The dark side of social media

Your client’s Facebook page may generate business, but hidden liabilities could also sink the ship without coverage.



The American business sector is eager to “get social.” Facebook recently topped one billion users, and the Twittersphere is shouting at a rate of 170mn tweets per day. The marketing and communication potential is great, and even the smallest businesses are keen to get their hands on a piece of social real estate.

In the rush to social media, however, many small businesses overlook the fact that a robust social presence is actually a double-edged sword. While using outlets like Facebook, Twitter and LinkedIn increase a client’s exposure to potential customers, it also increases their exposure to financial loss through brand damage.

That’s concerning to David Lewison, financial services national practice leader for AMWins. Lewison has followed internet and liability insurance since the dot-com boom in the early 90s, and told Insurance Business the potential for brand damage has never been higher.

“I think social media can be really dangerous if a company doesn’t have somebody really sophisticated handling it for them,” Lewison said. “When they have an adverse event, they tell the IT guy—who generally runs the accounts—to take care of it.”

“Well, he’s not an advertising or PR expert—he’s an IT guy. So he blasts out to all their customers that they’ve screwed up and once it’s out there, lawyers hear about it and maybe get involved, and customers don’t want to do business there anymore.”

Businesses are also subject to libelous or damaging posts on their site or written about their site, and that doesn’t even touch the question of hackers. Third-party sources who break into a social media account and post or tweet in the name of the business can significantly damage brand reputation to the point where the business has to close its doors.

Fortunately, there are several insurance policies that can form an important part of a company’s social media risk management strategy. Lewison recommends a cyber liability policy in particular, as it covers both cyber attacks and data breaches, and social media content.

“Cyber is where a lot of people pick it up because they’re sort of getting everything in one place,” he said. “Social media is probably only 5% of the premium or is even free, versus a separate policy that could be a few thousand dollars.”

Cyber policies are anything but standardized, but many can be written to include website and social media content, privacy liability and even business interruption following a server meltdown.  D&O policies may also cover some liability for internet and online media.

Lewison said currently, there are about 40 carriers in the space that have some sort of product dedicated to cyber and social media liability. Because the coverage can be confusing, even to producers, a wholesaler or MGA becomes important.

“Every carrier has their own wrinkle—something new they bring to the table. It’s a big mess, so one of our jobs as an intermediary for brokers is to compare these policies against each other and then interpret which does what,” he said. “It can be pretty time consuming to a main street broker, and that’s where [a wholesaler] add[s] value.”

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