Are You Protected? Insuring Your Business Against Loss
Value-added resellers and managed service providers face unique and complex risks.
The first line of defense to protect against losses is insurance. If you operate an IT firm and offer technology products and services, you can be sued. What happens if your or your clients’ systems crash? How about if you installed software or hardware that failed to operate properly and or did not meet the requirements of your client? Do you have employees that work at your client’s locations? As a licensed insurance professional, I am increasingly seeing more losses for the loss of data and negligent integration services. These are just a few of the significant exposures firms face today.
Why should you obtain insurance coverage? The primary reason is to protect your assets. It is also becoming extremely common for companies to require IT firms to have insurance and provide certificates of insurance naming your clients, landlords and others as additional insureds under your policy. Insurance will provide you and your clients peace of mind and can be used as a marketing tool, much like a home contractor would. Insurance also provides legal representation to defend your firm against claims. It will also indemnify your firm against losses. Insurance companies have dedicated and experienced legal and claims staff to handle claims made against your IT Company. As an example, t the average cost to defend against a case of say copyright or trademark infringement is over $500,000? This figure is at the insurance companies discounted rate and does not include any indemnification figures which can be many multiples. Do you have funds set aside for such contingencies or catastrophic losses? Insurance helps provide for the long-term viability of companies, especially those in complicated or competitive industries. If you’re located in California, what happens if you’re sued in Pennsylvania (or in Germany for that matter)?
What insurance do I need? The first coverage that IT firms should buy is professional errors and omissions liability (aka technology errors and omissions insurance). This policy would insure your tech firm against any act, errors and or omissions related to your products and services. Very simply stated, if you are technology contractor or have a managed service agreement in place and a client or another third party claims negligence on your (company’s) part, you can be sued. What happens if your systems crash or your software and IT services or products fail? Be careful and make sure you obtain insurance from agent or company that specializes in technology. Broad professional liability coverage responds to key exposures tech firm’s face, such as:
- Network security coverage (for hacks, viruses, loss of service, unauthorized access and ID theft breaches
- Copyright and trademark infringement (the largest single exposure for technology companies)
- Affirmative website and media content coverage
- Personal and advertising injury, including libel, slander, defamation invasion of privacy, etc.
- Full worldwide protection
You should also have insurance for the following:
- Commercial general liability: This responds to bodily injury and property damage caused by your firm. What happens if a customer slips in your parking lot or if any employee drops a cup of coffee on a brand new server?
- Workers compensation insurance. Does your state require you to cover your employees? What happens if they are injured on the job and you’re sued?
- Property insurance: How much equipment do you have on or off-site? Is it insured correctly? Do you have mortgage or loss payees?
- Auto insurance: If your business owns any vehicles, auto insurance should also be in the businesses name. If you or an employee is involved in an accident while on company business, injured parties and their lawyers can name your business in any related lawsuit. Insurance companies also offer what is called hired and non-owned auto to respond to such an exposure at extremely discounted rates.
- Employment practices insurance: for risks like wrongful termination, sexual or other harassment charges
- Employee benefit coverage: for any retirement / investments or other funds managed
- Crime / theft / fidelity insurance with options to protect your firm and or your clients for claims caused by you or your employees
- Directors and officers insurance. As an owner, director and or officer, shareholders, employees, clients and other can potentially sue your company and you personally. D&O policies respond to these issues.
- Package and business owner packaged policies to receive enhanced coverage and savings
- Umbrella and excess policies to obtain broader coverage, higher limits and further savings
- Life, accident, disability and health insurance plans on a group or individual basis.
In addition to insurance, I strongly recommend technology firms implement industry standard contracts and best practices. Make sure your services are in writing and work order or changes are signed off on. Obviously if you’re handling data, proper network security and back up measures must be in place. Strong technology plus insurance = true protection!