denial of service claims. One claim paid out included up to $50,000 for the credit union to go out and hire a security expert to thwart future online attacks. Nettie said credit unions have many less devious online exposures to worry about than hackers infiltrating the CU’s online banking system, which is often held up as a worst case scenario. There are other less dramatic issues, such as advertising injury risk; breach of copyright or trademark; Truth in Lending violations due to inconsistent rate posting on the CU’s Web site; and others. One of the most important things a CU can do to protect itelf on the insurance side is to monitor coverage levels to ensure they are adequate for new e-com exposures. Existing coverage dollar limits may have been fine for brick and mortar operations, but need to be increased for online operations, he said. Some insurance carriers have been quick to introduce new coverages to deal with e-com exposures. Chubb and CUNA Mutual have both rolled out e-com policies. For its part, CUNA Mutual has two special coverages for online risks: Electronic Crime Coverage and Funds Transfer Coverage. It also has a Computer Crisis Management Endorsement and Electronic Crime Loan Endorsement. Nettie stressed however that many common CU coverages, such as a Directors, Volunteers and Employees policy, or a Supplemental Litigation policy, could cover e-com losses. For example the DVE policy could protect credit union employees from suits alleging a wrongful act resulting from their duties related to electronic services. [email protected]