Digital Earthquake Insurance Debate

THE INSURANCE INDUSTRY CAN'T be expected to pay if the whole Internet shuts down, says Frank Wisner, vice chairman for external affairs with commercial insurer American International Group. So he's asking information execs to lobby taxpayers for an insurance program modeled after the Federal Deposit Insurance Corp. (FDIC) that's been guaranteeing your bank deposits ever since the Great Depression.

Wisner told more than 100 corporate auditors and CIOs gathered at a White House conference earlier this spring that the government should become "the reinsurer of last resort in case of a digital earthquake," just as it steps in to heal businesses that suffer from natural disasters. The Commerce Department's Critical Infrastructure Assurance Office -- the group in charge of rallying government agencies and industries to be more vigilant about network security -- agrees that a public safety net has merit. But John Tritak, the CIAO director, says the private sector would have to drum up sufficient political support for the idea.

Federal insurance could protect businesses -- and the economy -- from huge losses from a cyberwar. Such protection could be hard to get in the private market, says Marshall Acuff, equity strategist for investment bank Salomon Smith Barney Holdings. But Acuff worries that the promise of a federal bailout would discourage companies from taking proper precautions. Even a plan modeled on federal banking insurance through the FDIC might not fly because companies wouldn't want to invite the same kind of government scrutiny that banks get in exchange for protection.

"Most corporate folks would say they don't want the government in anything else," says Thomas Horton, who chairs the National Association of Corporate Directors. Horton thinks the feds would probably come to the rescue in a disaster anyway, if enough damage were done. "They bailed out Chrysler," he points out. No New Net Taxes for Now

ON MAY 10, Congress extended the Internet sales tax moratorium from 2001 to 2006. The moratorium is the only point about Internet taxes most lawmakers agreed on after the Advisory Commission on Electronic Commerce issued a politically inconclusive report in April. Meanwhile, Sen. Ron Wyden (D-Ore.), the Senate sponsor of the current moratorium, is pushing a compromise he thinks would "break the gridlock" on the issue by kicking it over to state governors.

A majority of governors want a new, uniform sales tax system that would make it easier for businesses to remit the revenues. Most ACEC commissioners liked the idea, but not enough to make it a political certainty. Wyden would give states a few years to deliver a plan, on which Congress would get to vote. He thinks the states don't really need the approval, but they "don't want to take the political heat" for calling in Net sales taxes they can legally collect now.

Given the passion that taxes arouse, there's bound to be plenty of heat generated by both the pro- (including brick-and-mortar retailers) and anti- (opponents of taxes in general) Internet tax forces before the issue is resolved. Marla Grossman, a lobbyist representing dotcoms at Washington, D.C.-based Verner, Liipfert, Bernhard, McPherson and Hand, thinks the issue has less impact on CIOs than pending rules about online privacy or digital signatures.

This story, "Digital Earthquake Insurance Debate" was originally published by CIO.

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