Overview of the On-Demand industry

On-demand economy is a simple concept based on the idea of supplying consumers with a product or service they’re familiar with, but providing it faster and more intuitively than the industry ever has. Driven in part by the ease of use provided by app-based platforms.

On-demand companies are often grouped with shared economy companies, and in most cases the terms are synonymous. The shared economy refers to companies who offer products that are shared among users/members. AirBnB, Getaround and Jump Bikes are all examples of this, but so are Uber, Lyft and SideCar.

All of this leads to an industry that is projecting exponential growth. By some estimates, shared economy companies could be generating revenues of $335 billion globally as soon as 2025. Emerging markets are more accessible to on-demand companies and many of these markets are ready and willing to join the fun.

Often the backbone any on-demand company is data, and with that comes some inherent risks. Any services provided through digital platforms have the ability to fail. That means a third party like a customer can suffer a loss, financial or otherwise. Additionally, unique risks are posed depending on the service offered that can range from customer injury to theft.

Some of the biggest risks On-Demand companies face

Data Breaches

Data breaches are when sensitive information is data is copied, transmitted, viewed, stolen or used by an individual unauthorized to do so. IBM study estimated that the average cost for companies who are victims of cyber attacks is a whopping $141 per record. Just look at what happened to Uber in 2016 when 57 million users data was stolen.

Cyber Attacks

On-demand companies are often victims of cybercrime such as DDoS attacks and randsomewear attacks. These attacks can lead to data being stolen or destroyed in addition to major service outages. According to a report from Kaspersky Labs the average cost of a cyber attack for enterprises grew from $1.2 million in 2016 to $1.3 million in 2017

System Failures

By nature on-demand companies are heavily reliant on back end & front end systems and third party services providers like AWS for their applications, servers and data services. Any outages, downtimes or failures can result in lawsuits from customers and independent contractors who rely on their platforms to run their business.

Why is Insurance for On-Demand Companies Important?

Every on-demand company is different but they all share (at least) two common exposures: technology professional liability and cyber liability. The possibility of a system failure or hacking attack is always there too and any on-demand company that has to shut down temporarily runs the risk of losing money and customers.  Cyber extortion and ransomware appear in the headlines on a monthly basis.

And don’t forget about data breaches! These gems can cost companies millions of dollars in legal, forensic, and consulting expenses. Uber found this out first hand in 2016 when they had to put executives in front of congressional panels following a breach and the questionable handling of its fallout.

But there are also risks that are unique to each company. An on-demand car-sharing company will need to make sure it and its drivers have adequate auto insurance. A bike share company will need to have products liability insurance in case someone is hurt when a bike breaks. Many different types of companies use proprietary code that they’ll want to protect if someone sues for intellectual property infringement (or if someone infringes on their rights). An on-demand dog sitter will need to have the right general liability insurance in place in the unfortunate event that one of the pooches gets hurt.

Protect Yourself and Your Organization

What Insurance do On-Demand companies need?

Cyber Insurance

What it covers:
This protects your organization from lawsuits, fines and penalties arising out of 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 collect any sort of personal or organizational information, have a “login” feature on your site, integrate with another organization’s systems in any way, have employees who could fall for a phishing scam, generate online content such as blog posts or even simply rely heavily on email communications, you need cyber liability insurance. On-demand is no exception in the tech space. Hackers view many of these companies as data warehouses that can make them a fortune on the black market.

Intellectual Property Insurance

What it covers:
Protects the company and its intellectual property. Policies can work two ways: 1. Defense policies provide legal defense costs if you are sued for an IP infringement 2. Abatement policies help cover the cost of enforcing your own IP rights

Why you need it?:
IP litigation is common and expensive. Companies in innovative, disruptive and/or competitive spaces may face suits from both competitors and patent trolls. For the latter, just having this policy in-force can act as a deterrent. In the case of competitors who may have a more valid claim, the policy provides much needed capital so that the company’s balance sheet doesn’t have to take the hit. (Not to mention the benefit of partnering with an experienced claims team who can guide you through the process).

Directors & Officers Insurance

What it covers:
Protects the company and key individuals from liability related to the management of the organization. Companies that indemnify their executives against certain covered claims can turn to their D&O policy for reimbursement. In addition, if the organization itself is named in a suit, the policy would defend the entity.

Why you need it?:
Ensures the company and its leadership is protected from legal liability related to allegations of breach of fiduciary duty and other management-related claims. It provides the capital required to absorb certain legal costs without mortgaging the future of the entire organization.

Professional Liability Insurance (E&O)

What it covers:
Also referred to as “Errors & Omissions ” or “malpractice” insurance. It covers the SaaS 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 expensive and there’s a lot that can go wrong for on-demand companies in particular. The policy responds to the threat of professional service disputes by paying legal fees and judgments or settlements that result from a lawsuit for an alleged failure in the provision of professional technology services.

Workers Compensation & Employers Liability

What it covers:
Provides a legally required coverage protecting employees if they are physically injured or get sick while on the job. Legal requirements vary state-by-state so be sure to research the laws in each state where you have employees located.

Why you need it?:
Fines could be imposed on any company that doesn’t comply with their state’s workers comp laws. Employers liability coverage also provides valuable legal defense costs if a lawsuit develops in connection with the injury or illness outside of what standard Workers Compensation covers.

Property Insurance

What it covers:
Building coverage protects properties that are owned, while business personal property coverage reimburses for covered damage to the contents of a building. Lost income and extra expenses caused by a covered loss can also be addressed by business interruption coverage.

Why you need it?:
Any company with a physical presence runs the risk of their physical property being damaged or destroyed. If you hold or own equipment you’ll often have a lot at stake. On top of that, renting temporary office space after a fire is a surprise cost that no business needs to be caught off guard by.

Employment Practices Liability Insurance

What it covers:
Protects the organization and its management by paying the costs of defending against certain suits from employees or investigations from government agencies. Common claims include allegations of harassment, discrimination, retaliation, and wrongful termination.

Why you need it?:
If you or the organization itself is named in such a claim, the coverage would defend you and pay the judgment or settlement against you. Keep in mind how easy it is for an employee to start an action that requires a legal defense.

General Liability Insurance

What it covers:
Covers the organization from some of the fundamental risks that come with running an SaaS organization, such as ‘slip and fall’ claims, damage to a third party’s property, products liability claims, damage to rented space, and personal or advertising injury claims.

Why you need it?:
It forms the foundation of any 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.

Crime Insurance

What it covers:
Protects the company from loss caused by certain illegal activities. Unlike many other commercial insurance policies, it has nothing to do with defending against lawsuits from third parties. This policy instead reimburses the company itself for losses of money, securities or other tangible property that it directly experiences.

Why you need it?:
Most businesses are exposed to the risk of criminal activity. This insurance protects your company from crimes committed within the company itself as well crimes committed by people or other factors outside of your company. Common claims include:

  • Employees stealing money from the company or clients.
  • Inadvertently accepting stolen credit cards, counterfeit credit card numbers or payments from unauthorized users
  • Non-employees stealing from the company’s office or from the premises of the company’s bank.
  • Robbery of valuables while in transit under the care of a messenger or armored car.
  • Computer and wire transfer fraud.

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