Just released: How to raise venture capital in 2023


Managed Service Providers (MSPs) Insurance Guide


Key Takeaways

Cyberattacks have steadily increased in the past few years, impacting over 155.8 million individuals with data exposure in 2020 alone. It’s no surprise that managed service providers (MSPs) have become more aware of the risks they face. This post examines many of those exposures and the insurance coverage that helps MSPs manage the unique dangers. Let’s dive in.

What Is an MSP?

Managed service providers started in the 1990s, focusing mainly on remote monitoring and management of servers and networks. Since then, MSPs have set themselves apart by transforming and broadening their scope of services offered. MSPs currently handle much of the time-consuming and repetitive tasks of managing IT infrastructure or end-user systems. 

Small businesses and mid-market companies often team with MSPs to help them fill a void in IT systems or roles. Naturally, each MSP contract varies based on a particular company’s needs. MSP involvement comes in a variety of ways, including:

  • Technical support for employees
  • Payroll services
  • Application
  • IT infrastructure management
  • Ongoing IT support
  • Network
  • Compliance and risk management
  • IT cybersecurity software
  • User account administration
  • Contract management

MSPs offer significant value to all-sized businesses by supporting their professional objectives. C-level executives frequently vouch for MSPs’ value, saying that security and compliance should be left to a trusted MSP partner. When an MSP handles IT issues, company leaders can focus on internal roles and overall expansion. 

What Risks Do They Face?

As many companies do nowadays, MSPs face multiple vulnerabilities merely because they deal with online functions. But that’s not all the risks they face. Here are some of the exposures MSPs must navigate. 


From ransomware to phishing attacks, cybersecurity is a current hot topic. And for a good reason, too. The average cost of a data breach is roughly $4 million, taking over 200 days to identify an attack. Not even major corporations — Nintendo, Microsoft, Zoom, Twitter, etc.— can sidestep these vicious attacks.

It comes as no surprise that MSP clients increasingly rely on them for robust cybersecurity protection and guidance. Beyond safeguarding their digital assets, clients also look to MSPs for comprehensive employee training on ways of handling risk and adopting best cybersecurity practices. A single oversight in this critical realm could potentially jeopardize a professional relationship for years to come.

So, cybersecurity has been advanced to the top of most MSPs’ agenda and list of services offered. It’s an issue that can no longer be ignored. MSPs are called upon to build specialized cloud architectures, handle data backup, and provide mitigation tools, to name a few. Standing out in a crowd of other MSPs means having superior cybersecurity protection to meet the growing customer demand.


When all goes well with systems and networks, it makes for happy business owners. However, if you flip the script and part of the network fails, MSPs are immediately alerted. Additionally, business owners often expect MSPs to respond swiftly to fix the issue STAT. It’s a tall order to fulfill — sometimes a 24/7 job.

For MSPs with a hefty customer base, crunch time could only be a matter of minutes or hours to finish the job. After all, businesses that can’t operate successfully will lose potential income. Worse yet, they might lose customers. Sometimes, business owners point the finger at their MSP partner, and MSPs must have an answer for them. The business’s financial and reputational damage is at stake. A disaster recovery plan is critical to an MSP’s success. 

Regulatory Compliance

Keeping up with the Joneses might seem like an easier task than maintaining regulatory compliance. For MSPs, it’s all part of the gig. The good news is that MSP who are up-to-date on regulatory knowledge are in high demand. 

Keep in mind that data privacy, cybersecurity, and breach notification stipulations impact most MSPs in today’s world. For example, data handling laws affect MSPs and clients worldwide. Offering even the essential services means MSPs must be current on data privacy laws and security rules. 

Similarly, MSPs offering specialized services must have vast regulatory knowledge to handle the extra load. Many MSP provide highly customized services, with varying service tiers and packages. So, specializing in services often means having additional knowledge.

What Type of Insurance Do MSPs Need? 

While each MSP is slightly different from the next, the following are a handful of must-have policies all MSPs need to stay protected and move forward. 

General Liability Insurance 

What it covers:

This policy helps you manage risks by providing coverage for common challenges faced by organizations, including slip-and-fall incidents, damage to third-party property, product liability claims, damage to your rented space, and reputational harm from defamation or misleading advertising.

