Startups face many challenges, like raising capital, developing their product, and driving strategy. But they also must worry about the potential for insurance claims, especially costly E&O claims stemming from customers using their services. Read on to learn more about the best insurance for startups to help them manage these risks.
The Best Insurance for Startups to Manage Technology-Based E&O Claims
While avoiding all claims may not be possible, startups providing technology services can take proactive steps to manage their risks regarding tech-based E&O claims. And many founders don’t take the time to worry about risk management when there are so many other more pressing concerns. But a company without a sound risk management program, including the right insurance coverage, is at risk.
Even one claim can be expensive and time-consuming to manage, especially a technology-based E&O claim. And the rise of technology across industries and among consumers means the potential for more claims, like these:
- A software company selling its products could face an errors and omissions claim if its software contains bugs or coding errors that cause issues for its clients. Errors like these could be negligence.
- A tech startup has sensitive customer data stored on its servers. A data breach means criminals can access private customer data. The startup could be responsible for not securely storing its customers’ data, leading to the breach.
- An insurtech provides services to large insurance companies. The insurtech advises its client to change a workflow and omit a step in the process, which leads to customer complaints and regulatory fines.
- A startup providing quotes to a potential new client may misquote their services. This could be an example of misrepresentation, and a tech-based E&O policy could help provide coverage to the startup.
Startups at almost every stage can face these potential risks. Even before selling a product, tech companies could face copyright infringement risks, social media concerns, and consulting problems from advising clients. And after venture capital funding, the startup could face greater risks as it moves faster to get its product to market.
Many tech-based startups release the first version of their product as an MVP or minimally viable product. These MVP products could contain errors in the code or bugs that cause issues for early adopters. Tech-based E&O coverage can help protect startups through this vulnerable stage, as well as once their products are more fully developed and in use.
Technology-Based E&O Insurance
E&O coverage for tech-based startups includes some basic coverages, including coverage for:
- Mistakes, errors, omissions, negligent acts, misrepresentation, and unintentional breach of contract
- Software copyright infringement
- Defamatory statements published on social media
- Data and security breaches on a network the startup needed to keep secure
A technology-based E&O policy covers companies and startups providing tech services, like the many insurtech firms proliferating the insurance industry. It is not a replacement for the cyber liability coverage that businesses of many types need.
Cyber Liability Insurance
Some carriers combine their tech-based E&O insurance policies with a cyber liability policy if insureds want both coverages. A cyber liability insurance policy adds coverage for cyberattacks, like a socially engineered phishing attack that leads to a ransomware demand.
All companies are at risk of a cyberattack — some statistics estimate cybercriminals can hack 93% of company networks. And sometimes smaller businesses make a profitable target for hackers because they assume a small business will have weaker security measures. Forbes reported in 2021 that 43% of cyberattacks targeted small businesses.
Review Your E&O Insurance Coverage Needs
When you meet with your clients, discuss their cyber liability and technology E&O insurance needs. And for your own coverage, consider purchasing an E&O insurance policy from the American Agents Alliance.
Agents and brokers should review their coverage annually or when their business needs change, just as they recommend for their clients. If it’s been a while since you reviewed your E&O coverage, request a free quote from the American Agents Alliance today. See how you can save with the best coverage for your agency.