For many dietary supplement businesses, online sales are becoming an increasingly large share of income. There are many positive aspects of this, but having an online profile poses certain risks. E-commerce can expand your products to a much larger customer base, but also makes you vulnerable to additional exposures and potentials for a financial loss. Protecting yourself and your business from cybercrime (hacking, phishing, denial of service attacks, etc.) can sometimes require a more comprehensive strategy for liability and asset protection.
Consider the following scenario:
You’re a dietary supplement business that does a large portion of your business through online sales. One day, a hacker locks down your website and demands money in order to have your website released. In the process of getting the issue resolved with the authorities, you lose three days of online sales, which puts you in a tough financial position. As you have suffered a loss in income, you check your property policy. You see that you are insured for Loss of Business Income, which seems perfect. However, when you reach out to your carrier, they say “Not so fast.”
Why is that?
In a standard property policy, Loss of Business Income comes when a business is physically shut down or if inventory has been damaged, stolen or destroyed. With E-commerce, not being able to sell your products may disrupt your income, but your business is still functional and your inventory is still available. It’s like someone has placed an electronic gate around your storefront.
Unfortunately, as frustrating as this may be for a business, this scenario does not meet the standards of Loss of Business Income for carriers. A common misconception is that a commercial property policy will cover all business interruption/loss that a business may encounter—and that just isn’t the case.
“But we’re not a ‘computer’ company.”
Cyber Insurance is a policy that many businesses consider to be optional, often because they do not consider themselves a “computer” company. Most small businesses don’t invest in server farms or attempt to handle their own payment processing, and therefore feel it is the responsibility of their E-commerce vendors to cover those liability responsibilities. However, the business risks associated with a computer hacking or other electronic cyber crimes can strike nearly every modern business.
The standard insurance form for commercial property does not provide any coverage for interruption of computer operations unless an endorsement is added to the policy. Even then, an endorsement is on the policy for problems related to computer operations. The coverage is severely limited in scope for a “cyber” event within the majority of standard commercial property policies. However, the majority of Cyber Insurance policies will include Business Interruption coverage for losses relating to Cyber events. This would not be covered by the Business Income on a Commercial Property policy but would be covered on a Cyber Insurance policy.
Where to Start
I highly recommended exploring the option of a cyber Insurance policy for your business. The quoting process is quick and simple and the policies are very affordable compared to that of a product liability policy for a Dietary Supplement business. With more and more businesses connected online to customers, it’s never too early to protect yourself from the handful of criminals that can hurt your business through your E-commerce sales channel.
Having appropriate coverage within the dietary supplements industry is crucial to protecting your reputation and business. For more information about common dietary supplement insurance issues, check out our resource page. If you have further questions, please feel free to reach out to me or Greg Doherty at the Bolton Dietary Supplement Group at 626.535.1459.