June 6, 2019 | 5-minute read (964 words)
Guest Post from Chris Gunston, Embroker
If your startup is performing some type of service for your clients or partners and signing a contract, you should consider transferring the risks and liabilities you accept to an insurance policy. By transferring the risk in one simple way - purchasing the proper business insurance - you can save yourself from the cost of expensive lawyers within your company’s balance sheet. But more importantly, your company can charge ahead with confidence, knowing some of its risks have been properly hedged.
Two critical insurance policies that offer protection against your client(s) claiming financial losses as a result of your products or services are errors & omissions (E&O) and cyber insurance policies. If your client or partner claims you’ve breached the representations and/or warranties made in the contract, it will be either the E&O or cyber policy you will look to for support. Such claims can easily lead to time-sucking, resource-draining disputes and arbitration that can leave you without recognized bookings and a damaged reputation.
In short, E&O and cyber insurance can help save your company, especially if you ever come across a very unhappy client who wants to litigate. E&O and cyber are insurance policies you can't afford to ignore.
Differences Between Tech Error & Omissions (E&O) and Cyber Insurance
While a cyber insurance policy can protect your business by covering costs related to cyberattacks and security breaches that could possibly compromise the company, partner, and customer data, the E&O policy covers mistakes that your advisors, designers, or developers could potentially make as part of the engagement.
When considering the right coverage, it’s important to contemplate how your startup might see a claim filed against it. Is your company more likely to have a client allege a breach of contractual representations or are you more concerned with the security of highly sensitive/regulated information or both? The former would be an E&O risk while the latter a cyber risk. Below we’ll show you how you can have the best of both worlds by combining the two and thus cover yourself all around.
Considering Modern Contracts
For startups that have high-value contracts with big customers, the liability they choose to accept is a big risk. And in the case of venture-backed startups, they may not have as much choice regarding their insurance and contract terms.
The more frequent gaps in E&O and cyber policies have to do with customer contracts in two ways: first, clients not paying and/or legal complaints claiming fees paid as damages and secondly, clients passing liability to you because you’ve accepted their liability in the indemnity of the contract.
Technology startups can mitigate risks, like those mentioned above, through effective contract negotiation, but also by transferring risk to an insurance policy. Choosing the latter can help your company grease the wheels of business development, but be sure you understand the scope of your insurance policies too.
Why E&O and Cyber Insurance are Often Coupled
Combined policies are cost-efficient and, for technology companies, a single occurrence can easily cross borders between the two coverage types. Given the risk profile of most technology startups, there is a strong rationale for combining E&O and cyber programs into one blended coverage with shared limits. Combining the two allows you to both save money and improve your protection by addressing possible gaps that can show up if you don’t have one or the other policy in place.
Unmodified or traditional insurance programs often do not contemplate the nuances outlined in the preceding sections (e.g. clients not paying fees and/or clients passing liability via the indemnity of the contact). Designing the right technology E&O and cyber coverages can be a daunting task if you or your broker are not experts in policy language and availability. That’s why it’s important to leverage brokers that offer insurance programs that are custom-built for startups and have their fingers on the pulse of both the cutting edge of technology and insurance.
Furthermore, even in a world of fast-paced technology startups, your clients will likely request E&O and many require it before you start working. Unfortunately, the insurance industry is quite slow and only the Embroker Startup Program offers both market-leading coverage and speed (you can bind coverage in minutes). Fortunately, the Embroker Startup Program offers both market-leading coverage and speed (you can bind coverage in minutes).
Early Growth Financial Services Partner, Embroker:
Early Growth has partnered with leading digital insurance brokerage, Embroker, to help clients buy and manage all lines of insurance digitally. Embroker helps businesses get the right coverage, at a lower cost, and with less hassle. They specialize in helping startups and growth stage companies buy and manage coverage and have built a startup insurance program with custom-built policies designed specifically for startups. EGFS clients can use code EGFS10 to save an additional 10% on D&O, EPLI, E&O and cyber insurance.
Chris is a 15+ year insurance professional. His personal areas of expertise include merger and acquisitions, professional liability, and data security risks. Chris also sits on the Advisory Board of the Marketplace Risk Collaborative.
Embroker is the insurance brokerage built for the way you do business. You get the ease of technology coupled with top-shelf service from the best brokers. Follow Embroker on twitter, linkedin, or facebook.
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