ADDRESSING E-Commerce EXPOSURES.

• Author: Morris, Barbara A.
• Position: Managing financial liability risks posed by electronic commerce

Too few companies have recognized the scope of the dangers posed by e-commerce liability and taken steps to manage them, say insurance companies and brokers.

Corporate America has jumped eagerly into the electronic commerce arena, with many companies reaping the initial rewards of instantaneous communication, transactional capabilities and market penetration. But the potentially disastrous financial exposures created by this new venue have been largely overlooked.

Corporate risk managers, who until recently focused primarily on bricks and mortar and liability-related exposures directly linked to their individual enterprises, must now take a wider view. Once online experts warn, a company opens itself to an expanded range of serious exposures that require a committed response -- a commitment originating not from the risk management or information technology departments, but from the board-room itself.

Its been hard to persuade corporate leaders that e-commerce, with all of its benefits, has left their companies vulnerable to a myriad of accidental and intentionally created loss scenarios, insurers and brokers report. Their observations were affirmed in survey results released earlier this year by The St. Paul Cos., the St. Paul, Minn.-based global insurer, and conducted by the New York-based opinion research firm of Schulman, Ronca & Bucuvalas Inc.

According to that survey, which queried 1,350 risk managers in large U.S. and European corporations, only 25 percent of U.S. companies and 30 percent of their European counterparts had risk management committees or other formal structures to identify and monitor technology. Of the companies with such a committee or structure, only half -- or about 13 percent of total respondents -- felt it was effective. And only about three in 10 risk managers surveyed had reviewed the potential technological risks posed by a merger or acquisition involving their company.

"While we had the impression this topic was not yet a major issue among executives and risk management, we were shocked at the lack of knowledge and under-preparedness that surfaced," says Kae Lovaas, president of Global Technology Underwriting, a division of The St. Paul, recalling her company's reaction to the survey results.

"As businesses rely increasingly on technology, employees and customers have increased access to company data and information in an environment with untested legal liabilities. The global nature of e-commerce, varying legal systems and the speed with which new innovations are brought to market further complicate the challenges facing companies today," Lovaas observes...