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Don't count on insurance coverage for Y2K crises

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As a small-business owner, mentally fast forward to January 2000 and imagine how even the little things you depend on could fail to operate.

Computers may control your inventory, shipping, payroll, accounting, equipment, security systems, telecommunications etc.

And anything containing an embedded computer chip or applications not programmed to read four-digit date fields

will need to be modified or replaced to correctly process dates beyond Dec. 31, 1999, according to a news release from Farmers Insurance Group.

Commonly referred to as the year 2000 millennium bug, it has become the biggest small-business headache this century, and for good reason.

When the clock strikes midnight

on Dec. 31, 1999, noncompliant computers and programs may be crippled, causing a cascading effect on the businesses which own them, their customers, suppliers and distributors, the release stated.

As businesses tackle the year 2000 quandary, and the problems it could cause, the subject of insurance coverage for those problems is likely to emerge. The types of losses that will be caused by year 2000 problems will generally not be covered by most insurance policies, according to Farmers Insurance Group.

"Insurance is designed to cover accidental and unforeseen losses," said Leonard Gelfand, president of business insurance for Farmers Insurance Group, in the release. "Year 2000 problems are 100 percent predictable and preventable."

As part of its policyholder communications, Farmers is informing its commercial customers that its insurance contracts have not, and are not, intended to cover most year 2000 related losses.

"But as a conscientious insurer, it is Farmers' desire to help customers foresee potential losses and remedy them before they strike. That's what the concept of risk management is all about," Gelfand said.

General tips to manage year 2000 risk

Farmers Insurance has provided the following general guidelines to help small businesses prepare for year 2000 compliance:

1. Inventory. As a general rule, the first step to becoming year 2000 compliant is to prepare a comprehensive inventory of hardware, software and all computerized data used in your business. This should also include anything that is controlled by a computer chip, such as security systems, elevators and even fax machines.

Depending on the complexity of the inventory process and the capabilities of internal information systems staff, independent contractors may need to be brought in. Although outside consultants and programming services are available to help fix this problem, they may become less available and more expensive as the year 2000 approaches.

2. Identify all year 2000 problems. Contact the vendors from whom any hardware or software has been purchased, or vendors who have created customized applications to determine if the products are already year 2000-compliant, and, if not, what must be done to make them compliant.

For software and/or hardware that was developed in-house or for businesses with customized systems, compile a list of all software programs within your computing environment as well as a description of the steps necessary to correct the year 2000 date problems.

This may require increasing internal systems staff or hiring outside programmers depending on the complexity of the situation.

For new contracts with software and hardware vendors, make sure all warranties and compliance agreements specifically address the year 2000.

3. Conduct an impact assessment. It is critical to evaluate the impact that each noncompliant application or process has on your daily business operations and any effect on customers and employees.

Prioritize those problems requiring immediate attention by categorizing the severity of impact into the following categories:

?Fatal: operations will terminate or be seriously affected;

?Critical: operations will produce an incorrect result; or

?Marginal: Only minor inconveniences or annoyances will result.

Compile all findings into an overall project strategy addressing cost, implementation issues and an appropriate time line. Secure senior management's support in committing funds and a project team to tackle the problem effectively.

4. Develop and implement a repair program. Repairing year 2000 problems can require detailed data and software modification by technical personnel.

This includes getting program requirements and design changes into the development cycle, review and modification of the application and a significant amount of recoding.

Ensure that a reasonable time frame is budgeted to test the program in case the compliance plan is unsuccessful.

The sooner small businesses begin planning and implementing steps to become year 2000-compliant, the more likely they will be able to manage the project before it's too late, the release stated.

As each day passes, more non-compliant data is entered into computer systems and applications, adding to the burden of expensive code redesign and data rework, the release added.

To determine precisely what is and is not covered, business owners should refer to their individual policy language and contact their insurance agents.

Farmers added that there is no single solution to the year 2000 problem, and advised that each company determine which procedures are most prudent for its needs, preferably with the assistance of professional or other technical advice on year 2000 issues.

Farmers Insurance is the nation's third largest insurer of homes and autos, is a major commercial insurer, and operates a life insurance subsidiary.

Doing business in 31 states and with headquarters in Los Angeles, Farmers provides employment to more than 30,000 employees, agents and district managers.


Business owners

should determine what their insurance covers before 2000.


Losses businesses may sustain to

computer systems and programs caused by the year 2000

will generally not be covered by most

insurance policies.[[In-content Ad]]


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