For many companies, individuals, and institutions, access to the Internet is typically achieved using a service provider. Service providers generally deliver various computer services to entities by means of computer networks. For example, service providers often offer such services as website hosting, electronic commerce, email, and network connectivity services.
Entities that rely on Internet communication or commerce for their day-to-day affairs may not only be interested in the type of service a service provider offers, but also the quality of its service. To attract these customers, service providers will often promise a quality of service level that, should they fall below, obligates the service provider to pay penalties to the customer. Such a promise is often expressed in a service level agreement between the service provider and the customer. Absent a service level agreement, a service provider may still be liable for service penalties by law as a result of its representations, advertising, or industry standards. Thus, the service provider may be exposed to quality of service liability as a result of either express or implied service agreements with its customers.
Quality of service guarantees can come in many forms. A guarantee may specify how quickly or how often a technical assistant is made available to the customer. Thus, quality of service penalties may result from not having enough technical assistants immediately available to speak with customers. Penalties may also result from not having enough bandwidth to meet its customers' collective throughput level at a particular time. Regardless of the type of quality of service liability the service provider is exposed to, the amount of penalties paid by the service provider could mean the difference between success and failure for the service provider.
In general, many service providers assume that not all of their customers will require peak service at the same time. This situation is similar to an electric company assuming that not all its customers will require peak electricity at any particular point in time. Thus, a service provider may not have the capability to service each customer at peak demand levels at the same time. By not having the infrastructure in place to provide peak service to all its customers at the same time the service provider takes on even greater quality of service liability. Nevertheless, such an operating model is often the only way for service providers to offer their services at competitive prices.
Insurance policies are known in the art as a means of offsetting risk of financial loss. The purpose of insurance is to provide economic protection against losses incurred due to the occurrence of a chance event. Various types of insurance policies are used to mitigate various types of risks. For example, fire insurance can be purchased to protect against the risk of property damage and economic loss due to fire.
Conventional insurance policies are generally static in nature. Once an insurance policy is purchased, factors affecting the insurance company's exposure to liability are reviewed infrequently. Thus, conventional insurance programs are often ill suited to account for frequent situational changes that may affect risk of loss.