Insurance for Technology Businesses - An Essential Guide Business Insurance Tuesday, 15 October 2024 Knightcorp Insurance Brokers: Experts in Protecting Tech Innovators At Knightcorp Insurance Brokers, we understand the risks tech companies face are unique and complex. From agile startups to global tech enterprises, we specialise in providing comprehensive insurance solutions that protect technology businesses from unforeseen challenges. As a leading insurance brokerage focusing on the technology sector, our policies, risk management strategies, and claims advocacy services are tailored to ensure your business can swiftly and comprehensively address risks inherent to tech innovation. Partnering with us means you can innovate with confidence, knowing that you are protected by industry-leading insurance solutions. Table of Contents Technology Business Insurance: What Policies Does My Tech Company Need? Beyond the Basics: Additional Technology Business Insurance Risk Management and Claims Advocacy for Tech Companies Emerging Risks in Tech: Cyber Breaches, IP Theft, and More Technology Business Insurance: What Policies Does My Tech Company Need In today’s highly competitive and technology-driven marketplace, the risks facing tech companies are unique and ever-evolving. Your intellectual property, data, and services are highly valued but also highly vulnerable to threats like cyberattacks, product and system malfunctions, and legal disputes. Certain types of business insurance are essential to protect your tech company. Think of these as table stakes for keeping your tech business operational and resilient. 1. Cyber Liability Insurance More than ever, cyber threats pose significant risks to modern tech companies. According to IBM’s 2024 Cost of a Data Breach report, the cost of a data breach averages US$4.88M per incident globally and US$5.5M in the technology sector, the fourth highest cost by industry. Cyber Liability Insurance helps cover the cost of forensic investigations, regulatory penalties, notification expenses, public relations efforts, and legal fees. Many businesses have been reluctant to add cybersecurity insurance due to cost, but costs are coming down as more companies adopt policies to address rising risk and associated regulation. Why Your Business Needs Cyber Liability Insurance: Protection against financial losses: In the event of a breach, the associated costs can severely impact not only your financial health but your reputation, which can produce knock-on financial damage. Compliance with data privacy regulations: Many jurisdictions require companies to notify affected parties and regulators, which can be costly without insurance. Improperly handled notifications can be a public relations fiasco. Learn More About Cyber Liability Insurance 2. Professional Indemnity (PI) Insurance Technology companies live and die by the reliability and accuracy of their products and services. Professional Indemnity Insurance protects against claims of negligence, errors, or failures in your products or services and claims arising from professional advice or services that a client perceives as inadequate. Whether developing software, providing IT services, or manufacturing hardware, a Professional Indemnity policy covers the costs of lawsuits, settlements, and legal fees. Key Features of Professional Indemnity Insurance: Covers professional negligence claims: Protects your business from lawsuits arising from mistakes or oversights in the performance of services. A recent report from Aon and Stanford Law indicated that more than 40% of patent lawsuits involved the technology industry. Unsurprisingly, a Chubb survey showed a 14% jump in respondent concerns over “an increasingly litigious environment.” Covers contract disputes and legal defense costs: Client relationships are often bound by contracts that could lead to legal action if expectations are not met. As you know, expectations between contracted parties frequently vary, which is why these disputes threaten the financial viability of technology businesses. Learn More About Professional Indemnity Insurance 4. Public Liability Insurance Even though technology businesses primarily operate in a digital space, they are still vulnerable to many of the same physical risks as other businesses. Whether you run a development lab or host clients on-site, Public Liability Insurance protects your company against claims of bodily injury or property damage. Why You Need Public Liability Insurance: Protection against physical liabilities: Accidents can happen in your office or data center. Public Liability Insurance covers medical costs and potential lawsuits from client or employee accidents. Product liability coverage: An often-overlooked aspect of Public Liability Insurance, if your tech hardware causes injury or damage, it can help cover the costs. Learn More About Public Liability Insurance Beyond the Basics: Additional Technology Business Insurance While the policies above are critical, additional policies can help safeguard your tech company in other areas, particularly when you experience rapid growth or work with international clients. These policies provide extra protection and peace of mind. 1. Directors and Officers (D&O) Insurance Tech companies often face heightened scrutiny from investors, regulators, and shareholders. As the Australian Institute of