Questions Arise Over Who Will Pay for Global IT Outage
After the unprecedented global IT outage that occurred last Friday, questions are now being raised about who will be responsible for covering the costs. Surprisingly, the company at the center of the outage, CrowdStrike, only saw a decrease of 11% in their shares, despite being down by twice as much during pre-market trade. This suggests that investors have confidence in the company’s ability to recover from the disaster and that they will not be held financially accountable.
There are several reasons for this belief. First, it is too early to determine the full extent of the losses incurred due to the outage. Secondly, it may be difficult to prove that any losses were a direct result of the outage. Lastly, it is expected that CrowdStrike has insurance coverage for such events.
Aviation Industry Takes a Hit
One of the industries hit hardest by the outage is the aviation industry. However, even for them, claiming losses will not be straightforward, especially for airline passengers. The rules for compensation differ between the US and the EU, and it is unclear who passengers should file a claim with. Additionally, airlines may argue that they are not obligated to provide compensation for delays or cancellations due to “extraordinary circumstances.” This could leave passengers who booked with a credit card to seek reimbursement through cost protection. Some travel insurance policies may also offer coverage for travel disruptions, but it is not guaranteed.
Insurers Also Affected
Insurance companies were among the hardest hit by the outage, with shares of Beazley and Hiscox, both major insurers, falling significantly. However, Hiscox’s experience during the pandemic, where they were criticized for not paying out on some business interruption policies, may serve as a guide for what is to come. The wording of these policies may not obligate insurers to cover losses, leaving some businesses out of pocket.
Financial Services Sector May Seek Compensation
The financial services sector may also face claims for compensation, although they were not heavily impacted by the outage. Some brokerages, particularly in India where the markets were active when the outage occurred, have already received claims from clients who suffered losses. However, financial markets were largely unaffected, with the London Stock Exchange reporting minimal impact. This could be due to strong IT support systems and the assurance from CrowdStrike’s CEO that the outage was not a result of a cyber attack.
Impact on CrowdStrike
Despite the reassurance from the company’s CEO, analysts still expect CrowdStrike to suffer financially from the outage. The cost of fixing the issue and rebuilding their reputation will likely be significant, and there may be a decrease in growth rates and cash flow as a result. Additionally, customers may seek compensation and discounts, which could further impact the company’s finances.
Potential Benefits for IT Sector
Some analysts believe that the IT sector as a whole could benefit from the outage, as companies may now be more willing to invest in continuity preparation. This could lead to an increase in spending on IT infrastructure and software.
Uncertainty Surrounding Financial Consequences
It is currently unclear who will ultimately bear the financial burden of the global IT outage. It is possible that insurers may not cover the losses, and it remains to be seen if customers will seek compensation from CrowdStrike. It would be ironic if the IT sector were to benefit from the increased spending by clients following the outage, as is often the case after a notorious gun crime in the US. Only time will tell who will ultimately pay for the chaos caused by the global IT outage.
