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The Actuary The magazine of the Institute & Faculty of Actuaries
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@Risk Internet and E-commerce Insurance and Reinsurance Legal Issues

Most of us will be familiar with the rapidgrowth of the Internet and its ability togenerate instant communication acrossnational boundaries at the click of amouse. Many of us will also have experienced at firsthand, either within the work environment or at home,the impact of viruses, ISP down times or simply chainletters jamming email systems. Whatever our experiences, I doubt that many of us in the risk business havesat back and really thought through the exposureswhich the digital world of e-commerce generates.

Although this book approaches the subject of insurancerisk by focusing on the legal issues, it nonethelesshighlights a number of risk areas, for example,‘spamming’, ‘hacking’, fraud, security – which assumea particular importance for those involved withe-commerce or any form of e-connectivity. Many ofthe risks are not new, but it is clear that some assumea far greater importance within the world of the Internetand virtual trading, and cannot be dismissedlightly.

Overview

Primarily based around the US legal system and writtenby lawyers, the book uses three sections, 17 chaptersand 270 pages (+ appendices) to provide what islargely an overview of each ofthe subject areas, such as electroniccontracts, cyber crime,cyber losses, and e-commercedispute resolution. Issues arerelated to the insurance productsavailable in the US market,although the issues raised dohave certain parallels with productsavailable elsewhere. Iremain to be convinced just howrelevant the references to Y2Kwill be going forward, other thanperhaps to highlight the need not to dismiss the possibilityof a single catastrophic event affecting eitherthe software or hardware available in cyberspace. Thebook is moderately successful in trying to lift thereader above the detail of US law but inevitably has torefer to various pieces of relevant legislation. Thosemembers of the target audience like myself who areunfamiliar with US law will therefore find some sectionsheavy going.

Each chapter includes an executive summary at thebeginning and a checklist of the key points to considerat the end. These look as if they could be quitehelpful. Issues and key exposures are also put intocontext throughout the book with the help of twohypothetical companies: Smith’s Power Tools andFindstuff.net. There is also comprehensive referenceto relevant US case law, for those interested.

Applications

To give you a flavour of the type of issues addressed inthe book, one chapter explores ways of making a validcontract with email or the Internet using electronic signatures.In relation to cyber crime (ie crimes arising outof access to the Internet), another section outlines howit is prosecuted, including search and seizure of computerfiles, and identifies that there are loopholes. Elsewhere,it relates the case of a student who has broughtan action against an e-broker for failing a duty to him asa customer trading online. They ‘breached suitabilityobligation’ by allowing continued trading of risky stockson margin. This case is unsettled but the suitability doctrinewill become more important as on-line tradingincreases in popularity. In terms of cyber losses, contracttheories and regulatory statutes may not be adequate.

The types of insurance purchased by companies areexplored in terms of e-commerce impact. The issue ofwhether e-commerce interests/assets are protected bystandard, traditional first-party property policies, egintangible assets in the form of software, is explored.Also, will typical commercial general liability policiescover most cyber-torts? Does the ‘new world’ make itmore likely that directors’ and officers’ liability insurancewill be invoked more often? Will shareholderactions increase as ‘get-rich-quick’ schemes increasinglyfail? We are currently seeing signs of this in themarket. Reinsurance is examined, as is the fact that thenature of the reinsured risk is changing.

Source of reference?

Overall, I found the book a relatively easy read, evenif I did struggle with some of the legal niceties. Itpoints to the need to seek professional advice fromexperts well versed in e-commerce issues and the law,the latter often struggling with the new issues whiche-commerce presents. It certainly was a thoughtprovokingand well laid-out book, but in my view,with the rapid evolution of the Internet and e-commerceand the consequent impacts on companies andalso individuals, this book is unlikely to become a referencetext. This is probably an issue with many textsaimed at the e-commerce world.

cover

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