• In locating this specialty insurance company for your unique technology business first requires that you match up the coverages that you are seeking along with analyzing whether or not the insurance company provides these types of coverages.
• Technology errors and omissions insurance is probably at the heart of all the coverages that you are seeking. This coverage provides protection from where almost all of your claims will probably come from. That being an error or an omission that has been made within your company of a professional nature.
• Umbrella insurance companies tend to be much larger insurance companies that have the financial ability to provide excess limits to help meet the requirements of some of your vendor contracts. Sometimes the casualty insurance company will not be the same insurance company that provides professional liability or the excess liability limits.
• A surety insurance company provides insurance for your bond requirements. The most typical bond would be a crime bond which provides coverage for theft of your vendors and clients data and or assets.
• Another coverage to locate would be workers compensation insurance companies that specialize in your industry.
• Finally, healthcare insurance companies need to be located to cover the health care needs of your employees wherever they may be located.

In evaluating the insurance company that you are going to choose there are a common elements to consider in your analysis.

• Ratings. There are several independent financial rating firms that specifically provide analysis to the insurance industry. The largest and most common rating organization that is used is called A.M. Best. They use some 20+ criteria in their analysis for the financial health of an insurance company. This is a quick way for the novice to judge the insurance company that you are considering using by quickly looking online at this rating. Of the common elements that we are listing for your review this one is the most important.
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  Industry-specific. Evaluating your carrier based upon their experience and expertise in your special industry niche is another way to help lower your total cost of insurance in the long run. Usually insurance companies that are more targeted in their coverages and policies that better pricing they tend to offer their clients.
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  Coverage specific. Having the specific coverages that you need and desire will usually be found amongst carriers that readily provide and competitively price these products. Your technology business as unique exposures within the products and services that you provide. Evaluating your carrier based upon the coverages that they provide can help prevent gaps in coverage and can provide the coverages that your vendors and or clients require.
• Geographical territory. If your products and services are nationwide and/or global wide, it is important to make sure that your carrier also has the resources to meet your needs.

Locating and evaluating the insurance company before you make your selection is a prudent and appropriate strategy to execute.

• Insurance premiums. It is normally fairly easy to add up the cost that you are paying in insurance premiums for technology errors or omissions insurance, umbrella insurance, casualty insurance, professional liability, surety insurance, workers compensation insurance, and health care insurance. The premiums for all of these coverages are usually very plain and clear on your insurance policies. This type of coverage cost will form the basis for the tracking of the total cost of risk.
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  Risk management and HR departments. Many times when businesses reach a level of the number of employees they tend to have an HR person and/or a risk management person on staff. The cost of this department in salaries and overhead and all the in direct cost must be factored into your tracking for the total cost of risk.
• Self-insured losses. These are hidden cost that can directly affect your TCOR. Some examples of these might be the deductibles that you have on all of your policies that will come into play once you present a claim, as the deductibles will be paid directly out of your cash flow. Making a management decision to retain potential losses versus insuring for them can be another hidden cost that affects your cash flow. If you choose not to ensure building, equipment, or not to have full coverage on your automobiles, these decisions if claims or losses are rise will be retained by you as the owner and you will be responsible for payment of these losses out of your cash flow.


Outsourcing services. Small to mid-size companies sometimes outsource their risk management services, their HR services, and possibly their claims tracking and payments. An analysis and assessment needs to be made by you as the business owner as to whether the cost of these outsourcing services are helping to in produce the internal profits that you desire.

These four components comprise the key elements of your total cost of risk on an annual basis. Many business owners understand the cost of their insurance premiums but failed to add in the cost of; any and all risk management and HR departments and people associated with those services; or any plan designs that have built-in self-insured elements that will negatively affect your cash flow; and finally any and all outsourcing services that are done within the risk management area must also be added into the total cost risk. Being proactive and dating deep into these direct and indirect costs will help you in budgeting and planning for the upcoming year. Failing to take into account the total cost of risk normally will cause shortfalls in your financial statement because of this oversight.

• Avoidance and/or elimination of the risk.
  Knowing which areas of the technology industry that can be problematic for the typical insurance company can save you a lot of money in the long run. Normally the higher priced premiums come from technology products and services that are in the aerospace industry, healthcare industry, banking and financial services industry, and security related industries. If you are doing just simple basic hardware software repair in the human resources offices for their personal computers, none of the above mentioned industries will adversely affect your premiums. But if you are designing custom software for the aerospace industry the pricing can be almost cost prohibitive.
• Minimizing the risk.
  Negotiating your contracts with your vendors can substantially help in minimizing your overall insurance costs. We have found over the years that most tech professionals tend to just sign the contracts that are presented to them by their vendors. Negotiating favorable provisions within each and every contract can substantially reduce your overall overhead costs, specifically with regards to insurance. If you can negotiate having mutual arbitration provisions, reduced liability limits, mutual hold harmless agreements and similar mutually beneficial provisions for you as the consultant, you will obtain the best insurance pricing possible. Obviously common safety practice procedures and best practices policies in place will help in your claims and losses to be at a minimum.
• Delegating the risk.
  Most IT professionals tend to use subcontractors at some point in the process of delivering their products and services. Requiring your independent contractors and/or subcontractors to have the appropriate general liability insurance, professional liability insurance, and workers compensation insurance in place can prevent you from having to provide these coverages for these exposures. Again, having the appropriate legal contracts enforce not only with your vendors and clients but also with your subcontractors will go a long ways in reducing your overall insurance costs.
• Insuring the risk.
  After diligently implementing the first three risk management strategies it is then appropriate to consider whether not you want to ensure the remaining risk exposures. The key at this stage is to make sure that you have chosen an insurance company that has the experience and expertise in providing products and services for the technology industry. IT insurance fits hand-in-hand with the other three risk management techniques. To simply rely on IT insurance to cover all of your risk exposures can be a costly decision. This balanced risk management approach will give you the tech professional all of the cost savings that are possible when designing your insurance portfolio. If you are not comfortable with designing your own technology insurance portfolio then you would be well advised to seek the counsel of a trusted advisor who is an insurance broker that has the education, the experience, expertise, and the ethics to oversee your plan design.

