Embroker’s
Technology Practice

Tailored Risk Solutions from Startup to IPO

In the fast-paced world of technology, a company can move from concept to launch in weeks. In this environment, it’s imperative to have a risk management partner who understands the industry and is experienced in the exposures associated with your business’s innovations and rapid growth.

Data breaches and other cyber risks, liability claims, and protection of intellectual property are just a handful of issues technology businesses face. We understand your unique issues, and can help tailor a risk solution that accurately reflects your business’s risk profile.

We wrote this guide to help you, the reader, understand both the basics of insurance for technology companies as well as some more advanced considerations. Our hope is that you walk away from this article a more empowered buyer, with a better understanding of the risk you can transfer to other parties via insurance.

With one of the fastest growing technology client portfolios, our Technology Practice Team has been delivering effective, tailored solutions to high-growth technology businesses for over 20 years. Our clients range from startups to public businesses, so we’re positioned to serve your needs through all stages of business growth.

If you’d like help, we’d invite you to talk with a broker or get started by creating an Embroker account.

Finally, if you are involved with a venture-backed startup, you can get market leading D&O, EPLI, E&O and Cyber insurance in less than 60 seconds through the Embroker Startup Program – click here to get an instant quote.

In technology, it’s natural to move quickly. As innovators ourselves, we love companies that stir the pot and we’re passionate about helping technology companies build Insurance programs that intelligently transfer some business risk to another entity (i.e. insurance carrier), freeing you to take bold risks and drive innovation.

As a growing tech company, buying the right policies enables you to manage your risk and avoid the mental and financial stress of unpredictable costs that could potentially cripple your business if you are forced to deal with them on your own.

How to Find the Right Coverage for Your Technology Business

We value expertise and encourage you to find a broker who specializes in technology companies. At a minimum, your broker should have experience working with similar companies to place insurance and support claims. This ensures they will be able to intelligently tailor an insurance program for your business across the following dimensions:

Broker experience:

How well do your insurance professionals understand the tech industry and, more specifically, your needs?

Premiums:

How much does adequate coverage from your risks cost on a monthly or yearly basis?

Limits:

How much coverage do you want/need in the event of
a claim? How much monetary risk do you expect given
your company’s size and
operation?

Coverage terms and conditions:

What are the details that really matter for your business? Each policy can have unique terms, conditions that can be added and removed to make the coverage tailored to your business and your risks. A savvy broker who knows your industry and vertical will negotiate these terms and conditions to match your exposures.

What Insurance Policies Do Tech Companies Need?

While every business has a specific set of insurance needs depending on its size and industry, there are certain insurance policies that technology companies should consider to be mandatory parts of their business insurance program:

Directors and Officers (D&O) Insurance: Covers defense costs and damages (awards and settlements) from wrongful acts, allegations, and lawsuits brought against your company’s board of directors and/or officers. It’s a type of insurance that was designed for the purpose of protecting your company directors (both current and past) from lawsuits and litigation.

In tech companies, the personal assets of the directors and officers are often at risk, which is why most tech companies and startups start their insurance programs with this type of insurance, as it is absolutely mandatory to have so that these assets are properly protected.

It is common to see professional investors working with technology companies request a seat on the board of directors. To reduce their risk, investors usually won’t consider putting money towards tech companies that do not have D&O insurance.

Technology Errors & Omissions  (E&O) Insurance: Considered one of the most important insurance types for tech companies because it defends your company if your service or product does not perform the way that it is supposed to perform. Most businesses would be able to simply buy product liability insurance to cover themselves in the event that their product fails in some way or another.

However, products such as software are not covered by these types of policies, which is why a special type of insurance is needed. A tech E&O policy is going to cover not only liability losses but property losses that are related to the performance of your product. Many business owners tend to confuse technology E&O insurance with cyber insurance, but differences exist.

Technology E&O insurance is designed to cover financial losses that a customer incurred as a result of any errors or omissions related to the service or product that your company provided to them, while cyber insurance focus on sensitive data.

Cyber Liability Insurance: Covers first-party costs associated with a data breach, including forensics, notification costs, and credit monitoring. This type of insurance also protects from third-party lawsuits involving various network security and privacy-related losses and protection against costs related to cyber extortion, regulatory fines and penalties, and PCI fines, penalties, and assessments.

A good cyber insurance policy should cover the costs of defending or settling a lawsuit if you are sued by a client or partner whose data was breached because of something your company did or failed to do. It should also cover all of the financial losses the customer incurred as a result of the data breach.

