IT Insurance: What You Need to KnowBlog
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IT companies are all about innovation and embracing the challenges the technology industry brings. Things change rapidly, and companies sometimes have difficulties keeping up with all the regulatory changes, as well as changes in the market. Having IT insurance policies in place would give you a bit more confidence when taking the necessary risks.
To give an example of how costly lawsuits can be for IT companies, let’s look at the claim Hertz filed against Accenture for a poor website redesign service. It was a $32 million lawsuit over a website that was “not finished, unresponsive, and not functional,” as Hertz claimed.
Your clients depend on you to deliver top-notch products and services that would make their business more efficient and allow them to operate smoothly. You might hit a few roadblocks on the way, but what’s important is that you bounce back and keep going until you reach your goals.
Remember that you don’t have to overcome those obstacles on your own. In moments of hardship, you can rely on a partner who can take a big chunk of risk off your shoulders and provide a financial safety net if you face legal liability for your unintentional mistakes or unpredictable events.
The partner we are talking about is, of course, your insurer. But first, let’s discuss the importance of having the right insurance, and what policies IT businesses should consider purchasing.
Who Needs IT Insurance?
The answer to this question is quite simple: everybody who runs an IT business should consider buying IT insurance. You might think that, as an IT consultant who works from home, you might not need IT insurance coverage. That couldn’t be further from the truth.
The same goes for small IT business owners. No matter how small your business is, you can find yourself facing a nasty lawsuit that could even bankrupt your business. Not to mention if you run a big IT company with significant exposure to risks.
You can accidentally miss a deadline stipulated in the contract you signed with a client. A software solution you developed could crash after the most recent update, leaving you with a very dissatisfied client. Any malfunction of your product or the inadequacy of the accompanied service can trigger your clients to file lawsuits against your company.
Even if you think that you couldn’t possibly make a professional mistake that could endanger your business, you must be aware that errors happen on a daily basis, and nobody is immune to them.
Of course, there is also the risk of falling victim to a cyberattack or a data breach. Any company that conducts its operations online and stores confidential client information is a lucrative target for hackers, so your company is no exception.
What Industries Need IT Insurance?
If you are still in doubt about whether you need IT insurance, here are some industries that should consider purchasing it:
- Software developers
- IT consultants
- Web developers
- Web designers
- IT staffing companies
- Cybersecurity specialists
- Cloud computing operations businesses
- Systems integration companies
- Database administrators and designers
- Data storage providers and management companies
- Integration specialists
- Application service providers
If your industry does not appear on the list, that doesn’t mean that you are exempt from needing IT insurance. In today’s litigious society, business owners should consider protecting their company’s financial interests by securing robust IT insurance coverage.
What Kinds of Insurance Do IT Companies Need?
Every company has its unique risk profile and should therefore have its IT insurance policies designed to cover those specific exposures. As your company grows, your risk profile and related IT insurance policies become more complex, and you need to consider adding additional coverages to protect your assets.
Many IT companies are startups and, as such, have a unique set of risks at every stage of their growth. Startup insurance is vital for these companies as they usually can’t afford to defend against lawsuits on their own.
Regardless of your company size and industry, even if you are a self-employed IT consultant or a contractor, insurance experts recommend that your IT insurance portfolio includes the following policies:
Technology errors and omissions (tech E&O) insurance
Tech E&O policy covers risks commonly associated with technology companies. It provides legal and financial support if one of your clients sues you over a professional error, miscalculation, or negligence.
If your professional error causes your client to lose revenue or incur additional expenses, they can decide to sue for damages. Also, if you miss your deadline and don’t deliver the service or product you promised you would in your contract on time, the client can sue you for breach of contract.
Here’s one example to better understand what tech E&O insurance covers. Imagine a cosmetics retailer hired your company to design and maintain their website. A few weeks later, they want to hold a Black Friday sale, their major sales event when the company expects a great profit.
Then, on Black Friday, their website crashed because of the sudden surge in traffic you hadn’t anticipated when you built it. The company then blames you for their financial loss and sues your business for damages that measure in hundreds of thousands of dollars. When legal costs also pile up, you can expect to pay a substantial amount to defend your business.
