Killer internet business idea: check. Business plan: check. Domain name: check. Customer base: check. Insurance: ch…wait, what?
For many internet business owners, internet business insurance is not one of their first (or even fifth) concerns. While no traditional small business owner—with stock to lose, a storefront to maintain, and payroll to meet—would consider operating without insurance, many internet startups do just that. The question is, are these internet entrepreneurs flying without a parachute, or are they simply saving themselves from an unnecessary bill?
Unfortunately, the answer to that question is rather complicated. Although the internet is about 20 years old, and many of us cannot recall what life was like BW (before the web), it is still a very new phenomenon. As such, the insurance industry does not yet have the actuarial data on the likelihood of different types of losses for internet business. That means it is very difficult for insurers to calculate premiums. The lack of data also means it is tough for business owners to shop around and know that they are getting the best coverage for their money.
So should internet businesses just avoid the hassle and expense of insurance? Not so fast! There are many traditional and internet-specific calamities that a business owner would want to protect himself against, making internet business insurance a must. In addition to the possibility of loss of income because of physical damage to some aspect of your business (e.g., a loss of internet connection because of weather/fire/vandalism, etc), internet business owners have to worry about hackers, computer viruses, copyright violations, lost ad revenue, and privacy of customer information, among other issues specific to virtual business. And these virtual problems could lead to a real loss of income or even the business itself.
How should you navigate all of this? The first step in protecting yourself is shoring up your security. The Center for Internet Security provides business owners with a list of benchmarks for enhancing protection of web-based businesses. These benchmarks range from enabling pop-up blockers, to disabling remote desktop sharing, to managing firewalls. Whether you decide to insure your business or not, taking the time to explore these security benchmarks will certainly help you to protect your website.
As for insurance coverage itself, it does make sense to purchase a policy. A single accusation of plagiarism or copyright infringement, a single determined hacker breaking into your customers’ information, or a single internet outage during peak traffic could spell disaster. Do you have the money to pay for a protracted legal battle or to cover a huge revenue loss? If not, you will want to find a policy.
To make sure that you are purchasing an appropriate internet business insurance policy, it might make sense to do your shopping offline. Without actuarial data, the human element can help you decide which deal is right for you. Do you have an insurance agent you trust for something else in your life? Talk to her about insuring your internet business, in addition to your home, car and life. That will help reassure you that she won’t try to sell you something don’t need and that she’ll cover you for what you do need—and doesn’t your business deserve protection?