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Data Breaches Bad for BusinessCompanies Lose 20% of Customers Affected, Survey Finds |
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September 27, 2005
"Companies lose customers when a breach occurs. Of the people we surveyed who received notifications, 19 percent said that they have ended their relationship with the company after they learned that their personal information had been compromised due to security breach," said Larry Ponemon, founder and head of the Ponemon Institute. "A whopping 40 percent say that they are thinking about terminating their relationship." The survey also found that five percent of Americans have hired lawyers upon learning that their personal information may have been compromised. "Five percent may not seem like much, until you realize that anywhere between 23 million and 50 million Americans have received notification of a data security breach. That means that over one million people out there are likely seeking legal counsel," said David Bender, co-head of the privacy practice at White & Case, the law firm that sponsored the study. "This should be particularly troubling to companies, especially in light of several putative class-action lawsuits recently filed in California against companies that experienced security breaches," Bender said. Bender added that while it's unclear just how any court might calculate damages for customers whose personal information has been breached, but have not suffered any clear harm, the fact that the plaintiff's bar is taking on such suits means they anticipate that courts may commiserate with customers' frustration over breaches. One of the top frustrations that consumers experience is that the company hasn't clearly and effectively communicated just exactly what effect the security breach will have on their personal information. "The survey reveals that companies need to be straightforward about what they know, as those companies who fail to communicate information in a clear, consistent and timely fashion are four times more likely to experience customer churn," said Ponemon. "And those businesses that deploy canned emails or form letters to communicate a data breach to victims are more than three times as likely to lose customers than those that contact victims by telephone or personalized letters or a combination of both," he said. Overall, 39 percent of respondents said that they felt the message conveyed by the organization about the data security breach was not honest and believable, and 52 percent said that the notice was difficult to understand. Among the other top findings of the survey:
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