What We’ll Cover
The purpose of this guide is to provide detailed descriptions and explanations of the business insurance policies technology companies and startups should consider putting in place to properly protect their operation. Feel free to use the links below to jump ahead to any specific policies you’d like to learn more about.
- Technology Errors & Omissions Insurance
- Directors & Officers Insurance
- Cyber Liability Insurance
- Crime Insurance
- Employment Practices Insurance
- Umbrella
Introduction
It’s no secret that technology has become the primary driving force behind innovation throughout the world. In the U.S. especially, technology-based companies and startups are being formed and scaled at a rapid pace. But with innovation and scale come risk and exposure. The disruptive effect that tech companies tend to have on existing industries and established competitors increase the liklihood of threats like lawsuits. The tendency for these firms to leverage things like open source software or outsourced development to accelerate growth and scale tend to put them at a greater risk of committing intellectual property and copyright infringement. As a result, it’s critical that todays technology companies and startups establish the right business insurance with the right coverage limits to avoid being grounded before they can take flight.
The Foundation
The key to a thorough business insurance strategy for technology companies begins with a thoughtful foundation of coverage that only an experienced insurance provider can provide. Like most types of businesses, tech companies and startups need to, at the very lease, put in place a general liability insurance policy or a business owner’s policy (BOP). In fact, many of the additional coverage types we’ll discuss below cannot be purchased without general liability already in place. In addition to GL or BOP, tech companies should strongly consider adding a commercial auto liabilty insurance policy. It’s common for tech companies to utilize salespeople who travel to visit current and prospective clients in person leaving the company itself exposed for any accidents that occur when a company employee is driving for a work-related purpose.
Technology Errors & Omissions Insurance
Tech E&O, as it is often called, is arguably the most important policy that a tech company can purchase as it is the first line of defense when the service or digital product that they sell fails. Because the insurance industry doesn’t recognize software as a product, the product liability that is included with many general liability or business owner’s policies won’t provide any protection for the types of products and services many of today’s technology companies provide. Consider, for example, that you own a SaaS startup that provides marketing automation software to small businesses. If your software fails because of, say, a DDoS attack resulting in your paying users being unable to market to their customers, each of your users potentially has a claim against your company for the revenue they lost when your service went down. This is just one example of when a technology errors and omissions insurance policy would respond.
Directors & Officers Insurance
D&O, as this type of insurance is more commonly referred to, is specifically designed to protect current and past directors and officers of the company primarily from lawsuits and litigation where the party filing the complaint is claiming they were injured financially because the directors or officers mismanaged the company. This particular form of insurance provides protection for the actual individual officers and directors and the entity and the company pays the premium and is listed as the insured. Because the personal assets of directors and officers of a company are exposed, it is very important that every tech firm purchase this line of coverage as soon as they are able. In fact, as a company grows its exposure grows along with it and this line of coverage will become more important. Finally, because investors often take a seat on the board of the companies they invest in thus becoming a director, these investors will require the coverage be purchased in order to protect their personal assets and the assets of the investment fund they represent and invest through.
Cyber Liability & Data Breach Insurance
Generally, cyber liability insurance provides protection when a tech company experiences a loss or data breach of sensitive or private information. This includes things like email addresses, personally identifying customer information, corporate confidential information, credit card numbers, or health records. Notably, most cyber liability policies only respond by covering third-party damages or damages affecting someone who is not the policyholder. Examples of what cyber insurance covers include:
- The costs to defend and settle a lawsuit if the policyholder is sued by the victim or victims of a data breach.
- The costs credit card companies incur to reissue lost or stolen credit cards as a result of a data breach.
The most robust and complete cyber insurance strategies include cyber liability insurance that specifically provides protection for both first and third party damages and that integrates closely with more traditional insurance lines like a crime policy a property policy. At Layr, we are working hard to bring cyber products to market that provide well-rounded protection. Our cyber liability and data breach insurance starts at just $250 per year for a pre-underwritten instant issue policy that provides $100,000 in protection against first-party damages as well as many third-party damages offering a fast and economical way to get protection in place. For larger companies where $100,000 isn’t enough, we have more robust customizable cyber liability policies that we place along with crime and property policies that specifically respond to the threats the customer is most likely to face.
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A proper crime policy from an A-rated insurance carrier is an important policy that fills gaps in cyber liability and technology errors and omissions policies. As we just discussed above, most cyber liability insurance policies only provide protection against third-party damages. Crime insurance is specifically designed to extend protection to first-party damages which are often the result of a crime being committed. Examples of first-party damages that would likely be covered by a crime policy:
- Money lost as a result of unauthorized bank transfers or illicit payroll runs.
- Whaling, or cases where a company representative is tricked or coerced into sending or moving money.
Employment Practices Insurance
Employment practices liability insurance, or EPLI as you may have heard it called, provides protection to companies who have employees against claims by current or former employees for things like discrimination, wrongful termination, or sexual harassment. While most companies are aware of worker’s compensation insurance which is legally mandated, employment practices insurance is a less known type of insurance. For technology companies, the risk of injury or illness is lower as a result of the fact that the majority of its employees work on a computer at a desk. As a result, the work comp rates they pay are often some of the lowest. However, the risk of an employee claiming they were wrongfully terminated or passed up for a promotion based on their race might still be high. And while companies can do their best to instill a culture that is safe and friendly for employees, it only takes one bad employee or manager to create a situation that gives rise to an EPLI claim. For this reason, employment practices insurance is something all tech companies and startups should strongly consider especially as hiring accelerates and the teams begin to grow.
Umbrella
An umbrella policy is one of the easier commercial lines of insurance for business owners to understand. Just like with personal insurance and as the policy name implies, an umbrella policy is an additional layer of protection that sits on top of any existing liability policies. For example, if you purchase $5,000,000 of umbrella coverage, you literally have $5,000,000 of protection in addition to the limits of your general liability and commercial auto liability policies. Most importantly, a standalone umbrella insurance policy will cost you much less than simply increasing the coverage limits on your other liability policies.