What is Technology Professional Liability?

In the marketplace, Technology Professional Liability is often referred to as “Technology Errors & Omissions” or “Tech E&O.” For many technology products, the likelihood of causing financial harm is greater than causing actual bodily injury or property damage. Tech E&O is an essential coverage for tech companies because it:

• Addresses the exposure of financial harm to a third party that occurs because of a “glitch” or negligence in a tech company’s products or services

• Closes a significant gap in coverage for tech companies, since General Liability coverage typically does not address claims of pure financial harm to third parties because of the interrelation between the two coverages, whenever possible, it is desirable to have Tech E&O and General Liability placed with the same carrier. Typically, Tech E&O:

• Is considered a severity type of coverage
because it is not typical to see a high frequency
of these claims from one company

• Covers significant defense and indemnity costs,
with claims for defense costs generally ranging from $200,000 to $300,000

• Can help to keep a small to moderate-sized tech
company in business, since the defense costs alone for a Tech E&O claim can jeopardize their
ability to remain in business – even if the defense costs do not reach the typical E&O
claim levels

Typical Causes of Tech E&O Claims

Common reasons that E&O claims are made against a tech company include:
• Programming errors
• Poor customer communication
• Problems with large integration/installation projects
• Delay in delivery resulting from:
• Development problems
• Problems with combining or integrating software or hardware components
• Customer changing project scope (often referred to as “project creep”)
• Turnover of key personnel
• Short cuts during testing
• Poor accounts receivable controls that:
• Require the tech company to sue their customer for fees owed
• Result in a countersuit for negligence in the performance of their tech services/products
• Shortfall in externally furnished products or externally performed tasks

Typical Allegations in Litigation for E&O

• Negligence
• Breach of Contract
• Failure to perform
• Breach of Warranty
• Misrepresentation
• Fraud

Tech companies face unique risks and require specific insurance coverages to protect your business from financial loss. Technology professional liability insurance is a key element of risk management in the technology industry. Since 1946 we have been customizing products to our client’s unique exposures to risks. We look forward to helping your protect and achieve your goals.

LIC.#0583580

Traditional insurance policies premiums were normally based upon tangible asset values. The tech professional’s assets which are primarily intangible can be in the areas of valuable data, software, and intellectual property. Since cyber-risk and tech-risk is still an emerging industry the insurance products that are available for this industry is also in an innovative and emerging status. Unfortunately, this means there is little if any standardized terminology that can be used to compare one insurance company’s forms to another’s. Only after many more court cases will the landscape for defining tech insurance terminology within insurance contracts become more clear and concise for the average consumer.

Let us look at some of the most common insurance terminology that is used in providing insurance coverages for the tech insurance professional.

• Cyber liability. Besides the traditional bodily injury and property damage coverage that is covered under the standard general liability insurance policy, the tech professional needs enhancements for the tech specific risk.
• Cyber-property. Property that is damaged that is mainly intangible, such as websites, data, lost business from e-commerce online, and damage from viruses need broaden property enhancements to address these unique exposures.
• Media and intellectual property liability. Anything that is placed on the Internet is considered published. There can be patent infringements, copyright infringements, losses from libelous statements, all from information that is published media on the Internet via websites, e-commerce, and/or social networking.
• Technology E&O. typically this covers liability claims and losses arising out of professional products and services that the tech professional is offering to their clients. Sometimes there are can be gaps in coverage when the tech professionals own website is the culprit in causing losses for third parties.
• Intellectual property. There can be exposures from both a first party and third-party perspective. Intellectual-property normally includes claims and losses from violation of existing trademarks, copyrights, and patent infringements. Sometimes only defense only coverage is available because intellectual-property claims can sometimes be intentional in class normally there is no coverage for intentional acts. Almost all states have on the books laws that prohibit insurance companies from providing coverage for intentional acts.

Tech insurance is an emerging market of products and services for the tech professional. Because of the lack of standardization of the terminology within the insurance industry this can lead to gaps in coverages that the tech professional was not anticipating. Making sure that you purchase insurance products for your tech company from an insurance company that specializes in writing tech insurance will help you obtain the broad and appropriate coverages that you are seeking. It is also important to seek out an insurance broker who has the experience and expertise in the technology insurance so that the proper carriers and coverages are put in place on your by half. There are only about a half dozen insurance companies in the United States that specialize in writing tech insurance.