SaaS Insurance

SaaS companies need their service to be as stable, fast, and effective as advertised, but service outages can come from anywhere. Anything from routine system maintenance to targeted DDoS or cyber extortion attacks can trigger a business interruption. If the service fails (whether it’s because of an attack on their system or the system of a critical vendor like AWS) and clients lose money, SaaS companies will have to pay the price in the form of lost income or, worse, lawsuits.

The damage to the company’s value, reputation, and customer confidence can be significant after system failures and data breaches. Microsoft experienced this early on, soon to be followed by the likes of Yahoo, LinkedIn, and Adobe.

Moving beyond the more technical, computer-based crises that can happen, there’s also the possibility of a more traditional failure in the software company itself. Sometimes a more carefully tailored Errors and Omissions (E&O) policy will also be required to cover unique exposures. An accounting software provider will want Tech E&O coverage in case a glitch causes a client some sort of financial loss, but what about run-of-the-mill accounting errors? Those would be excluded from a Tech E&O policy, so a separate Accountant’s E&O policy may be necessary.

Following are some of the core potential issues that a SaaS company would require protection from.

Insurance for SaaS Companies Against Data Breach

Data breaches are when sensitive information is copied, transmitted, viewed, stolen, or used by an individual unauthorized to do so. A recent IBM study estimated that the average cost for companies who are victims of cyber attacks is a whopping $141 per record.

Insurance for SaaS Companies Against Cyber Attacks

SaaS companies are often victims of cybercrime such as DDoS attacks and ransomware attacks. These attacks can lead to data being stolen or destroyed. According to IBM, the global average cost of a data breach in 2023 was $4.45 million, a 15% increase over three years.

Insurance for SaaS Companies Against System Failures

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

Insurance for SaaS Companies Against Compliance Issues

SaaS companies must stay current on privacy and security measures to retain long-term customers. This approach means more than merely adhering to best cybersecurity practices, such as keeping software updated and servers maintained. SaaS companies must follow regulatory standards, as well.

The cost of insurance for Software as a Service (SaaS) companies can significantly vary based on several factors. The size of the company’s physical assets, its revenue, the level of risk involved in its operations, and its past claims history can all impact the insurance premium.

Larger companies with higher revenues often face more significant risks, potentially leading to higher insurance costs. Similarly, a company operating in a high-risk industry or with a history of numerous claims may also see increased premiums due to the perceived risk.

Despite these costs, it’s crucial to consider that the expense of insurance premiums is often far less than the potential out-of-pocket costs following a significant loss or liability claim. Without adequate insurance coverage, a single loss can seriously harm or even bankrupt a company. Thus, insurance provides not only financial protection but also peace of mind, allowing SaaS companies to focus on their core business and growth.