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The One Thing That’s Worse Than Paying For Insurance

Eddie Rodriguez

11-Jul-2012 - The one thing that’s worse than paying for insurance...

and why you may be paying for nothing.

By Eddie Rodriguez, CAIB

Let’s be honest: Even if you have a good understanding of what insurance does for your business, deep inside, you believe that your peace of mind is supposed to be free, and that you ought not to have to pay a “premium” to enjoy it.

In reality though, you know that our modern society – and your business – cannot function without the safety net provided by insurance.

In attempting to achieve your company's goals you will naturally take a number of risks that may bring about accidental losses (to your property, your income, through liability to others, etc.). Therefore, even one-person tech companies need a Risk Management plan.

By the way, risk management is not merely about insurance. Insurance is simply one of many 'risk management techniques' you'll need to implement in order to achieve your growth and profitability goals.

Still, a day doesn't go by without someone saying they really don't enjoy – OK, they hate – paying for something they can’t see or touch, and hope they never have to use.

So, what could possibly be worse than paying for insurance?

Paying for it month after month, year after year … believing that “you’re covered”, only to find out – when the unexpected happens – that you are NOT. Ouch!

How do you prevent that from happening to you?

Here's the most important message I want to share with you in this article:

Traditional 'business insurance' and traditional "Commercial General Liability"(CGL) policies are not sufficient to protect technology businesses against what I call "The Monsters"...

• Technology-Specific Errors & Omissions
• Copyright or Trademark Infringement Liability Protection
• Property – Including, as needed, EDP Property and Research & Development Property
• Network and Information Security Liability
• Reputation Injury and Communication Liability
• Business Interruption
• Commercial General Liability
• Equipment breakdown coverage
• Media Liability Protection

In fact, as an IT consultant, software developer, web designer, or owner/executive in charge of a data centre or other type of tech business you face risks that are usually excluded from coverage in regular business insurance policies.

Regardless of how mysterious, complex, or boring you find insurance, you must make sure that your policy provides coverage for the types of risks your technology business is exposed to.

Also, ask your broker to show you that the policy definitions of "business activities" actually match what your business does, and if not, ask if the policy allows for inclusion of your own definitions.

It's true that properly insuring an IT business can be tricky. Our industry has product managers at insurance companies struggling to figure out ways of covering you from “social-media risks” and other Monsters that didn’t exist a few years ago.

The good news is leading insurance companies are finally paying attention. They’ve developed quality insurance products designed specifically to protect tech companies.

By the way, I know that some smaller tech firms try get by without proper "risk transfer" (insurance) plans.

If you know anyone operating without an insurance safety net, please remind them that one of the truly sad realities of today's business world is that you can be sued... even when you didn't do anything wrong... and even after your software or service performed as expected.

Sure, you might win the lawsuit... after trading a big chunk of your hard-earned money for legal defense fees. It has been reported that the legal costs alone can generate up to 50% of the overall claims costs for technology companies. That’s due to the need for expert (read: more expensive) witnesses and lawyers.

Bottom line – given the complexities of a technical business it makes sense to seek out well-designed, technology-specific insurance coverage from insurance companies - and brokers - who specialize in technology. That is the first step in eliminating any looming doubts about inadequate protection.

Eddie Rodriguez, CAIB, is a risk advisor who specializes in providing insurance coverage to technology companies and IT professionals, and IT risk insurance for non-technical businesses. Contact him – eddie at marhen insurance dot com.