Rapid advancements are creating both opportunities and risks for technology companies. It’s an exciting time for the sector, but there are also many exposures stemming from evolving regulations, social issues, and technology itself. Bespoke insurance solutions help technology companies navigate growth with confidence.
Risk Management for Tech Companies
Businesses in all industries face risks, but tech companies face additional risks due to the nature of their work.
Consider the following scenarios:
- Your company designs an AI solution for a client. The client is unhappy with the results, claiming the program does not meet the requirements laid out in the contract or professional standards for similar contracts. The client also says the program is hurting its business and sues your company for lost revenue.
- Your tech startup has a successful IPO with a high valuation. Shortly after the IPO, one of your key projects suffers a major setback. Investors claim you were aware of the problem and file a lawsuit.
- Your company develops an innovative solution. Shortly after launch, another company files a lawsuit alleging intellectual property infringement. You believe the lawsuit is unfounded because your program is different in important ways, but you still have to go through a lengthy and expensive legal process.
Emerging Risks in the Tech Sector
The technology sector is constantly evolving – as are the risks. Several new or developing exposures are creating additional insurance needs for tech companies:
- AI Washing. Companies are racing to develop new generative AI-powered tools. However, some companies may exaggerate their use of AI to make themselves more appealing to investors. This is called AI washing. According to Reuters, it’s already led to at least two SEC fines.
- Data Privacy. With companies finding new ways to use data, governments are passing new data privacy laws. According to Bloomberg Law, at least 15 states now have comprehensive data privacy laws in place. Some states have also been introducing protections specific to biometric identifiers.
- AI-Powered Cyberattacks. According to The Conversation, hackers are using generative AI to create ransomware, identify system vulnerabilities, and plan attacks. As cyberattacks become more frequent and more sophisticated, tech companies risk major lawsuits and allegations of inadequate cybersecurity.
Key Considerations for Tech Company Insurance
Comprehensive insurance is important for tech companies of all types – from startups or established firms. Even if your company is a startup, and operates on a shoestring budget, insurance provides critical protection. Since tech companies face many different risks, multiple insurance policies are necessary for startups and established tech firms. Below are a few of the many types of insurance you may want to consider:
Does your company:
- Have intellectual property? Intellectual property insurance for the tech industry can help you defend it, providing vital protection in the event of an IP infringement lawsuit.
- Have employees? Employment practices liability insurance can help you navigate employment disputes, protecting against claims from employees alleging discrimination, wrongful termination, harassment, and other employment-related issues.
- Have investors? D&O or private management liability insurance can protect your company against lawsuits that allege poor management or improper disclosure. This coverage provides protection if lawsuits are brought against directors and officers. It is important for both public and private tech companies, and companies going public.
- Provide services to other companies? Professional liability insurance can help you defend against claims of professional negligence. This coverage protects your company if you are accused of errors, omissions, or negligence.
- Do you own expensive equipment or digital assets? Property and equipment Insurance may be needed.
- Do you create/sell hardware or software? Product liability insurance provides crucial protections.
- Could your systems be hacked? Cyber insurance will protect you against cyberattacks and data breaches.
- Engage in mergers or acquisitions? You may need representation & warranty insurance.
- Specialize in an industry niche? Some niches, such as biotech for example, have additional insurance needs, not addressed by the standard package of insurance for technology companies.
The Benefits of Tailored Technology Insurance Coverage
Insurance is a critical part of any tech company’s business continuity and risk management.
For example, cyber and data breach insurance covers many of the costs associated with an attack that results in a data breach, including system recovery and compliance with notification laws. Moreover, cyber insurance may help with risk management (by reducing the chance of a successful attack) and with recovery (by shortening the downtime after an attack).
Insurance partners that are well-versed in tech industry risks can provide support in other ways, too. For example, a D&O insurance partner can help your tech startup navigate an IPO and deal with evolving AI regulations.
Choosing the Right Insurance Advocate
Although many commercial insurance agencies take on tech companies as clients, they don’t all have the same level of experience and expertise in tech industry risks. An insurance agency that specializes in technology sector coverage will help you effectively navigate your risks. Consider the following:
- Which insurance carriers do they work with? You need an insurance advocate who will help you secure robust coverage with carriers that specialize in the tech industry.
- Do they offer any non-standard insurance options? If you can’t find coverage in the conventional insurance market, you may need to turn to the non-admitted market.
- Do they provide any risk management support? Some agencies may offer tools, tips, and resources to help your company stay on top of risks.
Watkins Insurance Group provides experience-driven advice and tailored insurance solutions for the tech industry. Contact us to learn more.
