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Short term Insurance
Monday, May 1, 1989
Losing grip

The world over it is commonly appreciated that vast amounts of money have been lost through computer fraud.
In South Africa losses amounted to a staggering R250m during 1988 alone. The costs to the British economy annually have been estimated at about £ 1,5 bill ion so far. Even so, many agree that the figures are grossly underestimated because of the vast number of cases that go unreported.
It is believed that, in most instances, nine out of 10 UK companies using computers do not insure against the risk despite the potential for loss. Many UK companies think that employee crime is an area which they can effectively control. It is felt that regular internal checks and security measures carried out on employees is sufficient to control the risk. Although it is noted that these measures have not been enforced rigidly because of the fear of offending employees. Recent surveys have also shown that internal security measures, which have to be enforced by the computer literate or specialist external consultants, have been poorly administered. Companies also feel that they would be able to identify cases of fraud through inconsistencies in accounts or bank statements before losses become uncontrollable.
At the same time many small to medium sized insurance companies do not specialise in providing insurance against computer fraud. So often, clients are forced to go elsewhere for such cover.
UK fidelity guarantee policies generally cover computer fraud to a limited value by employees, although special endorsements may he required to extend cover for the third party fraud risk. New specialist policies in this area protect companies against fraud, either by employees or by third parties, which involves cash management systems and electronic funds transfer services.
In the old days, when assets were more or less physical, the embezzlement risk was covered by a fidelity guarantee policy and theft risk by a theft or money policy. The process of insuring was relatively simple. Now that computers have become the order of the day the risk is more complicated. Increasing numbers of employers and employees have access to computer systems. Moreover, the computer is used for a great deal more applications, putting an increasing range of a company’s assets at risk to the potential embezzler.
Surprisingly, despite the increase in risk, there has not been an accompanying increase in security systems on the computers themselves.
For example, passwords are neglected and abused by employees. Indeed it has been found that the majority of computer frauds were made possible because of lapses in security. To this end Grahame Wright, assistant director First Bowring & Associates, advises that he has developed a team to look at companies’ physical and logical security using qualified experts in insurance and computer audit. Underwriters have insisted that a satisfactory physical and logical survey is completed before quotations or cover for computer crime insurance can be granted. With the increasing use of computers and electronic systems, there is the hope that insurance companies in this country will begin extending cover to include computer fraud.
First Bowring now has three local insurance companies who are interested in underwriting computer crime in South Africa. Negotiations continue.

Copyright © Insurance Times and Investments® Vol:2.5 1st May, 1989
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