Four questions answered about electronic data processing coverage

Key takeaways:

  • Electronic Data Processing (EDP) insurance covers damage to computers, software/hardware, media, and data. 
  • Covered perils can include fire, wind, flood, electrical disturbance, temperature/humidity changes, and mechanical breakdown.
  • It may also cover the cost to reinstall or restore software and data
  • The value of equipment is calculated in one of three ways: 1.) actual cash value; 2.) replacement cost; 3.) functional replacement cost

Does your business depend on computers and/or data and media for its day-to-day operations? What would happen if your computers or that data became damaged? A typical commercial insurance policy might not be enough to protect your business and essential equipment. You might need Electronic Data Processing (EDP) coverage.

We explain EDP coverage and how it works so you can determine if you need this safeguard for your business.

1. What is Electronic Data Processing coverage?

EDP coverage goes by a few names, including Computer Coverage and Data Processing Coverage. However it’s referred to, EDP can be bought on its own or added to your property insurance policy as a separate endorsement. If you are buying EDP coverage, be sure to look at the details as policies tend to vary widely. 

Questions to ask about a policy:

  • What equipment and accessories are covered?
  • What perils or incidents are covered and which are excluded?
  • Does it cover viruses that damage software or hardware?
  • How is the value of equipment made?
  • Will you get coverage for lost income or additional expenses related to recovery or repair?
  • Does the policy include any other coverage?

2. What does EDP coverage include?

An EDP policy is intended to cover computers, software/hardware, equipment, and data/media. Coverage falls into three categories:

1. Hardware

This includes mainframe and desktop computers, laptops, and workstations. Some policies may also include copiers, scanners, phone systems, and air conditioning equipment that is used to keep computers and systems cool. Pay attention to the policy to make sure your specific equipment is covered. You might also be able to cover leased equipment such as copiers under the EDP policy. 

2. Software and data

This includes computer programs, software, and data, as well as systems software, application software, and proprietary programs and data systems.

3. Media 

Media refers to devices that store data, including discs, drums, and tapes. Read over the policy closely as some put “media” in a separate category, while others lump it in with “software.”

3. What types of “perils” will be covered?

A typical EDP policy covers most perils unless it’s specifically excluded. For instance, many EDP policies cover damage from floods and earthquakes, which is excluded from typical property insurance policies. 

Covered perils may include:

  • Fire
  • Wind
  • Floods
  • Electrical disturbances
  • Temperature/humidity changes
  • Mechanical breakdowns
  • Power surges

Power surges are covered but there’s a catch. Most EDP policies do not cover damage caused by utility service interruptions, including power surges that may occur when the service is restored. Depending on the policy, damage from computer viruses and hacking or cyberattacks (including hacking by an employee) may also be covered. 

4. How is the value of electronic equipment calculated?

Like a commercial or homeowner’s policy, EDP sets a value on covered equipment and data/media. This is calculated in one of three ways, depending on the policy:

  1. Actual cash value
  2. Replacement cost
  3. Functional replacement cost – The cost to replace equipment with a functionally equivalent value. This typically comes into play when the covered equipment is several years old and that model or software is no longer being sold. In this case, the policy would pay for a new but different model, which performs the same basic tasks. 

Your policy might also pay to have software or media restored or reinstalled. You might be able to add extra coverage for things like:

  • New equipment
  • Equipment at a new location/office
  • Transporting equipment
  • Utility interruptions
  • Equipment that is used offsite

Ensure you have the right commercial insurance coverage

If your business depends on computers or data to keep operating, it’s a good idea to look into Electronic Data Processing coverage. This guide will help you get started and ask the right questions. Ensure that you protect your business with the right commercial coverage. 

In addition to EDP coverage, cybersecurity coverage is a very topical and important type of insurance your business should consider. Cyber thieves steal sensitive data from businesses all the time and are increasingly focused on small to medium-sized businesses. Cyber insurance covers your business’ liability for a data breach that involves customer information, such as Social Security numbers, credit card numbers, account numbers, health records, and more. 

Other commercial policies you may need can include:

  • General liability
  • Professional liability 
  • Property insurance
  • Workers’ compensation
  • Product liability
  • Commercial auto
  • Business interruption

Avante Insurance can help you secure the right commercial insurance to protect your life’s work. Contact us to talk about your business needs and request a quote. We will ensure you have the right coverage to protect the enterprise you’ve worked so hard to grow.

This blog and website are made available by the publisher for educational and informational purposes only. It is not to be used as a substitute for competent insurance, legal, or tax advice from a licensed professional in your state.