Travelers Unit Introduces PC Banking Insurance

Travelers Bond, a unit of Travelers Property Casualty Corp., has become the first U.S. insurance company to offer financial institutions an insurance policy against cyber-fraud on PC banking customers.

Called the SafeWeb Remote Banking Insurance Master Policy, it covers U.S. home-banking customers against losses arising from unauthorized transactions in the customer's on-line account. The SafeWeb policy covers all Internet-based and direct-dial transactions.

Bill payment is most in need of coverage be-cause losses can occur when money is leaving the system, said Robert J. Nighan, manager of Travelers Bond financial services.

He designed the policy to tie in with the law. Regulation E is a Federal Reserve rule, which has the force of law, setting liabilities and procedures for electronic funds transfer and governing consumer liability for unauthorized transfers.

"The key theme is that under Regulation E, liability is directly tied to the promptness of the consumer reporting the loss," said Mr. Nighan. "The policy kicks in where the customer has liability under Regulation E."

This liability increases in three tiers, he said. From the time a person gets his bank statement and sees an unauthorized withdrawal, he has two business days to report the loss to the financial institution and is liable for $50. Within 60 days but longer than two business days, liability increases to $500. After 60 days the customer faces unlimited liability for any further unauthorized transfers.

The SafeWeb plan offers a base rate of $1 per $1,000 covered per customer per year. However, the rate plan can be adjusted for a large customer base. The policy also covers overdraft fees and loss of interest income incurred by a customer.

Travelers Bond is filing the policy for approval with insurance departments in each of the 50 states. Mr. Nighan expects approval in 30 to 40 states within two weeks.

"Our target market is any U.S. bank that offers PC banking," he said. He has sent out quotes to several financial institutions, but none has yet confirmed a purchase of the policy.

"This brand-new insurance policy has nothing comparable, so we're currently going through an education process with banks," said Mr. Nighan. The product's benefits are explained to banks, and those that are receptive are asked how they would like to structure the policy for their own customers.

"At this point, we're saying to banks, 'We'll customize it any way you want us to,'" said Mr. Nighan. "That's the flexibility we built into the product."

Banks have three options: to pay the SafeWeb premium for their entire customer base, to make coverage available to customers who may choose whether to buy it, or to buy the policy at a low liability limit-say, $1,000 to $5,000-giving customers the option to pay more for greater coverage.

Travelers Bond financial services insures financial institutions primarily for crime exposure. It has previously written computer crime policies, but this is its first foray into fraud coverage for consumers. Another of its consumer products, offered through Chase Manhattan Corp. and BankAmerica Corp., is safe deposit box insurance.

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