Insuring IT security

What is a premium service?

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Quocirca’s Changing Channels There is little difference between the aims of IT security and insurance. Businesses make investments in both because they know they have to and it would be irresponsible not to. IT security products are purchased to protect against threats that it is hoped will never occur. In the same way, when we insure our houses, we do not intentionally burn them down (OK, there are some exceptions).

Investment in IT security needs to be proportionate to risk and the problems that arise if it fails. In some cases the actuality is more serious for some organisations than others. It is worthwhile for a bank to take the step of storing customer data as encrypted because if the data falls into the wrong hands there is the potential for financial loss, brand damage if the media find out and legal consequences arising from breeching regulations.

The copy for this article was not stored as encrypted, because if it fell into the wrong hands – most likely by theft of the notebook PC it has been stored on – it is very unlikely that the thief would submit it in their own name. The thief is more likely to delete this article and all the rest of the content stored on the PC before selling the device on. Quocirca is insured against the loss of the device, but if the article was written since the last backup, it will have to be rewritten, so there is potential loss of analyst time. But this does not justify the cost of encrypted storage software.

For the bank, investing in encryption software is problematic. Its data is valuable to the bank and its customers but also to thieves. The later might seek to break the encryption algorithms to get hold of the data. So, the bank then has to evaluate stronger encryption products and invest in the one it deems up to the job. Encryption is not for all, but basic security products like firewalls and anti-virus should be – and here there is huge choice, wide ranging quality and price differences. How does a business select the most appropriate level of protection at the best price?

This is best viewed from the threat angle. A business buys anti-virus software to ensure its computer networks do not become infected with certain types of malware. It wants a level of assurance from the anti-virus supplier that its products will provide this. The top vendors will identify viruses early and accept the consequences if they do not. For example Trend Micro, an IT security company, offers a Virus Response Service alongside its anti-virus software. If the anti-virus software fails they will come and clean up the mess within 2 hours and if they fail to do this they will provide financial compensation. This sounds as much like insurance as IT security.

In fact, there are insurance companies like ACE, whose Dataguard product does insure against the consequences of the failure of IT security. Why bother with IT security investment at all if you can just as easily buy insurance? Well obviously ACE would not insure a completely unprotected network, so they require that basic security measures such as anti-virus and firewalls are in place. But that is as far as it goes; ACE does not recognise that some products are more secure than others.

Perhaps it should. Better anti-virus, firewalls etc. mean less risk and less likelihood that the insurance will have to pay out. Trend Micro offers financial compensation, not because it has cash to burn, but because it is confident that its products and services will work in the first place.

Analysts like to talk about convergence – and why not the convergence of IT security and insurance. Better security would mean lower premiums for the residual threat from a security breach and businesses continuity is covered even when IT security fails.

Trend Micro and ACE both offer examples of where this convergence is starting to happen, if it goes mainstream the market will recognise the better IT security products and offer lower insurance premiums when they are in place. Who knows if IT vendors or insurance companies will further embrace this in the near future, but as with all types of convergence the channel need not wait – resellers could just offer the combined offering themselves.

Copyright © 2005,

Bob Tarzey is a service director at Quocirca focussed on the route to market for IT products and services in Europe. Quocirca (www.quocirca.com) is a UK based perceptional research and analysis firm with a focus on the European market.

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