CLASSIFYING RISK

By Linda D. Ferguson, CPCU

SELLING IN CYBERSPACE

A variety of exposures exist on the World Wide Web

After my cat recently knocked down the draperies in my home office, I decided to move forward with some deferred decorating plans. Because we live in a rural area which is not close to malls, we must choose from three shopping choices: accept limited options, drive long distances to a mall or use the Internet. I have enthusiastically embraced the idea of Internet shopping. In this case, instead of spending several hours driving and walking around, I shopped, ordered and paid for new curtains via the Internet in less than 30 minutes. While waiting for them to arrive, I began to think about all of the classifications that are involved in this relatively painless transaction.

The first thing that is needed to place an order over the Internet is a computer. It can be a household computer, the computer at the library or even one at work. The computer I use was actually purchased over the Internet. Since it was purchased direct from the manufacturer, the code to use is 51941 - Computer Manufacturing. The footnotes indicate that this is the appropriate class; however, you must attach a professional exclusion, CG 22 75 - Professional Liability Exclusion -Computer Software.

If we read the general liability rules a little more closely, there is another code that must be used; Computer Stores - 11160. Rule 27.A.3 states that retail operations of manufacturing risks must be separately classified. Rating this can be a little tricky. The Computer Manufacturing code uses the wholesale value of the items sold to the retail operation as the premium basis while the Computer Stores code will use the retail receipts to determine its premium.

Besides a computer, to shop on the World Wide Web one must obviously have an Internet connection through an Internet Service Provider. There are many providers available and all are classified as Internet Service Providers code 47610. When this code is used, the Exclusion - Internet Service Providers And Internet Access Providers Errors And Omissions Endorsement CG 22 98 must be attached because of the potential errors and omissions exposure.

Next comes the actual transaction. There appear to be two alternative codes that retailers might use in Internet sales. The first choice is 16750 - Internet Retailer. Since the purchase is being made over the Internet, this is the logical first choice. The footnote corrects this assumption when it states that this code is used for operations that sell only over the Internet. The particular store I like happens to sell via both brick and mortar stores and virtual stores. Looking through the classifications there is no specific classification for curtains and drapery stores, so the only code that will fit is the 18437 - Stores - no food or drink - other than not for profit.

The next step is delivery; however, this delivery is not going to be handled by the store. They will use a shipping concern. There are several options for delivery. The postal system is one choice but since that concern doesn't require insurance, let's consider the other alternatives. There are two codes that should be analyzed. The first is 94099 - Express Companies. This code is designed for the companies that specialize in parcels and letters. The other code is 99793 - Truckers and is meant for all other trucking operations. Since the curtains are lightweight and are to be delivered as a parcel, the Express Companies code 94099 is the one to choose.

The last part of the order process involves the payment. While some operations will permit C.O.D., most require a credit card number in order to process the order. A financial institution issues the credit cards so the code 61223 - Building or premises - Banks or other financial institution classification would be applicable.

A simple transaction on my part involved a number of operations and varying exposures to loss. The risks vary, so the rates and premium will vary.

The curtains have arrived and are in place. Another successful transaction on the World Wide Web has taken place. It is not my first and will definitely not be my last.

Are you aware of how your clients are buying and selling their products? Are there some Internet gaps that need to be filled? ISO forms and classifications are changing to keep up with the Internet and gaps can quickly emerge. It takes just one question--do you do any selling or ordering over the Internet? *

The author

Linda D. Ferguson, CPCU, has 30 years of underwriting experience with national commercial lines carriers. She now operates a consulting business, Pleasant Street Consulting Company, in Newtonsville, Ohio. She can be reached at ldfcpcu@hotmail.com.