Think that only physical stores, manufacturers and construction contractors need insurance?
Even if your startup is made up of just a handful of developers, their laptops and a cloud server, you need a good, comprehensive insurance policy to protect the business you've built for yourself. Down the road, someone may make a claim against your app, cloud service or embedded software in a way that you never envisioned or could have predicted.
The key to getting good coverage is making sure that an insurance carrier knows how to protect small business and technology companies. Here are five questions to ask your insurer from Toby Levy, vice president of Technology Insurance at The Hanover Insurance Group.
5 Questions for Better Small Business Tech Insurance
1. Does the carrier offer professional liability and other types of coverage specifically tailored for the technology industry?
Professional liability is "the most important but often overlooked" type of insurance, says Levy. Whereas general liability can cover property damage and personal injury, professional liability can shield a software company against claims that have nothing to do with damage caused by code.
For instance, explains Levy, if your software doesn't to work as advertised and a customer suffers a financial loss as a result, you may be on the hook for those damages without professional liability coverage.
2. Does the carrier offer a complete array of life-cycle solutions for tech companies at different stages of maturity and complexity?
"Not all tech companies are alike, says Levy. Similarly, "you don't want a one-size-fits-all approach" to insurance he adds.
For example, SOHO workers may have modest insurance needs in the here and now, but like many entrepreneurs, they're eager to pursue bigger opportunities. Establish a relationship with an insurance carrier that offers products that will grow with you, advises Levy.
In the end, it will help save a lot of time -- the one resource that, once lost, stays gone.
"Small business owners really don't want to spend an inordinate amount of time on their insurance," says Levy. Outgrowing your insurance guarantees that you will waste a lot of time starting from scratch with a new carrier if and when the time comes.
3. Can the carrier address both domestic and international exposure?
Fueled by field-leveling technologies like the Internet and the cloud, small businesses can look for new markets far beyond their own backyards.
Doing business in other countries is no longer exclusive to big corporations and multinational enterprises. "The barriers are all down," says Levy. But unlike those big businesses, startups don't have big legal budgets to help them navigate the tricky international legal landscape.
Select ann insurance carrier that can manage "exposures that extend beyond domestic boundaries," advises Levy. For instance, if your software's packaging harms a child somewhere in Europe, will your carrier shield you from product liability in that jurisdiction?
Beyond the product, according to Levy, other liability exposures can include "outsourcing, employees traveling overseas, setting up a sales office..." Although seemingly complex, a good carrier should be able to set you on the right path to international commerce.
4. Does the carrier exclude software and programming services from coverage under their general liability policy?
It's not uncommon for software to be left out of general liability policies, and that can have a disastrous effect should something go wrong with your code.
A software glitch can cause your laptop to slow to a crawl or an app to crash. The infamous Windows blue screen is one example.
And while most everyone has suffered that inconvenience at one time or another, buggy code in systems that interact with the physical world, like safety or navigation equipment, can cause a lot more than lost data and frayed nerves.
A lot of industrial hardware is programmable, explains Levy. For instance, if a refrigeration system goes haywire, leading to the loss of some pricey perishables, claims may be brought against both the maker of the hardware and the software that runs it -- even if the hardware is entirely to blame.
The claimant may "drag both parties in," warns Levy. Even if your software is bulletproof, "it is really critical to have those protections in place," he adds.
5. What are the claim reporting obligations under the professional liability form?
Levy gives the following example. Let's say that during a heated phone conversation with one of your customer service or sales representatives, a dissatisfied customer blurts out "I'm thinking of suing you guys."
Do you report this to your carrier? Are you even required to and if so, how quickly?
What if the information was never communicated to a manager or an executive? Does it even constitute a claim?
Under some policies, procedures are murky at best. As a result, "the entity is required to report it when they might not even know about it," says Levy. Worse, the business may miss the typical 60- to 90-day window imposed by most insurers.
Look for a carrier with clear and consistent reporting policies to prevent exposure to claims that may have fallen through the cracks only to re-emerge with damaging consequences for your business. For instance, look for a company that offers policies where the "clock doesn't start ticking until you get a written notice of claim."
It doesn't get any clearer than that.
Bonus Tip: Consult Your Attorney
Congratulations, you found the perfect insurance carrier. Now, don't lose those vital protections!
When entering into any new contract, make sure that your attorney gives it the once-over. Ask yourself, "Am I having an attorney or other qualified person review the contracts that I enter into?" says Levy.
The last thing that you want to do is assume a liability that runs counter to what your policy covers. It can expose you to a big financial hit down the line, and it's a sure-fire way to get dropped by your insurance company.
"Contractual risk management is the first line of defense," says Levy. For small businesses, it pays to get an attorney to review contracts. He adds, "A good contract will keep them out of harm's way."
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