The more robust cyber insurance policies will cover both first and third-party damages and should work hand in hand with your technology E&O policy and more traditional types of related business insurance, such as commercial crime.

Employment Practices Liability Insurance (EPLI): Provides protection against employee claims related to issues such as wrongful termination, harassment, and discrimination. Unlike workers’ compensation, EPL insurance is not mandated by state governments, so it might be easy to overlook, especially for small tech companies who don’t believe that they have enough employees to warrant such a policy.

Why Your Tech Company Needs Coverage

In 2013, McKinsey Global Institute estimated that certain technologies will have a combined economic impact of $14 trillion to $33 trillion a year by 2025. With all those zeroes, it’s virtually impossible to avoid risk exposure.

In today’s tech and startup world, lawsuits are common and can be very expensive, D&O claims especially. According to a Chubb report from 2016, one in four companies experienced a claim over the last three years, with an average reported loss of $387,000.

The same survey showed that companies who did not buy D&O insurance ended up losing an average of close to $400,000. It isn’t hard to understand how losses of this magnitude could easily cripple young tech companies and startups.

Unlike public companies that have highly-publicized lawsuits from shareholders, private companies often get sued by:

customers
partners
vendors
and other third parties

Furthermore, the number of data breaches companies experience continues to rise year after year.

In 2016, reported data breaches increased by 40% from 2015. Online heavyweight Yahoo experienced the single largest data breach in history in 2016 leaving more than one billion accounts affected. If these types of things can happen to Yahoo, they can happen to anyone. That’s why tech companies of all sizes need to be properly insured.

How are Premiums for Tech Companies Determined?

A frequent question we hear (and a common problem with insurance underwriting in general) is that no one really knows how an underwriter arrives at a premium.

Your company’s premiums are primarily determined by

the number of employees
projected 12-month revenue
services offered (assurance, tax, consulting, etc.)
location
claims

If you’re an early stage startup, you might not have any projected revenue for the following year. In this case, certain insurers will determine your premium based on the square footage of your physical business location(s) or your payroll.

Embroker believes in giving our clients better choices using data and transparency. We benchmark your policies against similar companies in your vertical, then procure quotes from multiple insurance carriers for coverage you may not carry and want to consider purchasing. We also cross-reference your costs with companies of comparable

claims history
risk tolerance
size
policy limits

so we know your premiums are as competitive as possible.

Once set up on our platform, our tools and data ensure you’re adequately covered and getting the best value possible in the insurance marketplace, even as market conditions change and your business grows.

Highly-Publicized Examples of Insurance at Work for Tech Companies

The Cost of Insurance for Technology Companies

How much you can expect to pay for insurance depends on a number of important factors. When it comes to determining premiums, generally, the same rules apply for most industries.

One of the most important factors for tech companies is how many people the company employees, both full-time and as contractors. Obviously, the greater number of employees, the more you can expect to pay for workers’ compensation, E&O, and EPLI.

Is your tech company or startup profitable? The more money your company is making, the higher your premiums will be, simply because the potential for professional liability lawsuits increases along with your sales and business growth.

The type of business you are also plays a big role in how much you are going to be paying for insurance. If most of your employees are working in your office and sitting in front of computers all day, your rates will obviously be lower than if you have employees who travel often and work on other people’s property.

If your tech business handles a lot of sensitive customer and partner information you’re obviously going to pay more for cyber insurance. The number and types of business contracts that you have signed with clients, investors, and partners will obviously have an effect on your E&O policy’s cost as well.

As expected, your claims history is taken into consideration as well and the cleaner it is, the lower your premiums will be.  And finally, your location is important too, not only because of potential threats or natural disasters, but also because each U.S. state has different requirements and other legal characteristics that can affect the price of your coverage.

Getting Started

Now that you have a better understanding of insurance for technology companies, you may be wondering how all of this affects your business and where to go from here.  If you need more help or information, you can reach out to our team of expert brokers. Or, if you prefer to get started on intelligent quotes, you can get started by creating an Embroker account today.

Finally, if you are involved with a venture-backed startup, you can get market-leading D&O, EPLI, E&O and Cyber insurance in less than 60 seconds through the Embroker Startup Program – click here to get an instant quote.

With one of the fastest growing technology client portfolios, our Technology Practice Team has been delivering effective, tailored solutions to high growth technology businesses for over 20 years.

Embroker is the easiest way to intelligently insure any business. We’re here to help!

Further Reading

Insurance needs for SaaS companies

E-commerce companies and insurance

Fintech insurance guide