Do You Know Where Your Electronic Records Are?

A thousand dollars here, a thousand dollars there, and pretty soon you’re talking about real money – as in, $1.35 billion. In the wake of massive data breaches at Equifax, Target and the National Security Agency, that’s how much money jittery  Americans are spending annually on cyber insurance, according to the National Association of Insurance Commissioners.

Fearing data breaches similar to those that have been grabbing headlines, small- and medium-sized businesses (SMBs), including co-ops and condos, are fueling the accelerating growth of this once-obscure sector of the insurance field. “Insurers foresee substantial growth coming from the SMB segment, as these companies become aware of the possibilities of liability, especially a breach and resulting response costs,” says Sean Kevelighan, CEO of the Insurance Information Institute.

Savvy co-op and condo boards are learning – sometimes the hard way – that buying a cyber insurance policy is a minor price to pay for major peace of mind. The policies typically cost about $900, and they cover the following: hiring an attorney to defend against lawsuits following a data breach; notifying affected parties (from individual phone calls to a mass mailing); setting up a call center to disseminate information; paying for credit monitoring for people whose sensitive information has been stolen; paying city and state fines; and paying for public relations services to help a board or management company rebuild its reputation.

“It’s really a necessity,” says Edward Mackoul, president of the insurance brokerage Mackoul & Associates. “It’s just a matter of time before a data breach happens.” He adds that hackers aren’t the only culprits in releasing such sensitive information as Social Security numbers, birth dates, credit histories, and employment records: “An iPad is lost with confidential board information on it. A smart phone is lost with board emails about a new applicant. Those are simple situations that could have real financial consequences to a condo or co-op.”

Simple human error also comes into play. “We’ve had instances where a property management firm mailed or delivered files to the wrong place, and these files contained personal information of all their shareholders,” says Mackoul, who estimates he has sold 200 cyber security policies to co-op and condo boards in the past three years. “We’ve also seen instances where property management firm employees have, with questionable intent, downloaded sensitive information on buildings and their residents.”

Again, data breaches are not confined to the digital landscape. “Managing agents are notorious for generating huge amounts of clients’ paperwork,” says Kevin Davis, president of Kevin Davis Insurance Services, who has been insuring co-ops and condos for almost three decades. “If these are not disposed of properly, condos and co-ops have a security risk. Managing agents will be the ones who understand the risk and push their clients to get cyberattack insurance.” His firm began providing data-loss insurance two years ago, and New York City is its largest market.

Though a growing number of co-op and condo boards are becoming aware of the need to protect their data – and themselves – it may take an Equifax-scale data breach to wake up those whose insurance coverage is not comprehensive enough. Mackoul, the broker, offers this prediction: “Eventually there will be a highly publicized data breach at a co-op and everyone will then rush to get coverage. Fannie Mae will require it, and that’ll force all the mortgage companies to require it.”

Boards are advised to close the door before the horse exits the barn.