A Travelers Property Casualty insurance division is selling PC-banking liability insurance that banks can offer their customers to assuage still-common fears about the safety, or lack thereof, of banking online.

But whether or not the product will fly remains to be seen. Managers at a handful of banks with established online-banking programs who were briefed on the insurance product either weren’t ready to pass judgement or flat out dismissed it.

Travelers’ SafeWeb Remote Banking Insurance Master Policy covers liabilities consumers could incur as the result of unauthorized electronic funds transfers from their online banking account, as outlined in Regulation E of the federal Electronic Funds Transfer Act. Under the law, a consumer’s liability is capped at $50 for unauthorized transfers reported within two business days, or $500 for unauthorized transfers reported within 60 days. Consumers have unlimited liability after 60 days. In practice though, banks often cover losses regardless of when they were reported.

Prices for SafeWeb will begin at $1 per $1,000 of coverage per customer per year, with volume discounts available. Policy limits are between $1,000 and $25,000 per customer per loss, with a $50 deductible.

“We can adjust the pricing up or down given the underwriting merits of any given program, so someone with state-of-the-art security should be able to get better rates,” said Robert J. Nighan, SafeWeb creator and bond financial services manager at Travelers Bond (860.277.2794; robert_j_nighan@travelers.com ).

Travelers Bond, a division of Travelers Property Casualty www.travelerspc.com  in Hartford, CT, plans to market the policy to banks, which in turn could incorporate SafeWeb into their online banking products, building the cost into any existing fees. Travelers will also work with banks that want to offer the insurance as an option with the user picking up the tab, or hybrids with the bank paying for a base level of coverage and the user paying for additional coverage if desired.

Unveiled in mid-September, the insurance policy already has been approved for sale in seven states — Connecticut, Florida, Kentucky, Michigan, Missouri, Nevada and North Caroline — and is being reviewed by other state insurance regulators, Nighan said.

But at first blush, managers of online-banking programs don’t seem wowed. “We’re not sure what kind of interest people will have in it,” said David Flaherty (609.751.4069), Marketing VP at Commerce Bancorp (Cherry Hill, NJ; $2.4 billion), which has 25,000 PC and Internet banking customers. “The way we look at Internet banking, there are risks involved, but there are risks involved in having a credit card and losing it.”

Smita Quinn (704.388.1435, smita.quinn@nationsbank.com ) Online Banking Manager for NationsBank (Charlotte, NC), said thanks, but no thanks. “It’s not necessary,” she said. “If you’ve got to buy insurance to feel comfortable doing online banking, online banking isn’t going to grow.
I don’t think it’ll be successful.”

However, Internet analyst Zona Research www.zonaresearch.com   said SafeWeb gives banks yet another selling point for their online banking programs, even if it’s one that plays off what many believe are unwarranted fears about the safety of banking online.

“Travelers can sell its policies to banks that can then turn around and declare to customers (and potential customers) that their online banking transactions are insured against fraud and misfeasance (if not outright incompetence),” a Zona analyst wrote in a research note on the announcement. “The fact that Travelers has identified this opportunity, however, also indicates that the fear mongers still have the upper hand in a wary public’s mind, despite what we believe to be the vastly overstated nature of these fears.”

We agree with Ms. Quinn. This product isn’t necessary. But then again neither is a $3 cup of Starbucks, nor double warranty on gold credit card purchases for that matter. The question here is does third-party indemnification help sell your services? We think it will, at least for the first few financial institutions to use it. Just think, for less than that cup of coffee (per subscriber per year), you could be the first bank in your city/state/region to offer a SafeWeb for online banking. In one fell swoop you’ve created a new product feature, differentiated yourself from the pack, and knocked down one of the biggest consumer objections to online banking.

Michelle Rafter

Contributing editor Michelle V. Rafter covers the Internet for Reuters, the Los Angeles Times, WebWeek and others. Reach her at mvrafter@deltanet.com .