The technology sector is an incubation lab for socially helpful innovation. But with promise comes peril, and innovation creates risks that can threaten even the most promising companies. From cyberattacks to product failures, these risks often catch businesses off guard—and unprepared. Below, we look at five critical risks that have surged in recent years, complete with real-world examples and tailored insurance policies that can protect your business against them. 

1. Cybersecurity Vulnerabilities

Cyberattacks are a persistent and growing threat to the tech sector, with breaches becoming more frequent and costly. According to IBM’s 2024 Cost of a Data Breach Report, the average cost of a breach in the tech sector is $5.5 million, making cybersecurity one of the top threats to tech firms today.

One of the most notorious cases is the SolarWinds hack in 2020, which exposed sensitive data from major U.S. federal agencies and private companies. This breach caused widespread disruption and cost millions in remediation efforts and reputational damage.

Insurance Solution:
A Cyber Liability Insurance policy can help cover the financial impact of data breaches, including customer notification, IT recovery, legal and regulatory fees, and fines. It may also cover the cost of sustained public relations work to repair reputational damage after a cyberattack.

2. Intellectual Property Infringement

Tech companies thrive on innovation, but protecting intellectual property (IP) is challenging. For example, in 2020, Sonos sued Google for patent infringement, claiming that Google had copied its wireless speaker technology. It won a hefty payout. These legal battles are expensive and time-consuming, even for large companies. This high-profile case demonstrates the importance of robust legal resources for and against when intellectual property is infringed.

A Note on Intellectual Property Infringement and Artificial Intelligence: 

In the AI space, tech companies are often at risk of unknowingly infringing on another party’s IP, usually when innovation builds on existing technologies. 

In 2022, a class-action lawsuit was filed against GitHub, Microsoft (its parent company), and OpenAI, alleging that Github’s Copilot AI tool had suggested code to developers without proper attribution and violated the terms of those licenses and infringed on the copyrights of the original developers. The defendant prevailed but not without a scare and not without having to mount a strong defense. 

In an ongoing case, several artists filed a lawsuit against Stability AI, the company behind Stable Diffusion, a popular generative AI image maker. The artists alleged their copyrighted works were used without permission to train the AI model, resulting in AI-generated images that resembled their original works. 

Insurance Solution:
Intellectual Property Insurance can address many of these risks and covers legal defense costs, settlements, and damages when your company is accused of IP infringement. It also helps cover litigation expenses if your company needs to sue others for infringing on your patents or trademarks.

3. Public, Product, and Professional Liabilities 

Product failures are a nightmare for tech companies and can lead to significant legal liabilities.  The CrowdStrike outage this July was a recent reminder of vulnerabilities occurring through a software bug. Not only do tech companies need to ensure their products work as promised, but they also need safeguards to mitigate failure. Standard terms of usage may limit liability for contractual breaches.

Insurance Solution:

There is an increasing acceptance of a combined IT Liability Insurance product. A cover that combines Professional Indemnity and Public & Products Liability insurance to help limit gaps in coverage when these policies are placed separately. Coverage for Civil Liabilities from providing IT Services, faulty designs, unintentional, misleading, and deceptive conduct, fines and penalties, bodily injury like slips and falls on your premises, or damage to a third party’s property.  

Businesses must also adopt practices to mitigate risk, including phased rollouts and proper software testing. While there is a business urgency to move quickly and reduce costs, it is critical to build a level of redundancy in operations, systems, and processes, as well as to secure appropriate insurance to protect the ongoing viability of your business.    

4. Regulatory Non-Compliance

The growing complexity of global data privacy laws can lead to substantial penalties for non-compliance. In 2023, Meta was fined a record €1.2 billion by EU regulators for violating Europe’s General Data Protection Regulation (GDPR) by transferring user data to the U.S. without proper safeguards. This fine underscores the financial and reputational risks of failing to comply with privacy laws. The case serves as a wake-up call for international tech companies to make sure they fully understand the regulatory landscape.

Insurance Solution:
Directors and Officers (D&O) Liability Insurance protects company executives when sued for regulatory non-compliance or mismanagement, including not acting appropriately to mitigate potential losses. This policy can cover legal defense costs, settlements, and fines associated with violations of industry regulations.

5. Supply Chain Disruptions

Tech companies depend on complex and vulnerable supply chains. Political instability, natural disasters, or even pandemics can cause costly delays. In 2021, global chip shortages caused slowdowns in tech manufacturing, leading companies like Apple and Samsung to slow production and postpone product launches. This crisis demonstrates how a disrupted supply chain can profoundly impact business operations, leading to lost revenue and delayed product launches.

Insurance Solution:
Business Interruption Insurance is crucial for companies that rely on global supply chains. This policy covers lost revenue and ongoing expenses when operations are disrupted due to events beyond your control, such as supply chain failures, natural disasters, and property damage at supplier or customer venues.

Beyond traditional Business Interruption coverage, Supply Chain insurance protects businesses against port strikes, transport operator strikes, geopolitical risks, product quality incidents, and cyber attacks. A company’s broker can deeply analyze their risks and interdependencies to create a tailor-made Supply Chain policy. In today’s world of lean manufacturing, just-in-time delivery, and global sourcing, it is essential for businesses to fully understand their vulnerabilities. 

Wrapping Up: Navigating Emerging Risks

Fortunately, there are insurance solutions for each trending risk we’ve examined, and Knightcorp Insurance Brokers are well-positioned to help tech companies limit their exposure to each. By securing the right policies, tech businesses can proactively mitigate risks that could otherwise jeopardize their growth and success. Whether safeguarding IP or defending precious data against a phishing attack, these policies provide a vital safety net, allowing companies to focus on their core mission. Reach out today to build a plan that meets your specific needs.

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DISCLAIMER: This information is provided to assist you in understanding the risks, implications, and common considerations for your industry.  It does not constitute advice and is not complete. Please contact Knightcorp Insurance Brokers for further information.