Can you insure the cloud?

cloud server roomWith the movement of company data into the cloud, companies could be setting themselves up for losses that might be uninsurable, according to insurance experts.

Cloud-based computing is becoming more ubiquitous for commercial businesses. Rather than hosting data and services on-site, companies contract with third-party companies to host the data and allow it to be accessed over the Web. The upside: virtually unlimited storage space and no need for in-house servers. Additionally, cloud-based servers provide regular data backups and system redundancies so that if there is a crash, data loss is minimized and uptime can often be quickly restored.

The downside: Once a company’s data is in the cloud, it is more vulnerable to security breaches than ever before. And insurance experts say that businesses that are accustomed to insuring their physical technology — computers, servers, networking equipment — may not adequately insure their cloud-based data, which is arguably far more valuable. Some experts say that if an insurance policy doesn’t specifically mention cloud-based data, some data loss might not even be covered. Several insurers do offer “cloud insurance” as a subset of their business insurance policies, but even these may not cover all of the potential liabilities of data loss, according to VentureBeat. Many cloud insurance policies are aimed at cloud service providers, to protect against liability claims for downtime or data loss.

According to an article in Business Insurance, panelists at the magazine’s 2013 Risk Management Summit in New York said that many executives were not aware of the business risks of moving to the cloud and that basic ignorance could have devastating consequences.

“Companies using cloud computing to supplement or replace in-house data storage systems without a cohesive risk management strategy can expose themselves to substantial financial losses and reputational harm, cyber risk experts say.”

Company executives should ask several questions, according to Insurance Journal; the answers could make the difference between the right cloud policy and a less than adequate one, between weathering a data loss or security breach and not. Questions include knowing who is liable for a data breach, what happens if the company has loss of connectivity, how quickly will a company be able to restore operations, and perhaps most importantly, how will the company stay afloat if a breach or connectivity loss happens?

The rising incidence of malware, viruses, denial of service attacks, and other cyber security threats is more than an annoyance. Companies that move their data to the cloud may also be putting themselves at greater risk for all of these threats. Making sure they are covered could be the first step in making sure their business survives an attack.

Patrice Sarath

Patrice Sarath is a writer and editor for First Research, covering the health care, insurance, and construction industries.

Read more articles by Patrice Sarath.

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