¥ Eight banking Web sites were attacked, resulting in 23,000 stolen credit card numbers. The hackers proceeded to publish 6,500 of the cards online, causing third-party damages in excess of $3 million.
¥ A disgruntled employee of a major consulting firm downloaded malicious code onto the networks of the firm, its clients and vendors. The code launched confidential information into the public domain and destroyed critical corporate applications, resulting in more than $10 million in third-party claims and mass litigation against the firm.
¥ An online service allowed a famous author to advertise a book in one of its forums. The online service was sued for copyright infringement by an artist who claimed that the author used certain artwork on the cover of his book without getting the artist's permission. Damages sought exceeded $2 million.
These real-life scenarios demonstrate the growing need for emerging companies to protect themselves from the economic liabilities associated with their products and services. Cutting-edge technologies require cutting-edge insurance to mitigate the potential for financial loss.
As the boom of technology and Web-based companies over the past decade has created a wealth of innovative offerings, the need for tools and expertise in managing the risks of severe economic loss associated with these technologies has grown exponentially.
Traditional brick and mortar companies can easily transfer the risk of economic loss off their books via traditional insurance programs. However, these traditional insurance programs often do not meet the complex needs of companies with emerging technologies. Technology companies require specialized and evermore complex insurance for adequate risk transfer.
Errors and Omissions Liability Insurance (E&O) is intended to cover financial loss relating to the provision of technology products and services. The E&O policy should be tailored to the specific needs of the company.
Custom coverage should contemplate a professional services aspect, multimedia liability coverage, Internet and network security coverage, and some protection for infringement of intellectual property depending on the company's offerings. The policy should provide coverage for legal fees and settlements or judgments awarded.
Technology companies particularly vulnerable to E&O exposures While some technology companies are not at high risk of loss relating to their technologies -- commoditized products, for example -- a growing number of emerging companies have entered a segment of the technology industry that relies heavily on the storing of sensitive customer information. As evidenced by the above loss scenarios, this segment of the technology industry is ripe for catastrophic loss that threatens the company's viability as these products and services gain momentum. Other high-risk candidates include:
¥ Systems integrators
¥ Streaming media and content providers
¥ E-commerce/Internet retail operators
¥ Network security providers
¥ Software developers
¥ Semiconductor designers and manufacturers
How to protect your technology company against common E&O pitfalls
¥ Understanding what should be insured: All too often, companies buy E&O coverage that does not cover all of their core business activities, products or services. As technologies become more complex, the E&O policy should be tailored to protect the intricacies.
An experienced broker will work in conjunction with the company's risk management team to identify all businesses activities and associated exposures.
¥ Getting the correct breadth of coverage: E&O policies must be customized -- buying a standard "off-the-shelf" policy simply will not do. Most technology E&O policies require the addition of modules or coverage grants to ensure adequate coverage. Different coverage parts can be added or removed depending on the exposures. Modules range from coverage for professional services to coverage for loss caused by a network breach. When considering what level of coverage is required, first consider what would happen, both in terms of the company's financial viability and reputation damage, if the business activities were improperly executed? What is at risk and what can you afford to lose?
¥ Understanding errors and omission claims: A common challenge with E&O insurance is determining the difference between a customer complaint and a viable claim per the provisions of the E&O policy.
Corporate risk managers should work closely with their insurance brokers to monitor complaint reporting activities in order to identify true E&O claims. A competent broker understands the relationship between companies and their clients, and the importance of customer satisfaction. A broker will help review past complaint logs, and may be able to identify previously undiagnosed claims to prevent future occurrences.
E&O insurance key to effective risk management
E&O insurance is at the core of an effective technology risk management strategy, and should be a part of your overall insurance portfolio.
Technology E&O insurance professionals understand the financial risks for technology companies and the appropriate insurance to address these risks. A knowledgeable broker will work in conjunction with a company's risk management team to set guidelines to reduce risk and lay out the necessary steps to mitigate claims.
With insurance brokers as partners for risk management strategies, technology companies today can focus on what really matters -- innovation for tomorrow.