Many business contracts require you to purchase Information Technology E&O Insurance, but before you sign up, let's take a look at the ways you can reduce the cost of that insurance.
Identify Your Liabilities: What Can Tech Companies Be Sued for?
The first step to controlling your Errors and Omissions cost is to identify the ways you could be sued and take steps to minimize those risks. Here are some of the basic E&O liabilities:
- Failing to deliver on contractual promises. Software vendors and other IT businesses can be sued for failing to deliver fully functioning software or services. Here's an example from the news: wireless device maker Brightpoint filed a lawsuit against a software vendor for millions of dollars after the software failed to "cleanse data" (a process of preparing and fixing inaccurate data in their databases). In its lawsuit, Brightpoint was seeking $5 million for damages and reimbursements.
- Outages. If you provide a web service, outages can lead to lawsuits. Just recently, Microsoft's cloud computing product Azure suffered a worldwide outage. This is the Microsoft's third outage in the past year, and it has already had to reimburse its users once before.
- Hardware problems. Even if you don't make hardware, you can still be sued when the hardware you install fails. D-link, one of the most common suppliers of routers, recently admitted that a firmware problem with its routers exposes networks to hackers. Even something as basic as a router comes with risks.
4 Tactics to Reduce the Cost of Business Insurance
Reducing your risks can lower the cost of E&O Insurance in both the long term and the short term. By adopting some of the policies listed below, you may be able to receive an immediate discount on your E&O Insurance quotes.
In addition, when these strategies help you avoid lawsuits, you may see a long-term decline in your policy rates. Insurance companies increase premiums after you're sued. Just as getting into an auto accident increases your auto insurance rates, lawsuits will increase the cost of your Errors and Omissions Insurance. Preventing lawsuits is a key part of keeping your insurance cost low.
Taking these four steps to minimize your risk can help reduce the cost of your E&O insurance right now and five years down the road:
- Protect your liabilities with contracts. By including certain language in your contracts you can prevent your business from being sued for a client's lost profits. You can also limit the total damages you can be sued for with language in the contract that specifies clients can only sue you for the amount of your fees. (For more information about contracts, read the post "Technology Errors and Omissions: Google's on the Ball," which explains how Google protects its liabilities in its Terms of Service agreement).
- Document your training and practices. When you sign up for Errors and Omissions coverage, you may be able to get a discount for having a thorough employee training process (and a well-documented one).
- Communicate with customers. Clearly defining projects, explaining the limits of a piece of software, and preparing your clients for potential pitfalls and delays can help avoid miscommunications and lawsuits.
- Avoid lapses in coverage. You may think it's smart to save money on your insurance by letting it lapse for a few months when you don't need it. Wrong. Insurance companies actually increase your rates after a lapse in coverage!
For a free Errors and Omissions quote contact one of our agents, or use our TechInsurance Toolkit to estimate your insurance costs.