7 Risk Exposures for Data Processing Operations

Data processing operations perform many accounting and record keeping functions for other firms. The customer firms will provide the paperwork from their operation and the data processing firms will enter the data for the customer and provide the agreed-upon reports and reconciliations.

A data processing operation may be a captive of one major firm or may specialize in a group of related firms (such as a group of medical doctors), or they may offer their services to the public as a whole. Data processors will do the appropriate software programming at their own operation to provide the accounting and record keeping services. They may also provide custom-developed software programs so that customer firms can do their own data processing.

Property exposure centers on the high concentration of electronic equipment. Fire sources could include wiring, wear, and overheating of equipment. Fire, smoke, and water could pose significant damage to equipment. Fire protection should consist of chemical applications instead of water. The equipment might be better covered as Inland Marine. Business Interruption/Business Income may be a very high exposure should a direct physical loss occur. The replacement of equipment, rewriting of software programs and duplication of records could cause extensive shutdown.

Inland marine exposure comes from the clients’ records and valuable papers that are in the data processing firm's care, custody and control. This will be a critical area to evaluate. In addition, the risk may decide to cover the electronic equipment under a specially designed data processing equipment floater. Employees may have portable computers or home-site workstations in order to be able to enter and develop at the employee's home. Off-site property exposures could be high.

Crime exposure is from Employee Dishonesty and Computer Fraud. Background checks and previous employment verification are important prior to hiring.

Occupier’s liability is minimal since operations are conducted on premises and returned to the client.

Professional liability and errors and omissions are extensive. Records improperly entered could have a major impact on the reports and compilations of the customer’s firm. The skill, accuracy and training of the entry persons, as well as verification and backup processes, need evaluation. The methods of operation, the degree of accuracy obtained, and the services offered are all items of high loss potential and need thorough review and evaluation.

Automobile liability is Hired Non-Owned and minimal.

Workplace safety exposure exists in the areas of ergonomics, repetitive motion, and carpal tunnel syndrome. The design of workstations to prevent worker injuries is important.

Minimum recommended coverage:
Business Personal Property, Dishonesty, Disappearance and Destruction, Accounts Receivable, Computers, Valuable Papers, General Liability, Directors and Officers Liability, Umbrella, Non-Ownership Automobile

Other coverages to consider:
Computer Fraud, Employment Practices Liability

Ready to discuss your unique coverage needs? Contact the Axis Insurance Group today!