Technology firms are beginning to silently carry the small business sector as 62 percent of small businesses already have, or are in the process of building, a mobile application to support their business. Of those businesses, 30 percent have revenue generating mobile applications or apps.1 With approximately two-thirds of the country’s small businesses depending on them, technology companies should have the proper insurance protection in place in the event that their software does not operate as intended.
Insurance Market Source connected with Christopher Stephens, Senior Underwriter, Professional Liability Centre of Excellence, Burns & Wilcox Canada, and Michael Schultz, Senior Broker, Professional Liability Center of Excellence, Burns & Wilcox, to gain insight on what brokers and agents should know about Technology Errors and Omissions (E&O) coverage.
1. How has the increase in the popularity of mobile applications affected coverage for technology clients?
Christopher Stephens (CS): The mobile application craze opened up a new avenue and exposure for technology firms and companies. Creating a web-based or mobile app leaves clients open to many risks, as it can impact systems in a negative manner. Policy submissions on mobile apps come through on a daily basis from a wide variety of businesses, ranging from game and media services to ride-sharing apps.
Michael Schultz (MS): The necessity and influence of technology has increased in the small business sector resulting in a dramatic rise in the number of tech-focused organizations entering the services industry. While Technology E&O policies are tailored to cover this evolving sector, the wide variety of services offered and the ever-changing landscape has created a need for a bespoke underwriting approach for each submission. Hired technology-focused organizations that are responsible for developing these apps are liable for the technology components of the software and the mobile apps themselves often require liability coverage outside of Technology E&O.
In telemedicine, for instance, if a doctor’s diagnosis is rendered over a mobile app, any potential financial loss due to the performance of the application itself would fall upon the hired organization. On the other hand, the liability for this diagnosis falls onto the doctor’s Medical Malpractice policy. The tech industry will continue to see an increase in these “crossover” risks driven in part by the increased usage of apps and hired IT service organizations, specifically in the traditional healthcare and architects and engineers space.
2. What type of advice would you recommend to brokers who are working with technology clients?
MS: A detailed look at each submission is necessary to analyze the varying exposures of each technology-focused client and the liabilities associated with services or operations offered. There has been an increased need for tailored wordings, and coverage to ensure any potential miscellaneous E&O, media, or bodily injury and property damage liability has coverage. Insurance carriers are gradually willing and open to developing new custom-made products.
Brokers looking to place technology clients should consider packaging Cyber Liability coverage with their Technology E&O policy. If clients do not have Cyber Liability insurance then the client is at a greater risk for experiencing a significant financial loss. Carriers are less likely to offer Stand-Alone Cyber Liability coverage for a technology organization, as the exposures are so closely intertwined with Technology E&O. This can lead to a potential coverage gap and coverage issues for the clients during the policy term. Technology E&O and Cyber Liability packages round out the coverage for the client and eliminate potential coverage gaps associated with data breaches. For example, a cloud service provider is utilized by an organization and experiences a data breach. This data breach may lead to a loss of their clients information and a significant financial loss because the technology service is offline or down. This could be picked up as a Tech E&O liability or a Cyber Liability as it was caused by a data breach. Additionally, the number of contracts requiring Cyber Liability is dramatically on the rise.
3. Are there any recent industry trends of which brokers should be aware?
CS: When technology is new and in its infancy, the door is open for situations to potentially go wrong. For this reason, brokers with technology clients should stay educated on advances in technology as much as they can. One thing that is important to note is that bodily injury and property damage are not covered under a Technology E&O policy. This added level of risk has been seen recently in relation to nursing homes, for instance. If there is a potential for this added risk, brokers can recommend adding a technology endorsement to the policy that best fits a client’s line of work. Telemedicine risks and automation engineers are just two classes of business that should look beyond their traditional policies and demand coverage wordings to extend outward to their technology service offerings.
Mobile app downloads, excluding gaming apps, are estimated to grow at a rate of 23 percent by 2020, exceeding $182 billion in revenue.1 With technology and business seamlessly merging so rapidly, brokers should encourage clients to protect themselves against potential exposures due to unforeseen software errors. With that, brokers should take a proactive approach to discuss with all clients the level of dependency that they have on technology to ensure additional gaps and exposures are addressed.