That’s where having a technology E&O insurance policy would come in handy. Your insurer would cover your legal fees and either the settlement amount or the court-awarded damages if your actions were unintentional.
To sum up, tech E&O policy would cover the claims of:
- Professional errors and omissions (such as coding or design errors)
- Contractual liability
- Professional negligence
- Copyright infringement
- Online defamation
Cyber liability insurance
Cyber liability insurance is designed for every business that conducts all or parts of its operations online. It allows companies to transfer a part of the financial burden of recovering from a cyber-related security breach to their insurer.
Cyber insurance would cover for data loss, recovery, and recreation, any revenue loss due to a data breach, computer fraud costs, cyber extortion, and the costs of defending potential liability claims.
If your company suffered a data breach that exposed your clients’ personal information, your insurer would pay for notification costs, credit monitoring, civil damages, computer forensics, and hiring a PR specialist who would help minimize the reputational damage.
The coverage also includes the insurer’s duty to defend the insured company from related administrative actions or liability lawsuits.
Additional Coverages IT Businesses Might Need
There are a few more policies every IT business owner should consider obtaining for their company. Let’s look at what other insurance coverages and IT companies might need:
- General liability insurance: As a primary policy every business should consider buying, general liability would cover any third-party bodily injury or property damage claim resulting from your business operations. It will insure against claims alleging libel, slander, defamation, or invasion of privacy.
- Commercial property insurance: If your company uses commercial office space, this insurance policy will protect it, as well as your furniture, inventory, and business equipment. If you are a consultant that works exclusively from home, note that your homeowner’s policy might not cover your business equipment, so you should consider purchasing a commercial property insurance policy.
- BOP: A business owners policy (BOP) is coverage that bundles general liability, property, and business interruption insurance into one package. Insurers recommend this policy to small business owners that have smaller risk exposure.
- Workers compensation: Once you hire your first employees, you are mandated by law to carry workers compensation insurance in every state but Texas. It will cover the costs of an employee’s workplace injury or illness by covering the medical bills and a certain percentage of the lost wages.
- Employment practices liability insurance: An EPLI policy would cover your legal costs if a former or current employee filed a lawsuit alleging any type of harassment, discrimination, wrongful termination, retaliation, or other employment-related issues.
- Directors and officers (D&O): Directors and officers insurance protects your executive team from lawsuits related to the misuse of company funds, company assets misrepresentation, non-compliance with workplace laws, or breach of fiduciary duty.
- Commercial crime insurance: Apart from typical dishonest actions, crime insurance also covers online crimes committed by third parties or your employees. Those crimes include embezzlement, fraudulent transfers, business information theft, and others.
How Much Does IT Insurance Cost?
There is no “one size that fits everybody” solution when it comes to insurance. Every company is unique, and so is its risk profile. That’s why you can expect to pay a similar amount as companies similar to yours, but not quite the same.
To calculate how much you’ll need to pay for your policies, insurers consider a few factors that influence your policy premiums:
- Company size (number of employees): The more employees you have, the greater your risk exposure.
- Projected annual revenue: Similar to the previous factor, your premiums will depict your revenue. Higher income will trigger higher policy premiums.
- Type of IT services your company offers: Some industries carry more risk than others for specific policies, so your insurer will have to take that into consideration.
- Claims history: If your company suffered lawsuits in the past, that would influence your future premiums. Insurers want to protect their interests when insuring risky businesses.
- Business location: You can expect to pay more for insurance if you are located in New York, San Francisco, or Los Angeles, for example, than businesses operating in less populated areas.
Another significant factor is policy limits. If you want or need your limits to be higher than the usual $1 million, you can also expect your premium to be higher.
When you add up the costs of all your individual annual policies, you will still get a significantly lower number than the cost of having to defend a single lawsuit on your own. That’s why going without insurance is simply not worth the risk.
If you still have questions about IT insurance and the coverage your business needs, you can always speak to one of our experienced brokers. If you are ready to get your policies, you can start by signing up to Embroker’s digital platform, filling out your application, and getting your online quote.