Company Directors (AICD) has noted, everything from breach reporting to climate-related disclosures to the use of AI in decision-making can expose a company and its leadership. There is also a significant uptick in public and regulatory scrutiny when a company goes public. Tech companies planning a liquidity event must be especially mindful of rising risk. D&O insurance covers the personal liabilities of your company’s directors and officers if they are sued for alleged wrongful acts, including mismanagement or breach of duty. “As tech companies navigate complex regulatory landscapes and heightened oversight, particularly when preparing for IPOs, D&O insurance becomes a crucial safeguard for leadership. Tech leaders often face risks that aren't immediately visible, from shareholder actions to regulatory probes, especially as emerging technologies like AI and climate-related disclosures come under the spotlight. Having the right D&O coverage in place means directors and officers can focus on driving innovation and growth, knowing that their personal assets and reputations are protected.” Huw Thomas, Head of Broking, Knightcorp D&O Insurance Provides: Protection for leadership: It is important to remember that directors and officers are personally liable for their actions in the company. This insurance ensures their personal assets are protected. Defense against regulatory investigations: As tech companies grow, they often face inquiries or legal actions from increasingly attentive regulatory bodies. Protection before and after an IPO: D&O Insurance can safeguard directors and officers from threats associated with shareholder activism. Learn More About D&O Insurance 2. Employment Practices Liability Insurance (EPL) Fast-moving and growth-minded tech companies frequently face employment-related issues such as wrongful termination, discrimination, or harassment claims. EPL covers legal fees and settlements related to these claims, helping your business maintain its reputation and financial stability. Key Benefits of EPL: Covers a wide range of employment claims: From wrongful termination to workplace harassment, EPL offers comprehensive protection. Helps mitigate risks in hiring and firing: As your workforce grows, so does the potential for employment disputes. 3. Property Insurance Many companies depend on buildings, warehouses, and product inventory. Property insurance ensures that you are covered in the event of damage or loss due to fire, theft, or natural disasters. Why Consider Property Insurance: Protection for office space and facilities: Property insurance protects your place of business, whether you lease or own. Coverage for physical assets: Factories, warehouses, and inventory spaces require comprehensive protection against unforeseen damages. Learn More About Property Insurance 4. Electronic Equipment Insurance Your tech company very likely relies on electronic equipment, servers, computers, and other specialised technology devices. Why Consider Electronic Equipment Insurance: Coverage for product malfunctions: Covers accidental damage, breakdowns, and even data recovery issues. Portable coverage: Often provides coverage for devices used outside the office, such as laptops and mobile devices. This coverage is increasingly important as remote employees often work off-site. "Technology companies are exposed to a unique and evolving set of risks that go beyond traditional business insurance needs. From the growing threat of cyber breaches to the complexities of intellectual property protection and regulatory scrutiny, it’s essential to have insurance solutions that are as agile and innovative as the industry itself. The right coverage not only helps manage these risks but also provides peace of mind, allowing tech businesses to focus on innovation and growth." Huw Thomas, Head of Broking, Knightcorp Risk Management and Claims Advocacy for Tech Companies In addition to securing important supplementary insurance policies, tech businesses should think holistically about having capable service teams at hand to guide insurance-related work. Beyond insurance, here are some essential supports that can significantly improve your company's risk profile. 1. Claims Advocacy Navigating the insurance claims process is one of the most significant pain points for any business. The Australian Prudential Regulatory Authority (APRA) report noted a trifecta of interrelated claims impacts: a rise in claims, an increase in their size, and a corresponding rise in premiums. A dedicated claims advocate from Knightcorp can help you submit and negotiate claims, managing the entire process and ensuring you receive fair compensation quickly and efficiently. Why Claims Advocacy Matters: Faster resolution: Time is money. With claims advocacy, delays are minimised, and payouts streamlined. Better outcomes: Claims advocates not only speed resolution but also actively negotiate on your behalf to secure optimal settlements. Learn More About Claims Advocacy 2. Global Insurance Placements When tech companies scale, it usually means going international. Global insurance placements ensure your company has comprehensive coverage across borders and within disparate regulatory environments, keeping your business operational and compliant, whatever the jurisdiction. The Importance of Global Insurance: Covers cross-border operations: Ensures