Cyber Policy Loopholes

Real Estate Firms Need Real Estate Specific Cyber Coverage

Cyber insurance is very complicated. Even experienced insurance brokers have difficulty understanding the intricacies of this new product. Many are selling Cyber and E&O policies to real estate firms that use terms that make it sound like wire transfer fraud is covered, when in reality it is not.

Most Cyber policies are designed to cover attorneys, accountants, tech companies, etc. that are set up completely differently than real estate firms. The use of independent contractors (with their own computers and networks) and money being controlled by others (client, escrow, title, etc.) is unique to real estate. If the policy does not properly address these differences, you may be uncovered. We created this page to help you understand what to look for when comparing policies.

Cyber in Errors and Omissions Policies

Some E&O policies have Cyber coverage options. Most include coverage for “first party” losses, repairing and reacting to viruses that affect company computers. A few claim to provide coverage for wire fraud for little, or no additional premium; but focus on the fine print.

One E&O policy includes “wire fraud coverage” for little or no additional premium. Sounds like a great deal. However, you have to prove that, prior to the transfer, you verified the wire instructions with the sender, using a publicly known phone number, and documented who you spoke to. Unfortunately, most real estate licensees do not receive the instructions, so it would be difficult to qualify.

Another makes it part of a Personally Identifiable Information (PII) breach claim. PII includes items that could be used for identity theft like a social security number, date of birth, driver’s license numbers, etc. If you do not keep this information, there likely would not be coverage. An example of information that accountants might keep, but not most real estate sales professionals.

Having Cyber in your E&O also means your premiums will likely go up in case of a claim.

First Party Wire Fraud Coverage: First party is you, the insured. It covers losses of YOUR money due to social engineering (email scams), false instructions, etc. that cause you or an employee to transfer company funds to the wrong person. Although this is important, most real estate firms are concerned with money lost by their clients.

Third Party Wire Fraud Coverage: Third party is someone else who loses money as a result of social engineering, false instructions, etc. Sounds good, but there’s a catch. Many policies state that it covers money that YOU hold/control and that YOU transfer incorrectly. Unless you do Escrow or hold clients’ earnest money, it is not you that is controlling the money. So most 3rd Party coverage does not cover you for money lost by a false instruction (social engineering) if it is sent by your client or controlled by escrow/title/attorney, etc.

Independent Contractors: The named insured is the person/firm named on the declarations page. Normally, Independent Contractors are not covered on the insurance policy of the person/firm hiring them since they usually carry their own insurance and are responsible for their actions. In real estate, both the Independent Contractors (licensees) and the Firms are usually named in lawsuits when money is misdirected. If the Independent Contractor was at fault and are not covered by the policy there may be no coverage for either party.

Named Insured Networks: Most employers furnish the computers and network at the workplace. As a result, they can control the virus protection, email passwords, software updates, etc. In real estate, the firm has computers for its employees, but licensees control their computers, emails, and networks. Most use free email services (Gmail, Yahoo, etc.) and have no subscription-based virus protection, so they are easy targets. Many cyber policies cover breaches of corporate owned computers and networks, but not those of Independent Contractors knowing that the insured cannot control their Independent Contractor computers/networks.

These are a few of the loopholes found in common Cyber policies not specifically designed for the real estate industry. A thorough review of the policy language is required. We can help, just reach out.

We want to not only provide a product, but also supply a solution. That’s why we want to work with you to educate your licensees on the dangers they face and ways to reduce their exposure. If they do not watch the required wire fraud prevention video they will pay a higher deductible in case of a claim; that’s pretty good motivation. This is good for everyone in the industry, but most importantly protects your reputation and clients.

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