Business Insurance

Credit Card Liability Shift – Are You Ready?

Chip Card

Counterfeit card fraud makes up 37 percent of all credit card fraud in the United States. In 2014 alone, 31.8 million U.S. consumers were affected by credit card fraud – three times the number of consumers who were affected in 2013.

EMV or Chip Card Technology

To combat this growing risk, new technology has been implemented that is expected to significantly decrease credit card fraud. With chip card technology or EMV (Europay, MasterCard and Visa), credit and debit cards are equipped with computer chips. During a purchase transaction, the card sends a one-time code to process the payment. Because the code is unique for each transaction, it can only be used one time thus increasing payment security. In comparison, the common magnetic strip cards that are being replaced by EMV actually store unchanging data so it is very easy for someone to replicate the card data and create a counterfeit card. While chip cards won’t completely prevent data breeches, they will make it harder for criminals to successfully profit from what they steal. Ultimately, EMV technology should help protect both consumers and merchants from fraud.

The EMV Deadline

The deadline for merchants to transition to EMV technology was October 1, 2015. At that point, the liability for counterfeit credit card fraud shifted. Historically, card issuers have typically been held liable for credit card fraud. Now, the entity that has not yet adopted chip technology (either the card issuer or the merchant) will be held liable for any fraud that occurs. (Note: the deadline for gas stations to comply is in 2017.)

Transition Delays and Costs

Though the EMV deadline has come and gone, EMV technology has not taken full effect. As of March 2016, about 28 to 30 percent of merchants were currently ready to accept EMV cards and 70% of consumers had been issued EMV cards. Here are a few statistics that help illustrate why adopting EMV technology is a slow process:

  • Approximately 1.2 billion credit and debit cards have to be upgraded to chip cards. The average cost for issuing a new EMV card is $3.50.
  • Approximately 15 million point-of-sale (POS) terminals have to be upgraded to accept chip cards (with each terminal costing about $500 to $1,000).
  • The estimated cost to replace all POS terminals is $6.75 billion.

Protecting Against Fraud

Despite the fact that EMV technology hasn’t taken full effect, the liability still exists. If your business conducts in-person card transactions, there are some things you can do to protect against credit card fraud. The first step is to avoid the risk by updating your technology. If you haven’t fully implemented EMV technology, now is the time to do so. While this is a costly step, the resulting cost if fraud were to occur could be significantly higher.

The next step to protecting your organization from the risk of credit card fraud is to make sure you have cyber liability insurance. Keep in mind that your cyber policy may require you to comply with payment card industry standards (including implementing chip card readers), so if you aren’t in compliance with the regulations, you may not have as much protection as you think. Cyber liability can provide protection from damages your business may be liable for from a variety of claims scenarios, including the following:

  • Computer viruses
  • Cyber extortion
  • Data destruction
  • Denial of service attacks
  • Fines due to regulations such as HIPAA, PCI, etc.
  • Intellectual property infringement
  • Privacy breaches

There are different types of cyber liability policies, and their coverage levels can vary. It is important to talk with your insurance advisor to discuss your situation so they have a full picture of what your actual exposures are. This will help ensure you have the right coverage for your risks.

While EMV cards make fraud more difficult for in-store purchases, experts are predicting an increase in fraudulent online purchases. If you have an online presence and the ability to accept online payments, you could still be at risk for credit card fraud and cyber breaches.

While updating your point of sale (POS) technology to accept EMV cards may be costly up front, here are some benefits you can expect from the transition:

  • Decreased risk of credit and debit card fraud for you and your customers. This shows your customers that you value their business and are taking action to ensure a safe purchase transaction, and it protects your organization from the cost of fraud.
  • More affordable insurance premium on your cyber liability coverage. When you take action to mitigate risk by updating to EMV technology, this demonstrates to your insurance company that you make risk management and cyber security a priority. An underwriter will view you as a better risk, which positively impacts your insurance premium.

Contact your Leavitt Group insurance advisor to learn more about cyber liability insurance for your business.


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