Got It Covered?

This story appears in the January 1998 issue of Entrepreneur. Subscribe »

There's no denying that personal computers and computer-related equipment have become an integral part of today's business landscape. How many times have you thought to yourself, "I just couldn't run my business without my computer"?

Because computer equipment is so important to the productivity, success and survival of most businesses, it's important to take precautions to ensure you're protected in the event your equipment becomes damaged or destroyed. And that's not an unlikely event by any means. According to Safeware Insurance Agency in Columbus, Ohio, which specializes in coverage for computer and high-tech equipment, more than 1.6 million computers in the United States were stolen, zapped by power surges, or otherwise damaged or destroyed in 1996, accounting for a whopping $2.3 billion in losses.

Having the appropriate insurance coverage minimizes your financial loss if your business's computer equipment becomes damaged in the event of fire, flood, theft or electrical surge. If important data should be destroyed, some insurance plans will cover your costs to rebuild it. You can even buy insurance for crises more directly related to computer equipment, like viruses and hard-drive failures.

Protection Plan

Before purchasing any kind of coverage, carefully analyze the risks involved in your particular business. Consider your location, industry and overall reliance on the computer equipment, and then formalize the best protection plan, says Sean Mooney, author of Insuring Your Business: What You Need to Know to Get the Best Insurance Coverage for Your Business (Insurance Information Institute). In most cases, this will include purchasing some kind of insurance coverage for computer systems, but it may also include setting up standard procedures to back up data, among other things.

Once you develop a protection plan, find an insurance agent who is knowledgeable about your industry and is familiar with the types of risks your computer equipment and data are regularly exposed to. It's also a good idea to check with a professional or trade association for recommendations on the type and amount of computer coverage that businesses like yours generally require.

Computer equipment in homebased businesses is usually covered by your homeowners or renters insurance, but keep in mind that this type of coverage is often very limited. Contact your insurance agent to determine the replacement limit on your business equipment. If necessary, get a rider to boost the coverage or purchase a separate business owner's policy that includes adequate coverage for your computer equipment.

For other businesses, a standard business owner's package, or BOP, will generally provide adequate coverage, Mooney says. Under a BOP's property policy, damage to computer equipment from a fire, flood, theft or vandalism is usually covered.

Some BOPs also cover your costs to recover any data stored on your business's computers if it is damaged or lost. It's often very expensive and difficult to retrieve important documents. However, you can purchase insurance that will pay to have those records retrieved or recreated. Check to see if this is included in your insurance plan already, and if not, consider adding this coverage.

If you or your employees take notebook computers or other equipment along while traveling, find out if your BOP covers business equipment outside the office and how much is covered. Many will cover business equipment against theft anywhere in the world. If yours doesn't, you probably have the option to get a rider that protects your computer equipment from theft on the road. Or you can buy what's called a "floater," a form of insurance that covers movable property like computer equipment as long as it's within the territory limits imposed on your contract. Floaters generally run less than $1,000 annually.

Going The Extra Mile

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.

An Ounce Of Prevention...

Protecting your computer equipment doesn't end with purchasing the proper insurance. Chateau Builders, for example, has put other lines of protection in place: It installed virus- detection software on all its computers to stop viruses before they can do any damage. It also asked its local utility company to assess the energy flow into the building to make sure there aren't any existing problems with the power supply that could wind up damaging its computer equipment.

One easy way to protect your business is to buy an uninterruptible power supply (UPS). A UPS protects data and computer equipment by switching to battery power if your power is interrupted by a power surge (a short-term increase in voltage), a power spike (a dramatic increase in voltage), a blackout or a brownout. American Power Conversion's Back-UPS Office ($199), for instance, has six outlets to guard several computers and fax modems from power surges and electrical failures.

Notebook computers, which are especially prone to theft on the road, should also be protected. Carry your computer in your briefcase or in a bag that isn't easily recognizable as a computer case. Be sure to use password or encryption programs to prevent access by unauthorized users. You may also want to buy a lock, such as Kensington Technology Group's Master Lock Universal Notebook Security Cable ($39.95), to keep your computer from being stolen.

Also be sure to regularly back up computer data. This includes backing up information from a notebook computer so there's an extra copy in case the computer is stolen. You can never be too careful about backing up data because what's stored on your computers is just as important to your business--if not more so--than the hardware's value. Once it's been backed up, be sure to remove the copy to an off-site location so it's protected from catastrophes.

Finally, after purchasing any computer equipment, keep a copy of the receipt or invoice in a safe place. You should also keep a detailed inventory of all your business equipment and know the proper procedures for filing a claim in the not-so-unlikely event that your computer equipment comes to harm and you need to collect.

Contact Sources

American Power Conversion, http://www.apcc.com

Chateau Builders Inc., 8805 Columbia 100 Pkwy., Columbia, MD 21405, (410) 720-0400

Diversified Insurance Industries, 2 Hamill Rd., #155, Baltimore, MD 21210, (410) 433-3000

Insurance Information Institute, (800) 942-4242, http://www.iii.org

Kensington Technology Group, (800) 535-4242, http://www.kensington.com

Safeware Insurance Agency, 5760 N. High St., P.O. Box 656, Columbus, OH 43085, (800) 800-1492