Look for Technology Errors and Omissions Insurance from Your I.T. Firm!
What Tech E&O Complements in Terms of Insurance with Your I.T. Company
Something you may not hear from your current or potential information technology outsourcing firm is the need for a strong Technology Errors and Omissions (or “Tech E&O”) Insurance Policy. This is professional liability insurance for Tech Companies, similar to what is carried by other professional services firms like accountants and law firms. This is just tailored to IT.
There are a few reasons you may not hear about this but first allow an attempt at the definition. Tech E&O is different than and a supplement to, a Commercial General Liability insurance policy. Almost every company in business today has a Commercial General Liability policy. It protects against all sorts of damage that could be caused, damage that your firm may cause, damage that a provider may cause, etc. The key phrase here is “damage”. Damage through the lens of a commercial liability policy is damage to something physical, (aka Tangible Physical Damage) this coverage also addresses Bodily Injury for employee while onsite work is being done.
Example of Where Tech E&O is Needed
So if your I.T. provider was to overload a $9,000 piece of equipment (like a network switch and a database server) and start a small short-lived fire with the wrong power cables. You would be covered for the cost of the hardware ($9,000) by the I.T. company’s commercial liability policy – they would have damaged physical equipment. Chances are the I.T. company probably has a commercial liability policy in place and the switch and database server would be replaced under that policy – no expense to your firm (the expense would fall on the I.T. company.)
Now, let’s reasonably assume that a switch and a database server were damaged to the point where they didn’t work and the database data was lost and needed to be restored.
So, if this $9,000 switch and server were unable to be used and the last good backup was 3 days old AND your important database was down for three days before things were brought back to normal, you would have no recourse for that expense which reasonably could be a multiple of the $9,000 for the hardware. This isn’t even bringing up the fact that some data may need to be re-entered by the staff (or temporary staff). The bits and bytes on a hard drive that get lost and cause several days of tumultuous and unprofitable times are not considered “damage” or “loss” of anything physical in a commercial general liability policy.
However, Technology Errors and Omission coverage is different – these policies do account for this other type of “damage” – the loss of database information is a perfect example.
The biggest take-away from this write-up is that your I.T. company should have this insurance. Second, if your I.T. company has this coverage, it probably means they meet certain industry/insurance standards that put the company in a solid class of technology services providing. This gross generalization is for those that do not want to read through lines and lines of insurance verbiage.
You cannot account for every potentiality under the sun but when outsourcing your I.T. to a company that manages critical technology business components and functions – you should demand they obtain and provide the proper insurance for everyone’s piece of mind.
As promised, below is a list of reasons why Tech E&O is not dominating the airwaves in client/vendor discussions:
- Is it new? Not really any more, it’s just not well-known and well-vetted in the small and medium sized business world unfortunately. Most of the companies that demand this from their I.T. Company are those that have been bitten by this type of scenario.
- In most cases, the I.T. company should pay for this so it’s doesn’t dominate board room discussions.
- The Technology firm may not know the very real need for this (again, this is not a knock on other firms, it’s simply true).
- The Technology firm may not know this is actually a competitive advantage for the well educated consumer of I.T. Services.
- It can be expensive; the amount of damage that can be done with a keyboard has surpassed the amount of damage that can physically (for almost any sized company). Technology E&O insurance can be 6 to 10 times more than an IT company’s general liability insurance.
- It can be confusing and can simply be an item that is planned for later implementation.
- To educate clients about Tech E&O, you must unearth hypothetical situations that can be unsettling (akin to bringing up scenarios surrounding the need for life insurance).
- Many I.T. companies cannot get underwritten for Technology E&O because they do not meet the standards, practices, and other protections that are prerequisite in obtaining such protection.
Using Technology Errors and Omissions even if you don't Outsource your I.T. to an Computer Services Firm
You also can actually protect your own company by getting an insurance product that can protect your company directly for any internal IT related damage by your own employees. Although it probably happens more than any small or large company would like to admit, intentional and unintentional data loss, security breaches and many other data related “mistakes” happen and could damage your company internally and externally. With little you can do in these situations, there is actual coverage. This type of protection is becoming more and more important to any company or organization that has compliance and standards requirements to operate in their industry. Talk to us, your insurance company or your I.T. Company about “Net Protect”.