You’ve likely been managing your own personal finances for years, so it might be tempting to just apply the same principles you use for your personal finances to your business. But there are important differences to consider.
5 Reasons Why You Need Tech E&O Insurance
Technology weaves itself throughout the operations of nearly every business running today. Whether your business is large or small, online or brick-and-mortar, you likely rely on technology in some capacity.
Considering how important technology is to the core of so many businesses, it’s no wonder tech-focused insurance policies, like Technology Errors and Omissions Insurance, have emerged.
This form of coverage is becoming more and more necessary for businesses of all kinds, not just Silicon Valley startups. So, does your business need Technology Errors and Omissions coverage?
To help you wrap your head around this form of business coverage, here’s a guide to all things Tech E&O Insurance:
What is Technology Errors and Omissions Insurance?
Technology Errors and Omissions Insurance is a form of small business insurance that protects policyholders from losses as a result of tech failures. Typical tech failures that Tech E&O Insurance covers could be data breaches, network failures, malfunctions, and even ecommerce content. According to Michael Rossi, President of Insurance Law Group, Inc., as businesses have “increasingly moved into the computer age,” more and more businesses are exposed to Tech E&O risk.
For instance, media and manufacturing companies traditionally haven’t needed Tech E&O coverage, but “mere e-commerce activities, such as business-to-business (B2B) and business-to-consumer (B2C) activities, expose a company to Tech E&O risk.”
Tech E&O Insurance is similar to Cyber Liability Insurance, but these two forms of business coverage differ in one crucial way: Cyber Liability Insurance is meant to cover businesses that consume a given technology whose failure creates a financial loss. Alternatively, Tech E&O Insurance is designed to cover technology providers in the event that their technology fails and creates a financial loss for their clients.
Odds are, you rely on other business’s technology (like a point of sale, an online bank account, or a website hosting service, for instance) to run your business. But unless your business’s core offerings are tech-based, you’ll need to check out Cyber Liability Insurance instead of Tech E&O Insurance—but you’ll learn more on this later.
6 reasons you need Tech Errors and Omissions Insurance
To put it bluntly, cyber security statistics aren’t promising for tech-based businesses. They paint a picture of rising instances and overall costs of cyber breaches. But Tech E&O Insurance is becoming more and more sophisticated and accessible, as a result—policies are helping tech business shore themselves (and their clients) up against the increasing threat of cyber crime.
Let’s look at the most pressing reasons why you need to purchase a Tech E&O Insurance policy for your business:
1. Cyber security breaches are expensive and high-impact.
Cyber security breaches are no joke. Just the process of figuring out how a cyber attack happened could cost up to $15,000. Overall, small businesses spend an average of $955,429 to restore normal business after a successful attack. Most aren’t even able to restore normal business: 60% of small businesses go out of business within six months after falling victim to cyber crime.
Could your business afford to shell out $955,429 or more to address a cyber attack? Investing a small monthly sum in an insurance policy now could save you from having to consider it. If you’re a small business, the odds of being able to afford such a massive bill in order to recover aren’t in your favor. Unfortunately, the risk of a cyber attack putting you out of business are all too real, but investing in a Tech E&O Insurance policy now could help you weather future cyber attacks.
2. Tech failures are on the rise.
Every business assumes a tech failure won’t happen to them—until it does. There was a 424% increase in new small business cyber breaches last year. You—along with any small business clients you have—are correspondingly more and more at-risk as cyber crime against small businesses increases.
Cyber Liability Insurance often covers small businesses in the wake of a cyber breach. That said, it could fall on you to cover any financial losses your technology failure is found to be responsible for that breach.
3. Most of your clients aren’t equipped to handle a breach.
Even if your business typically has the cash on-hand to recover from an internal cyber security breach, any small business clients you have are probably unprepared for such expenses.
In fact, 83% of small businesses haven’t put cash aside for dealing with a cyber attack. Moreover, a mere 9% of small businesses have Cyber Liability Insurance. Even those customers who do have Cyber Liability Insurance could very well require you to file a claim if your technology allowed the breach to happen.
Odds are, your customers will rely on you to address any losses they experience due to your technology offerings.
4. Even unfounded claims against your business will cost you.
Perhaps you’re 100% positive your tech business is impervious to cyber crime or tech failures. Even if you’re right, every business is susceptible to unfounded claims. In the wake of a tech failure, some clients and customers might become litigious to get what they feel like they’re owed. That’s when your Tech Errors and Omissions Insurance policy would need to step in.
If a customer claims your business’s technology caused them to incur financial losses, you’ll have to pay to defend yourself in court—even if that claim is unjustified. Defense costs can range from $50 to $1,000 an hour, but a Tech E&O Insurance policy can cover them for such cases.
5. Customers might require it.
As a result of the mounting risks that come with tech-based services and products, many potential clients and customers will require you to come to the table with Tech Errors and Insurance coverage. As mentioned, certain tech failures will only be covered by Tech E&O policies, and even if a client has Cyber Liability Insurance, that might not be broad enough coverage to protect their business.
If a client or customer requires you to have a Tech E&O Insurance policy to be eligible to work with them, they’ll likely ask for a Certificate of Insurance as proof of your coverage. A COI can help you prove your coverage details and ultimately help you win business with clients and customers who perform even the most thorough due diligence when picking their tech providers.
Who stands to benefit most from Tech E&O Insurance
Technology Errors and Omissions Insurance, for the most part, is designed to work for companies whose offerings are fundamentally tech-based. So, if your business offers products or services like software, hardware, IT consulting, or data storage, then Tech Error and Omissions Insurance was designed to protect you from financial losses that your tech or tech services might cause.
Consider what Tech Errors and Omissions coverage might look like in practice with this example: Imagine you run a website hosting service that allows small business owners to create their own business websites and purchase branded domains. But something goes wrong, and your entire network goes down for 12 hours.
Within that 12 hours, one of your customers lost out on a huge contract opportunity because their website was nowhere to be found. They file a claim against you for those financial losses, but your Tech E&O Insurance will cover your defense costs and any liability you’re found to owe.
Who should look into Cyber Liability Insurance instead?
On the other hand, if you simply rely on tech to make your business run, then Tech Errors and Omissions Insurance probably isn’t the form of coverage that you need. It might help you to consider that Tech Errors and Omissions Insurance works much like traditional Errors and Omissions Insurance, more commonly known as Professional Liability Insurance.
Professional Liability Insurance covers you if a client claims compensation for the services or advice you provided. Tech Errors and Omissions Insurance covers your business if a customer claims compensation for tech services, advice, or products. So, unless your services, advice, or products are tech-centric, then you’ll need to invest in other forms of insurance.
Cyber Liability Insurance likely offers the kind of coverage you’re looking for. If you experience a cyber data breach, for instance, and your customers’ sensitive information is compromised, then Cyber Liability Insurance will help you cover the resulting damages.
Tech E&O Insurance: Final thoughts
So, now that you’ve learned the five most important reasons to purchase Tech E&O coverage for your business, what’s next?
Based on this information, you’ll need to decide if this is the proper form of tech coverage for your business. If you’re not sure that your business needs Technology Errors and Omissions, look into Cyber Liability Insurance instead.
This will help you recover from any data breach you might experience. To ensure you’re covered for other tech failures, take pains to only outsource to tech organizations who have proof of their Tech E&O coverage.
If you’ve decided that your business does indeed need Tech Errors and Omissions insurance, lucky you: Your next steps to coverage are as simple as a few clicks.
Disclaimer: Thimble does not currently offer Tech Errors and Omissions Insurance.
Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.