In 1994, Chateau Builders Inc., a small construction company in Columbia, Maryland, purchased an Electronic Data Policy (EDP) that included coverage for hazards such as computer viruses and power surges. The company felt its computer equipment was vital to its overall survival and wanted to be sure the equipment was thoroughly protected. Two years later, Chateau Builders' preparedness paid off: An outside consultant inadvertently inserted a disk with a computer virus on it into one of the company's computers and contaminated the entire network. Not only did the insurance company pay to have the corrupted server restored, but it also covered the business the company lost while its computers were down.
"We were very fortunate because [the insurance] covered around $2,400 on a $250 deductible," says Jo-Ann Sanford of Chateau Builders. "It defrayed much of our costs."
EDP insurance isn't for everyone. However, it makes sense for companies that have invested a large amount of money in computer equipment, frequently expose their systems to risks, or rely heavily on computer technology. EDP insurance steps in where most BOPs end, covering additional hazards your standard business coverage doesn't include. Most insurance companies offer EDP insurance.
One of the things EDP insurance covers (and BOPs don't) is mechanical breakdown, according to Aaron Margolies, vice president of Diversified Insurance Industries Inc., a large property and casualty insurance agency in Baltimore. Mechanical breakdowns include hazards such as hard-drive failures if, for example, your computer's hard drive crashes and becomes permanently damaged. Problems like this can put you out of business if, say, your accounts receivable data is gone and you can't collect payments. EDP insurance will cover the costs to replace the hardware and reconstruct your data.
EDP insurance should also cover problems such as viruses and damage caused by an electrical disturbance that results in lost data or damaged equipment. Look for an EDP policy that protects against the risks discussed above plus extras like replacement of damaged software and reconstruction of data, says Margolies. What's more, be sure to purchase the proper amount of insurance; it should reflect the cost of your computer equipment and the estimated expenses to rebuild any lost data. Margolies says that $10,000 is an adequate amount of EDP coverage for most small businesses to start with; you can add more depending on your company's size and amount of equipment. EDP premiums generally start at around $500 annually.