The insurance industry is catching up with the e-business world but perhaps its clients are not. At least, that's the indication we have from participants in our recent informal Tech Liability Insurance survey.
As businesses become more dependent on technology—and increasingly, on the Web—they have increased their risks. The new liabilities they face as a result of that dependence may not be addressed by their traditional insurance policies, which are geared toward covering the loss of tangible property. This is especially true for consultants who are at risk for "errors and omissions" claims, including lawsuits alleging breach of contract and product performance failure resulting in financial loss for a client.
If your firm is not insured against these liabilities, your livelihood could be in serious danger in the event of a lawsuit. A closer look at the results of our recent survey may cause you to reevaluate your insurance protection.
Most clients do not require insurance
Figure A shows that even though 24 percent of participants said that some of their clients required tech liability insurance, 80 percent said they did not carry it. However, 18 percent of the 20 percent who do carry tech liability insurance said they felt it was "essential."
How long have you carried tech liability insurance?
No participants who have tech liability policies said they've carried them for more than five years (Figure B). Timothy Ehrhart, Vice President at the Chubb Group of Insurance Companies, said that this is typical of tech insurance policies and added that the need for solutions caused by Y2K rollover and the increased use of the Web for commerce by traditionally brick-and-mortar companies have caused a greater interest and investment in this type of policy.
What does it cost, and what does it cover?
Sixty percent of participants who carry tech liability insurance said that they typically spend less than $5,000 annually for the coverage (Figure C).
Most of those policies cover liabilities like loss of intangible property (e.g., customer database information and trade secrets) and network security claims (e.g., denial of service attacks and damage due to viruses). Many participants also had insurance against damage caused by the media (e.g., slander or libel).
Fewer participants had policies covering cyberextortion and cybercrimes (e.g., the theft and subsequent publication of credit card information) or unauthorized access that causes damage to systems (e.g., hacker attacks). See Figure D.
Are you tempting fate?
Are you worried about "errors and omissions" claims against your consultancy for breach of contract, failure of your products, or claims of unsatisfactory services? Send us an e-mail telling us why or why not or post your comments below.