Does Your Bank Insurance Cover Web Banking?

By Buse, Paul; Davis, Jennifer | ABA Banking Journal, June 1998 | Go to article overview

Does Your Bank Insurance Cover Web Banking?


Buse, Paul, Davis, Jennifer, ABA Banking Journal


Paul Buse and Jennifer Davis, of Risk Management Services, a consulting division of Aon Services Group, which reviews the insurance packages of 100 banks annually as part of an ABA -sponsored program

By the year 2000 it's estimated that 90% of the country's banks will be accessible online, offering services ranging from basic banking transactions to investment advice. With such ever-increasing Internet technology and availability also comes new risk exposures for the bank.

Because the full extent of a bank's exposures on the Web is not yet realized, care must be taken to minimize the known loss exposures. Unfortunately, the standard insurance policies available on the market may be insufficient to cover the risks. Some creative problem-solving may be warranted.

Three clear risks for banks

A few of the critical known dangers faced by banks who offer their services on the Internet include:

Potential liability for defamation.

Risk of damages for incorrect financial advice.

Possibilities of losses from computer-related crime.

Let's take these each in turn.

Defamation exposures come from publishing or advertising on the Internet. The Internet provides a bank with inexpensive access to a great number of potential customers; however, the bank at the same time puts itself at risk for liability. For example, if a bank advertises its financial services on the Internet and in the process unfairly references a competitor's product, the advertisement may constitute libel if such allegations are unfounded.

Providing financial services, through such means as handling stock trades, investments in individual retirement accounts or mutual funds; or offering financial planning over the Internet enables the bank to reach a greater customer base. But when a bank employee gives inaccurate advice regarding an investment via a bank's Web page it could affect hundreds or even thousands of people and their retirement savings.

Crime on the Internet is a third important risk area because there are still few controls or deterrents and computer systems themselves are at risk. One of the most widely perceived risks on the Internet is the potential lack of security for online payments using a credit card or account debit system. Imagine, for example, a hacker obtaining credit card numbers or personal identification numbers and accessing customer accounts and transferring funds to his or her own account. …

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