Identity theft becomes a hot topic among business owners—Protection now offered as part of a BOP 03/06

Identity theft becomes a hot topic among business owners

Protection now offered as part of a BOP

By Len Strazewski

Tim Johnson, executive vice president of CLG Financial in Nanuet, New York, learned about the problem of identity theft the hard way. He became a victim.

During a vacation trip to Jamaica a few years ago, Johnson discovered that one credit card was missing from his wallet. On his next credit card statement, he found a charge for $9,000 worth of shoes, purchased in Libya.

“Of course, I called the credit card company, canceled the card and had the charge removed; but if I hadn’t followed up, or if more credit cards had been involved, I could have been in big trouble,” he says.

Many business owners and individuals are already in trouble. According to the Federal Trade Commission (FTC), identity theft accounts for about $54 billion in direct and indirect costs to U.S. businesses and individuals.

In its most recent FTC-sponsored survey (2003), the agency estimated that as many as 10 million Americans were victims of some sort of identity theft, which, in addition to direct losses such as fraudulent charges, took an average of 60 hours and about $1,200 to correct.

Johnson says that the personal and small commercial customers of his multiline agency are starting to hear a lot about the risks of identify theft and other financial fraud exposures, and some have been victims themselves, but many of them have not yet purchased identity theft insurance or made a commitment to some basic risk management.

“This is a big-time growing risk,” he explains, “and until you experience a loss, you may not realize just how critical protecting your identity is to your financial security.”

CLG Financial, a 30-year-old agency with 45 employees, has been selling free-standing identity theft loss reimbursement insurance for three years. Recently it began promoting an updated comprehensive businessowners policy (BOP) from The Hartford Financial Services Group that now includes identity theft loss reimbursement and loss recovery services.

Identity Recovery Coverage for Business Owners became available on January 1 as part of The Hartford’s Spectrum and Spectrum Xpand small business package policies, which are designed for employers with up to $5 million in annual revenue and up to 50 employees.

PREVENTING IDENTITY THEFT

Agents and brokers marketing new identify theft coverage may want to deliver the policies with a healthy dose of personal and small business risk management.

The best protection against identity theft is prevention, say underwriters; and producers can help by communicating some good prevention tactics. The Hartford’s Jim Ruel recommends that business owners and/or individuals:

—Order and check credit reports at least once a year and look for signs of unauthorized charges, credit accounts that you did not open and other signs of fraud. To order credit reports, go to http://www.annualcreditreport.com or call (877) 322-8228.

—Guard your Social Security number and release only when necessary, such as identification on tax forms, employment records and banking forms. Check Social Security Earning and Benefit statements for accuracy.

—Mail outgoing bills from post office collection boxes, not unsecured mail boxes. Have the post office hold mail when you are away.

—Destroy documents before disposal, especially charge and ATM receipts, insurance statements, checks and bank statements.

—Be careful when shopping online and use a single, designated credit card. Use commercial sites that feature Secure Sockets Layer (SSL) security.

—Update computer virus protection software regularly and download operating system and browser security patches. Use firewall software, especially for computers with DSL or cable modem Internet access.

—Pick your PINs carefully to be unguessable and shield the PIN pad when you enter it.

—Keep all documents with personal or business account information under lock and key.

—Record all credit and bank account information and the telephone numbers of credit card and bank customer service and fraud departments.

Don’t give out personal information over the telephone, over the Internet or through the mail unless you have initiated the contact.

For more information about identity theft, go to http://www.ftc.gov/consumer or take the Identity Theft Quiz, part of the federal agency’s new http://www.OnGuardOnline.gov Internet fraud Web site.

The coverage, which is designed to protect sole proprietors, partners in a business and owners of 20% or more—but not the business itself—provides up to $15,000 in loss reimbursement and a comprehensive package of identity recovery services, including a toll-free hotline and case management after a crime has been committed, according to Jim Ruel, senior vice president of small commercial insurance at The Hartford. It is available for no additional premium.

“This is an emerging problem for small business owners and individuals and is expected to continue to grow over the coming years,” Ruel says. “For many small business owners, the cost of losses due to identity theft and the cost of recovery can have a direct impact on their ability to manage their business.”

Ruel notes that individual direct losses such as a fraudulent credit card charge may be a relatively small loss easily corrected by reporting the charge to a credit card company, but the ensuing losses in time and reputation may become devastating.

“When you own a business, your good name on the sign above your door is often as important as the products and services you offer, so rapid response is crucial when that name is tarnished,” he explains.

An identity theft criminal may use an identity to commit other crimes, buy or sell property or build a history of charges that could lead to harassment and embarrassment by creditors, collection agencies or law enforcement agencies.

Ruel says that while the carrier had been offering various kinds of computer and financial fraud coverage as part of its Cyber Flex program, it added the identity theft recovery coverage as part of its continuing commitment to small business owners.

The Hartford has more than 1 million small businessowners policies in force, generating more than $2.5 billion in premium, he says.

Hartford Steam Boiler (HSB) reinsures the identity theft recovery coverage for The Hartford and provides the identity recovery services that both Ruel and CLG Financial’s Johnson say make the coverage particularly valuable.

Mark MacGougan, HSB vice president for product development, says the insurance and service package was introduced late last year to both personal and commercial lines property/casualty insurers with a minimum of 10,000 eligible accounts.

“This isn’t the kind of coverage that people generally associate with HSB, which for many years has specialized in machinery failure and recovery insurance,” he notes. “But in some ways, it is very consistent with our focus on loss prevention and recovery and makes good use of our claims infrastructure.”

The expense reimbursement protection pays victims for the costs they incur in resolving problems from identity theft, including lost wages as a result of time away from work (applicable for homeowners policyholders), credit bureau reports, reapplication fees for loans denied due to falsified credit information, postage, telephone and shipping fees, notary and filing fees and some legal fees.

However, MacGougan agrees that the most important part of the coverage is the recovery services provided by the HSB call center. Policyholders who think they may be victims can call the toll-free number to ask questions about investigating their possible losses and how to best proceed to recover from the crimes. They can also use the hotline as a loss prevention resource.

Confirmed identity theft claimants are then referred to a case manager who guides them through the steps they need to take to correct credit histories or identity records. The case manager can also help victims review their credit reports for errors, help coordinate the correction process and write letters that the victims can send to credit bureaus and other institutions.

The case manager can also keep detailed records of the process, which can be valuable in subsequent legal action.

MacGougan says most commercial insurers will likely add the coverage at no cost to a small business package, but it may be subject to various deductibles. Optional personal lines identity theft recovery coverage for a homeowners policy is likely to add $20 to $40 to the annual premium.

Johnson says CLG Financial producers are now discussing the new coverage with their clients to make them aware of both the exposure and remedies. Even the agency’s telephone “hold” message now advises callers of the risks and encourages them to consider coverage.

“Small businesses are particularly vulnerable to this risk. For many businesses, it doesn’t take much to upset the financial stability of the company or the good credit of a business owner,” he says.

“The loss indemnification feature is nice, but the real value of the coverage is the identity recovery services. With these services, a victim has some immediate guidance about what to do to minimize losses and recover your good name.” *