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:
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
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
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
- Approximately 4,200 female employees filed a lawsuit in 2017 against California-based computer tech company Oracle. The company allegedly paid some of its female employees over $13,000 less than men working the same jobs.
See: Computer tech company Oracle faces gender-bias lawsuit, report says
- IBM was sued after it was uncovered that its Weather Channel app was giving users’ precise geolocation data to advertisers and other third parties, despite telling users that their location data was needed only for providing local weather data.
See: Lawsuit: Weather Channel illegally shared user location data with advertisers
- Uber faced class-action lawsuits after it revealed that it paid hackers $100,000 to keep quiet about stealing the personal information of 57 million customers and drivers.
See: Uber is sued over massive data breach after paying hackers to keep quiet
- Target Corp and Trustwave Holdings Inc, who provide credit card security services, were sued by two banks after failing to properly secure customer data, enabling the theft of about 40 million payment card records plus 70 million other records.
See: Target, security auditor Trustwave are sued over data breach
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.
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!