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ARI Blog: Article

What is EDP Coverage?

Virtually all businesses and organizations rely upon their computer and data management systems to conduct business efficiently and effectively. Technology is a substantial business investment, and you must adequately insure against loss of hardware and essential data. Most property policies provide limited coverage for computer equipment and exclude losses specific to data, media, and losses caused by computer viruses or hacking.

Electronic Data Processing (EDP) insurance is specifically to cover the unique risks associated with computer operations. EDP policies typically include three coverage components:

  1. EDP Equipment- The servers, computer terminals, monitors, laptops, etc.

  2. EDP Media- The disk drives, disks, magnetic tapes, etc., on which data is stored.

  3. EDP Data- The information stored on the media, such as facts, concepts, programs, and additional expenses associated with data recovery.

The Equipment and Media sections are within the property coverages. Given the volatility of technology equipment values, the most critical concerns are determining adequate limits and understanding the terms of the policy. Equipment and Media coverage can be written on either a replacement cost or actual cash value basis. Some policies may include a coinsurance clause, which requires that you insure the equipment and media for a certain percentage of the total value. A typical coinsurance clause requires 80, 90, or 100% of the total value, with a claimed penalty imposed at the time of loss if the limit is inadequate. You can also insure equipment on a scheduled basis, meaning all equipment is listed on the policy with a per-item limit. Each of these provisions can have an impact on claim payments in the event of a loss. Although each insurance company has its terms for EDP coverage, it is most desirable to obtain a policy on a blanket basis with replacement cost and no coinsurance clause.

Since data is often difficult to replace or retrieve, it is often the essential coverage component of the EDP policy. It is also the most challenging one to insured effectively. Data coverage is not standardized in the insurance marketplace; carriers may define data differently and offer different forms of coverage. A close examination of the terms of your policy is necessary to determine the adequacy of your data coverage. Some important considerations are:

  1. Does your policy provide coverage for losses caused by viruses and hacking?

  2. Does it include coverage for a denial of access?

  3. Does it provide business interruption and extra expense coverage?

  4. Does your policy cover the expense of hiring a forensic expert if you are hacked?

Every organization that depends upon technology in its operation should consider an EDP policy. This specialized coverage is designed to protect your financial investment in technology and to alleviate the economic impact of data loss, as well as business interruption and extra expenses incurred with a loss. T

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