With numerous digital transformations emerging, the pace of innovation is only accelerating. Even over the past three years, 45% of IT executives and business have reported a significant push on the technological gas pedal.
With no sign of a yellow light on the digital frontier, artificial intelligence trends are popping up all over large enterprises and entrepreneurial startups alike. Moving IT systems to the cloud, for example, is an initiative 60% of enterprises are expected to undertake in the near future.
Unsurprisingly, it doesn’t stop there. Plenty more AI implementations are due to take place — over 30% more than in past years, in fact . Meaning, more devices will become connected, opening the door to identity and privacy protection being a top concern.
It’s no secret that to get to the technology of tomorrow, certain foundational macro forces will make it happen — cyber, the business of technology, and core modernization. Ultimately, it’s all hands on deck for tech companies.
Why is Insurance for Tech Organizations Important?
The importance of computers and system integrity for tech companies cannot be overstated, so let’s start with some of the risks insurance addresses. The theft of customers’ personal info — or worse yet, their financial info — is a looming threat for online retailers.
Bad actors can wreak havoc by stealing data, encrypting your data and extorting you, or shutting you down with a DDoS attack. These challenges can cause lasting damage to a company who isn’t prepared to face them. Consider the following real-life examples:
Running for nearly a decade, Google’s antitrust probes were the main aim of a $1.7 billion fine. The U.S. tech giant was called out for market abuse regarding the company’s popular software for Android phones and shopping-related searches.
From an “eavesdropping” Apple glitch to a secret Canadian sex toy scandal, Chicago-based attorney Jay Edelson has won his clients millions in class-action cases. His innovative approach targets tech companies who play fast and loose with consumer privacy.
Philadelphia lawyers called upon Uber to open their books, setting their sights set on a slew of business operating audits. Filed by three drivers, this popular rideshare app faced three years-worth of various unpaid taxes.
Backed by a high degree of statistical evidence, Oracle endured scrutiny from over 4,200 female employees. The California-based tech company faced class-action complaints regarding sexual misconduct, uneven pay, and biased workplaces.
Two different data breaches, possibly impacting all of Yahoo’s users, catapulted a securities class-action lawsuit. Additionally, shareholders filed numerous lawsuits against Yahoo’s board and senior managers which was later consolidated.
High profile data breaches seem to be a constant in the news cycle. Growing from $1.2 million in 2016 to $1.3 million in 2017, the average cost of a cyber attack is ever-increasing. Unsurprisingly, tech companies are often the victims of cyber crime where hackers steal or destroy valuable data. Theft of PII can be particular damaging.
Legal & Regulatory
Plenty of sector leaders think that regulations have the potential to slow the growth of the industry. Navigating the complexity of regulatory requirements is a major risk for any Tech company. Often operations do not fit easily into preexisting regulatory regimes, especially if you want to scale internationally.
When the service or digital product fails and causes financial loss, Tech Errors & Omissions is the first line of defense. Of the 55% of small businesses reporting at least one data breach in the past year, ½ of those experienced multiple breaches. This policy would respond should clients lose revenue, for example, after a breach of this nature.
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.
By nature Tech companies are heavily reliant on back end & front end systems and third party services providers for their applications, servers and data services. Any outages, downtimes or failures can result in lawsuits from customers who rely on their platforms to run their business.
As fast as a modern tech company grows, exposures seem to grow at twice the rate. For this reason, it’s vital to protect current and past directors and officers from legal action claiming a mismanagement of the company. An average of 25% of companies face this level of D&O loss.
Recommended policies for Technology Companies
These coverages form the foundation of any risk management program for Tech Companies:
General liability offers broad protection against some of the most fundamental risks companies face. Known as “slip-and-fall” or “all-risk” insurance, this policy covers personal or property damage and bodily injury occurring on the business premises.
When employees sustain work-related injuries, employers are typically responsible for their medical costs and lost wages. This policy covers these expenses, protecting employees while simultaneously keeping companies running smoothly.
Cyber insurance protects companies from third-party lawsuits relating to electric activities (i.e., phishing scams). Plus, it offers many recovery benefits, supporting data restoration and reimbursement for income lost and payroll spent.
Any company with employees faces the risks of allegations, such as discrimination, wrongful termination, breach of contract, etc. This coverage protects companies against lawsuits related to employment practice
Tech Industry Specific Coverage
These policies are essential for or can be tailored to the needs of companies operating in the Tech space:
Shareholders, competitors, investors, etc., can sue a company’s directors and officers, putting their personal assets at stake. Directors and officers (D&O) insurance protects these assets from lawsuits alleging leaders of wrongful acts managing the business.
Companies are often accused of infringement or face being infringed upon, putting their budget and intellectual property at risk. This policy covers legal fees and offers enforcement coverage, no matter how grounded or not the claim is.
Professional liability, also known as errors and omission (E&O) insurance, covers companies in third-party or client lawsuits claiming substandard work or service. Work errors or oversights, missed deadlines, budget overruns, etc., often result in costly cases — but E&O insurance responds to these mishaps.
Types of Tech Industry Companies that need insurance
- Software & App Developers
- Artificial Intelligence (AI)
- Software as a Service
- Data & Analytics
- IT Services
- Internet Service Providers
- Data & Analytics
- Cloud Technology
- Hardware Manufacturers
Technology Frequently Asked Questions
The cost of insurance for tech companies will depend on several things, including the company’s size and development stage. Other factors include:
- Exposures: risks being insured
- Company practices: views on safety, compliance, and risk management
- Program structure: the amount of deductible and willingness for a company to assume more risk
- Claims history: the type and amount of past claims against the company