Why you need it:

It forms the foundation of a risk management program. On top of protecting the company from legal liability caused by bodily injury or property damage, this coverage is usually required in contracts like office leases and vendor agreements. 

Cyber Liability Insurance 

What it covers:

This coverage protects your organization from lawsuits, fines, and penalties arising from a hacking attack or data breach. It can also reimburse the company for its direct expenses, such as breach notification costs, credit monitoring, data restoration, and forensic analysis. 

Why you need it:

If you’re wondering about organizational risk and whether your business is exposed, consider this: if you gather any personal or organizational data, offer a “login” feature on your website, collaborate with other organizations’ systems, employ individuals susceptible to phishing attempts, produce online content like blog posts, or heavily depend on email communication, cyber liability insurance becomes an essential safeguard.

Professional Liability Insurance

What it covers:

Also referred to as “Errors & Omissions” or “malpractice” insurance. It covers financial services companies if an act, error, or omission committed in the course of the company’s performance of professional services is alleged to have caused a financial loss for a third party.

Why you need it:

Complex litigation is expensive, and there’s a lot to go wrong for financial services companies in particular. The policy responds to the threat of professional service disputes by paying legal fees and judgments or settlements resulting from a lawsuit for an alleged failure in providing professional services.

What Is Covered and What’s Not?

Naturally, different insurance policies cover various events. Many business owners confuse general liability (GL) with their E&O policy, for example. However, the two policies cover very different things. GL covers tangible risks, such as bodily injuries and property damage, whereas an E&O policy covers more putative risks, such as accusations of inferior work or service.

Additionally, MSPs and business owners must know where their insurance policy ends and the other party’s policy begins. Of course, this element will change based on the professional relationship and contract. 

Consider whether the insurance policy caters to first-party or third-party coverage, or both. Delve into the specifics of policy limits – are they clearly defined or sublimated? Assess if the policy aligns with the requirements of the contract or partnership, distinguishing between per occurrence and per aggregate coverage. These critical considerations warrant the expertise of an insurance specialist well-versed in the nuances of coverage. Given the unique nature of each partnership, the extent of coverage, and exclusions may fluctuate across contracts. And remember, in navigating the diverse landscape of insurance, it’s imperative to explore options offered by insurance SaaS providers.

Understanding the details of what coverage your company needs can be a confusing process. Founder Shield specializes in knowing the risks your industry faces to make sure you have adequate protection. Feel free to reach out to us, and we’ll walk you through the process of finding the right policy for you. 

Related Articles

digital health startup risk management
June 5 • Risk Management

How to Implement a Robust Risk Management Framework for Your Digital Health Startup

Shield your digital health startup! Discover a step-by-step guide to building a robust risk management framework. Minimize threats, ensure compliance, and empower growth.

fintech rules and regulations
April 11 • Risk Management

Fintech Rules: Regulations Finance Leaders Need to Know

Master the fintech rulebook! This post breaks down essential regulations finance leaders must understand to ensure their business operates compliantly in the ever-evolving fintech landscape.

cyber insurance pricing trends 2024
March 13 • Cyber Liability

Cyber Insurance Pricing Trends 2024

Uncertain about cyber insurance costs in 2024? Our article explores pricing trends, expert predictions on rate increases, and strategies to potentially reduce your cyber insurance premium.

cyber liability insurance premiums
March 4 • Cyber Liability

7 “Must Haves” For Cyber Liability Insurance in 2024

With cyber liability insurance premiums rising, business leaders must have the inside scoop to keep costs low. Our partners at Blacksmith InfoSec delve into those tips and tricks.

fintech legal risks
February 29 • Risk Management

7 Legal Issues Every Fintech Should Avoid (and How to Diffuse Them!)

With the emergence of new and disruptive technologies, it’s no surprise that fintech legal risks abound for this innovative industry. Let’s break down these threats and provide solutions that will keep pace with the market.

leverage business insurance
February 27 • Risk Management

How to Leverage Your Business Insurance — 5 Tips

When was the last time you considered how to leverage your business insurance? It’s more than a safety net. In fact, this approach can give you a unique edge. Here’s how.