that your insurance coverage applies internationally, regardless of where your offices, clients, or partners are located. Compliance with local regulations: Protects you from potential legal liabilities in foreign jurisdictions. Learn More About Global Insurance Placements 3. Risk Management Strategies A comprehensive risk management strategy reduces the likelihood of claims and improves your business’s long-term sustainability. A robust risk mitigation strategy can also lower insurance premiums and protect your business from unforeseen events. Critical Components of Risk Management: Vendor risk management: If you rely on third-party vendors, your risk management strategy will ensure that they have appropriate insurance and risk management protocols in place. Disaster recovery plans: Having a clear action plan for a data breach or natural disaster helps ensure a faster response and minimises downtime. Learn More About Risk Management 4. Subsidiary Management If your tech company has multiple subsidiaries, managing insurance across these entities can be complicated and time-consuming. Coordinating policies ensures that there are no gaps in coverage and that your overall exposure is effectively managed. Managing Subsidiary Risk: Coordinated insurance policies: Aligning policies across all subsidiaries can ensure consistent coverage and lower the risk of legal and contractual trouble. Minimised exposure: Coordinated subsidiary policies ensure no subsidiary is underinsured or overexposed. 5. Going Public? As we noted earlier, taking your tech company public introduces a new level of risk, especially concerning shareholder lawsuits and regulatory investigations. According to a JD Supra finding, up to a third of new public companies are served with a securities class action lawsuit within five years of going public. Specialised insurance solutions can protect your company and leadership during this transition beyond traditional D&O. Insurance Needs for Public Companies: Shareholder lawsuit protection: Public companies face heightened scrutiny from shareholders, leading to potential legal action. Regulatory investigation coverage: Public companies are subject to more intense regulatory oversight, which can result in costly investigations. Emerging Risks in Tech: Cyber Breaches, IP Theft, and More The technology industry is built on innovation, which means constant change. With every innovation comes new risk. Staying ahead of these concerns is critical to maintaining your business’s resilience and reputation. 1. Cyber Breaches It’s worth reiterating this trend. In 2023, cyber breaches have become more frequent and costly, with the average breach costing companies over $4.88M. As cyber criminals become more sophisticated—as they doubtlessly will—it is crucial to stay ahead of these threats with robust cyber insurance and risk management strategies. Emerging Trends in Cybersecurity: Increased ransomware attacks: More companies are facing ransomware demands, where hackers hold sensitive data hostage until they are paid. Phishing attacks are on the rise: Targeted phishing attacks, typically aimed at stealing login credentials or installing malware to destroy data validity, are becoming more common. Learn More About Cyber Insurance 2. Intellectual Property Theft As tech companies rely heavily on proprietary software and innovations, intellectual property (IP) theft is a growing concern. The loss or theft of IP can lead to lost revenue, damaged reputation, and costly legal disputes. Conversely, in the AI space, IP claims against tech companies are on the rise as algorithms often draw on an array of sources without knowledge of discrete copyright protections. How to Mitigate IP Theft Risks: Invest in IP protection: A Beazley executive survey and report found that fear over IP theft has more than doubled since 2021. More than ever, companies need appropriate legal protections to safeguard patents, trademarks, and proprietary software. Regular audits: Conduct IP audits to identify vulnerabilities and strengthen defenses. 3. AI and Automation Risks AI and automation are revolutionising the tech industry, but they come with new risks, including product malfunctions, biased algorithms, and heightened regulatory scrutiny. Ensuring your AI-driven products meet safety and ethical standards is crucial. This includes the risk of copyright claims arising from AI-generated content. Key Risks Associated with AI: Algorithmic bias: Companies that deploy AI systems must be aware of potential bias, which can lead to regulatory fines and lawsuits. Lack of regulatory clarity: Companies using AI systems can be targeted for copyright violations, leading to complicated legal disputes in an evolving regulatory environment. Product failures: Automation errors can result in product failures that have significant financial consequences. Conclusion: Knightcorp is here to protect your technology business. We offer tailored insurance policies and risk management solutions to help your tech company thrive in a competitive and fast-moving industry where speed to market is critical, and business interruptions can be devastating. Contact us today to build a plan that meets your specific needs. Let’s Talk 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. Category: Business Insurance « Back
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