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Nov 23

The 3 levels of liability insurance for technology companies

Technology spending in the world is evaluated at USD 4.4 trillion in 2022 and will most likely double in the next 5 years. Technology changes the world in every aspect. Every organization relies heavily on its IT systems and infrastructures. It wants the best IT technologies to satisfy its purposes. In consequence, Technologies Services providers face high pressure to deliver the appropriate products and services. In this environment, technology services providers are highly exposed to liability claims from non-satisfied customers. They must be aware of their liability exposures so that they know how they can transfer the risk to the insurance market. At Clema Risk Solutions, we describe below what are the 3 levels of liability insurance for technology companies.

I – What are the specific liability exposures for an IT company?

1. Technology system failure leading to third party financial loss

There are plenty of situations when things could go wrong with technology systems. Systems must be upgraded and updated, data must be migrated. These operations can require days of preparation and may not work as expected so your client will not be able to run its operation properly leading to financial losses.

A bug in the design of a website or a coding error can cause the client’s website to crash. If your client is an e-commerce platform that could not do business for few days because of this crash, it may sue you for professional negligence.

Chubb a global international insurer has got several examples of professional negligence leading to financial loss. As instance, one of their clients provided timekeeping hardware and software to its customers. The software didn’t function correctly, failing to maintain employee hours worked and to correctly apply the hourly rate of pay. The failure resulted in over/underpaying employees and the need to replace the timekeeping clocks.

New technology, software upgrades, software implementation delays could disrupt customer operations and results in lost sales or business opportunity or wrong data analysis.

2. Failure of a connected object

Connected devices also known as Internet of Things (IoT) are everywhere. From a few thousands 20 years ago, there is now around 14 billion connected devices in the world. It will grow exponentially with the emergence of the 5G.

Interconnected IoT devices send data by connecting wirelessly to a network. These physical devices are battery-powered when they don’t require much power or they are connected to the electricity grid. They help companies to simplify their process, to improve the management of a space, to reduce utility bills, to analyze and improve air quality … Because of integration or configuration problems, challenging operating environment, IoT could malfunction and trigger security or organizational issues. This very comprehensive article from Eurofins lists the security issues faced by IoT device.

3. Data security and privacy / loss of data.

Data is the oil

“The world’s most valuable resource is no longer oil” by the Economist in 2017.

Organisations, companies … produce data every day by thousands. Collecting data, sharing data, analysing data. It can include sensitive data such as personal identification information (PII), staff data, email, client information … Datas are paramount and keeping them secure and confidential become a challenge. The negative publicity from a data breach or other cyber-attack, the financial losses or penalties and lawsuits can have significant impact on business operation. Technologies company are in the middle of the game like architects or construction company for a building. If something goes wrong, client will ask for compensation to technology companies.

II – What are the 3 levels of liability insurance?

1. Professional Indemnity Insurance

Professional indemnity insurance (sometimes called errors and omissions insurance or professional liability insurance) will cover the financial consequences of your professional failures. It includes legal fees (lawyers, court costs) and the financial compensation awarded to the third party. The scope of cover can vary and should include coverage for breach of privacy, infringement of intellectual property, media liability, mitigation costs, breach of contract. The professional indemnity cover can include your contractors if necessary.

2. Professional Indemnity Insurance AND privacy and network security liability.

Also known as cyber liability insurance, privacy and network security liability insurance compensate for the financial consequences of a data breach or a cyber-attack that could affect your client. It provides protection when your company fails to safeguard confidential information or fail to prevent virus attacks or the transmission of malicious code from your computer system to the computer system of a third party.

A standard professional indemnity insurance policy does not cover cyber liability risks. Insurance companies could provide the cover through separate endorsements offering affirmative cover or through specific technology insurance policy.

3. Professional Indemnity Insurance, privacy and Network security AND commercial general liability

A technology company involved in the installation of a solution at its client’s location or manufacturer or distributor of an electronic device will be exposed to bodily injuries or property damage caused to third parties.

It is therefore important to add the 3rd layer of protection to your liability exposures: the Commercial General Liability (CGL). CGL insurance provides insurance against a third party’s claim of negligence that results in bodily injury or material damage.

Looking for the right level of protection for your liability exposures

At Clema Risk Solutions, we have access to specialist technology insurance providers with a deep understanding of sector exposures. We know how to enhance insurance products and how to arrange cover, so that you can focus on growing your business.

Please do not hesitate to contact us or visit our website

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