Many businesses may incorrectly assume they are insured for social media risks but the reality is that insurance policies have not kept up with the exposure explosion.

According to insurance experts, the social media tools that have allowed firms to market and advertise at low cost have also made them more vulnerable to potentially high cost claims for copyright infringement, defamation, privacy violations and other cyber crimes. The problem is that these risks were not anticipated in the standard media policies or advertising injury endorsements that many insureds have.

"Insureds didn't even have social media two years ago when they got their policy, so they assume it's covered because it is not excluded," says Kevin Kalinich, managing director of Professional Risk Solutions at Aon's Financial Services Group. "Insureds are interpreting policies to cover social media when it may or may not be, so they should really verify it."

From an insurance perspective, the social media industry is so new that underwriters are still unsure what coverages or exclusions to put in place.

"Part of the issue here is, as an industry, we make changes based on past loss activity and in this industry there isn't a past," says Michael Carr, vice president of technology and media at NavigatorsPro. "Litigation is starting to show up and we are starting to see some regulatory response, but none of that stuff is evolved enough yet to know exactly what it's going to be. We are all watching and making our best decisions on limited information."

"Insurers are not way ahead of the game," says Kalinich. "They are reacting to where the claims are."

Kalinich and Carr discussed the risks associated with company and employee use of social media at the recent Professional Liability Underwriting Society's (PLUS) annual conference in San Antonio, Texas.

"What we are all doing is asking what we think are the right questions and selecting what we think are the right risks," says Carr.

The two said agents should look closely at their clients' policies and Web use to identify exposures they are facing and determine what is actually covered. This should be an ongoing practice, not just a one-time checkup.

"Don't assume that your clients Web and social media presence is static," Carr says. "You may have a client where you looked at their site and they had a pretty vanilla presence [a couple years ago] but there is no reason to assume that is still true today."

Underwriters and agents should ask business clients certain key questions about their Web and social media use before taking on the risk, according to Carr and Kalinich. Some of these include:

• What type of information are they collecting on their sites?
• Are they storing names, contact information, credit card information?
• Are they tracking where people go on their site, and if so what do they do with that information?
• Do they sell customer information to other sites without the customer's permission?
• Who in the company has access to the social media sites?
• Who is posting on the social media sites and are they authorized to speak on behalf of the company?
• Is there a process for checking what is posted on the social media sites beforehand so that no defamatory, copyrighted or libelous information is published?

Employee Guidelines

"Smart underwriters are focusing much more on the procedures and guidelines of an entity and that everyone in the organization understands what we should or should not be doing on social media," says Kalinich.

However, it's not even clear what an employer's guidelines on social media use should or can be.

Federal labor officials have challenged a Connecticut ambulance company over its social media rules. The National Labor Relations Board (NLRB) alleges that an employee was suspended and later terminated for her negative Facebook postings about the company, which she posted at her home on her own computer. The ambulance company said the postings violated its Internet policies but the NLRB is suggesting that the firm's Internet policy was too broad and violates employees' right to free speech.

There has not been any final ruling in the NLRB case; a hearing is scheduled for Jan. 25. But the NLRB challenge has thrown the insurance industry for a loop because it not only raises questions about whether a media or general liability policy would cover a company's defense in these types of cases, but it also raises the specter of employer's liability, according to Kalinich.

"Everyone is saying this is a disaster. Now what do they do?" he says. "If you are an insurance company, is that the kind of social media activity you want covered on your policy? These are good, unanswered questions insurers have to come to grips with."

It's not easy to do but agents and insurers must stay on top of legal and regulatory activities in this area so they can protect their insureds, according to Kalinich.

"You can only anticipate so much and predict where the claims are going to come from in social media," he says. "The best way to do that is to see actual cases being filed, complaints from consumers or one company against another and incorporate the peril into the policies."

Aon has 17 attorneys who are customizing the wording of their policies to ensure the latest lawsuit or claim possibility is addressed. Aon then makes the customized wording part of its base policy. The company also offers a "Social Media Coverage Matrix," a tool that helps employers identify their exposures and their insurance options.

Navigators provides coverage to professional service firms that operate in the social media space and firms that are just inhabiting the space. The company offers a combination form that can include technology errors and omissions (E&O), regular E&O and privacy coverage. It can also provide privacy and media coverage to most other companies.

According to the brokers, the biggest increase in claims from the Web-related risks has been from privacy breaches and they expect this to continue, which is why insurance companies are developing most of their policies around that risk.

Carr advises agents to closely monitor what their clients are doing in the social media space, not only on Twitter or Facebook, but also in their targeting marketing efforts. "There are lots of things people can be doing and before you can get the right coverage, you need to know what they are doing," Carr says.