Computer Crime Insurance: Definition and Functionality Explained

What Is Computer Crime Insurance?

Computer crime insurance is designed to protect businesses from financial losses resulting from criminal activities involving the misuse of company computers by employees. This coverage specifically addresses internal threats rather than external cyberattacks.

This type of insurance is part of a broader spectrum of policies available to organizations and individuals, covering various offenses such as identity theft, credit card fraud, cyber extortion, fraudulent fund transfers, and cryptocurrency theft from digital wallets.

How Computer Crime Insurance Works

Typically, computer crime insurance policies focus on preventing losses related to the unauthorized electronic theft of funds or securities and the improper dissemination of proprietary information by employees or contractors. Coverage may also extend to acts of vandalism involving company computer systems.

Key Points to Remember

• Computer crime insurance protects against misuse of company technology by internal personnel.
• Cybercrime encompasses a broader range of offenses, including external hacking and data breaches.
• Blanket bond policies may offer protection against both internal and external threats.

Distinguishing Computer Crime from Cybercrime

Insurance providers generally differentiate between computer crime and cybercrime. Cybercrime refers to losses caused by external actors exploiting security vulnerabilities, often with inadvertent assistance from employees, leading to breaches of confidential data.

Conversely, computer crime insurance covers financial damages arising from dishonest or negligent actions by employees within the organization.

Legal Framework Surrounding Computer Crime

The Computer Fraud and Abuse Act is a pivotal civil and criminal statute that prohibits unauthorized access to computers, computer-based fraud, intentional damage through malware, and other related offenses.

Examples of such misconduct range from "typo-squatting"—registering misspelled domain names to capture unintended traffic—to "salami-slicing," which involves stealing small amounts from numerous transactions.

Despite the variety of computer-related crimes, computer crime insurance primarily focuses on internal theft or data breaches committed by employees or contractors for illicit purposes.

Assessing the risk posed by computer-related crimes is challenging, as employees may bypass security measures like firewalls to transmit sensitive information.

Important Note

In Australia, similar coverage is known as "employee dishonesty coverage."

With the widespread use of smartphones, policies now often specify which devices qualify as computers and define the scope of activities considered criminal.

Understanding Blanket Bond Coverage

Computer crimes committed by employees may also be covered under a company's blanket bond insurance, which protects against losses caused by internal personnel.

Financial institutions and brokerages commonly maintain blanket bond coverage, which encompasses legal expenses related to a wide array of internal misconduct. In Australia, this is referred to as "employee dishonesty insurance."

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