As recently as two years ago, most carriers that explored theintroduction of products and services to cover Internet-based risks faced arude awakening: The coverage was extremely difficult to underwrite, andeven if that hurdle were overcome, it was regarded as difficult to sell.New York City-based American International Group Inc., an internationalinsurance organization whose member companies write property, casualty,marine, life and financial lines insurance, has adopted both a creative andunorthodox approach to break through the morass of difficulty that definese-commerce risk insurance.
In January, AIG introduced a suite of liability insurance products forcompanies that do business on the Internet. Available at premiums thatstart as low as $2,000 a year, the program, called netAdvantage, has fourspecific components tailored for different types of risk exposure:netAdvantage Pro addresses media, content-based injury suffered by a thirdparty; netAdvantage Pro+ is targeted toward Internet service providers tocover computer virus transmission, unauthorized use, loss of service andother perils; netAdvantage Security is third-party liability for risksoriginating from malfunction of an insured's Internet and computer securitysystem; and netAdvantage Security+ is first-party coverage for eBusinessinterruption.
Industry breakthrough
AIG's product line is a breakthrough for an industry that has hadtrouble getting a handle on Web-based risk management. "This coverage haslong fallen outside the charter of what most carriers are accustomed towriting," says Robert Parisi, senior vice president and chief underwritingofficer, global e-business solutions for AIG.
"The market had no clue what it was doing, and pricing was all over themap," Parisi continues. "We decided to take a thoughtful approach to thiscoverage and, in fact, the approach is analogous to a bull's eye. As wedrafted netAdvantage, we pinpointed the risk outside the bull's eye, so tospeak. Over time, we continue to identify the risk within the bull's eye."
AIG took about two to three months to craft netAdvantage, Parisi says.In a departure from the way most carriers formulate insurance products, AIGenlisted its claims executives to help draft netAdvantage. Plugging theclaims unit into the equation during the development process enabled claimsexecutives at AIG "to understand-when it came time to settle a claim-whatthe underwriter intended when he wrote the coverage. They understand thisbecause they were a part of the product development process," Parisi says.
This technique of getting more input from more corporate units has alsoenabled AIG to expand its product line for Web-based risk exposure. Buthaving an effective product would be meaningless without other safeguards.
Doing business on the Web is a far cry from how it's conducted in abrick-and-mortar setting. As such, AIG performs an Internet securityassessment on every potential customer "to determine if they have best-of-breed technology such as firewalls and encryption, and to basicallyascertain where they are on the IT learning curve," Parisi says. "We needto know if their IT strategy is a living, breathing thing or if they justpay lip service to it. Once we identify a weakness, we can put them incontact with a vendor that sells best-of-breed security solutions."
AIG also established a technology panel counsel, which is comprised ofU.S. law firms well versed in Internet security and intellectual propertyissues. The panel provides ongoing counsel to AIG and its policyholders sothat they can fully understand all the legal implications that accompanydoing business on the Web.
Myriad handicaps
Industry observers say carriers must go to greater lengths to make Web-based risk coverage successful. This process starts at the top.
"The problem with the CEOs of many dot-com startups is that they are'twenty-something' individuals who never had the proper mentoring tounderstand all the essential risks associated with operating a business.They pushed the business right out to the public without preparing forthese situations," Parisi explains.
What AIG aims to accomplish as it continues to market netAdvantage isto view its policyholders as partners, while educating them on bestpractices for Web site security management.
"We want our insureds to be the best insureds they can be, and
essentially make a good risk become a better risk," Parisi states.
