Data Processing Insurance

Definition

Data Processing Insurance provides comprehensive coverage for data processing equipment, data processing media (such as magnetic tapes, disks), and extra expenses involved in restoring usual business operations following a disruption. This type of insurance can be offered on a specified perils basis, protecting against certain listed risks, or on an all risk/all peril basis, providing coverage for any risk not explicitly excluded by the policy. Typically, data processing equipment is covered on an all risk/all peril basis using a specifically scheduled approach, while data processing media is usually also insured on an all risk/all peril basis.

Examples

Data Center Fire: A fire damages a company’s data center, destroying servers and backup tapes. Data Processing Insurance would cover the replacement of the equipment and data media, as well as the cost of restoring data and getting the business back to operational normality.
Viral Attack: A malicious software attack compromises multiple systems in a business, corrupting data stored on various media. The insurance would cover the cost of data recovery and any additional expenses incurred in returning to regular business activities.
Natural Disaster: An earthquake damages a company’s IT infrastructure, including hard drives, tapes, and disks. Data Processing Insurance would cover repairs, replacement of the damaged equipment, and the cost involved in retrieving lost data.

Frequently Asked Questions (FAQs)

What does Data Processing Insurance cover?

This insurance covers data processing equipment (such as computers and servers), data processing media (like magnetic tapes and disks), and additional expenses incurred while restoring business operations to normal after a disruption.

How is coverage typically structured?

Coverage is usually offered on an all risk/all peril basis. Equipment is often covered on a specifically scheduled basis, meaning each piece of equipment is individually listed and insured. Media tends to be covered on an all risk basis, with fewer specific listings.

What types of perils can be covered?

Coverage can include risks such as fire, theft, water damage, electrical surges, viral attacks, and natural disasters, although the specifics would depend on the policy terms.

Are there any exclusions?

Typical exclusions might include intentional damage, wear and tear, or risks specifically excluded by the policy, such as certain types of cyber fraud or war.

Can this insurance cover lost data?

Yes, the policy generally includes coverage for data restoration or recovery, up to the limit specified in the policy terms.

Is liability coverage included?

Data Processing Insurance primarily covers physical damage and data recovery. Liability coverage for data breaches may need to be obtained through a separate cyber liability insurance policy.

Cyber Liability Insurance: Provides coverage for legal fees and expenses related to data breaches or cyber-attacks.
Business Interruption Insurance: Covers lost income and operational expenses during periods when a business cannot operate due to a covered peril.
All Risk Coverage: An insurance that covers all perils except those explicitly excluded in the policy.
Specified Perils: Insurance coverage that protects against losses from risks specifically listed in the policy.

Online References

Suggested Books for Further Studies

“Cyber Risk: How to Handle the Growing Threat to Your Business” by Denise E. Hilton
“Data Protection and Compliance in Context” by Stewart Room
“Fundamentals of Risk and Insurance” by Emmett J. Vaughan and Therese Vaughan

Fundamentals of Data Processing Insurance: Insurance Basics Quiz

### What type of equipment is typically covered under Data Processing Insurance? - [x] Data processing equipment like servers and computers - [ ] Office furniture - [ ] Company vehicles - [ ] Employee uniforms > **Explanation:** Data Processing Insurance specifically covers data processing equipment, including servers and computers, to ensure continuity of data-related operations. ### What type of basis can Data Processing Insurance coverages be offered on? - [ ] Only specified perils basis - [ ] Only on an all risk/all peril basis - [x] Both specified perils and all risk/all peril basis - [ ] Neither specified perils nor all risk/all peril basis > **Explanation:** Data Processing Insurance can be offered on both a specified perils basis and an all risk/all peril basis, depending on the needs of the business. ### Which items are typically covered specifically on an all risk/all peril basis under this insurance? - [ ] Only data processing equipment - [x] Data processing media like tapes and disks - [ ] General office supplies - [ ] Only business interruption > **Explanation:** Data processing media, such as magnetic tapes and disks, are typically covered on an all risk/all peril basis under this insurance. ### What additional aspect does Data Processing Insurance cover aside from equipment and media? - [ ] Employee healthcare - [ ] Office rent - [x] Extra expense involved in returning to usual business conditions - [ ] Legal liabilities from data breach > **Explanation:** Data Processing Insurance includes coverage for additional expenses involved in returning the business to usual operations following an insured event. ### Can Data Processing Insurance help with recovering lost data? - [x] Yes, it typically includes coverage for data restoration. - [ ] No, it only covers physical equipment. - [ ] Only if the data loss was due to theft. - [ ] Data loss is generally not covered. > **Explanation:** This insurance generally includes provisions for data restoration, ensuring businesses can recover lost data up to the limits specified in their policy. ### Are intentional damages usually covered under Data Processing Insurance? - [ ] Yes, they are always covered. - [ ] Only if caused by an employee. - [ ] If they are explicitly listed in the policy. - [x] No, intentional damages are typically excluded. > **Explanation:** Intentional damages are typically excluded from coverage to prevent fraudulent claims. ### How is most data processing equipment covered? - [ ] By listing general types. - [ ] Through a group coverage of all office assets. - [ ] Only if they are brand new. - [x] On a specifically scheduled basis. > **Explanation:** Data processing equipment is usually covered on a specifically scheduled basis, meaning each piece of equipment must be individually listed and insured within the policy. ### Is cyber liability included in Data Processing Insurance? - [x] No, it often requires a separate cyber liability insurance policy. - [ ] Yes, it is always included. - [ ] Only under specified perils. - [ ] Only if explicitly requested by the insurer. > **Explanation:** Cyber liability typically requires a separate insurance policy, as Data Processing Insurance primarily deals with physical damage and recovery costs, not liabilities arising from cyber breaches. ### What type of event is generally not covered by Data Processing Insurance? - [x] Normal wear and tear - [ ] Fire - [ ] Water damage - [ ] Electrical surge > **Explanation:** Normal wear and tear is usually not covered as the policy focuses on sudden and accidental incidents, not the gradual deterioration of equipment. ### Why might a business need Data Processing Insurance? - [ ] It is a legal requirement. - [ ] It increases tax benefits. - [x] To mitigate the risk and potential costs associated with data loss or damage to data processing equipment. - [ ] To reduce employee turnover. > **Explanation:** Businesses need Data Processing Insurance to mitigate risks and potential costs, ensuring swift recovery from data loss or damage, and continuity of operations.

Thank you for starting this in-depth journey into Data Processing Insurance. By understanding these core concepts and testing your knowledge, you’re better prepared to manage business risk and ensure operational continuity.