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Errors & Omissions Insurance: Protect Your Hardest-to-Manage Reputational Risk (Study)

Errors & Omissions Insurance: Protect Your Hardest-to-Manage Reputational Risk (Study)

Errors and Omissions Insurance and Cyber Liability Insurance are key components of any IT business's reputation management plan. Find out why.

Friday, January 10, 2014/Categories: cyber-liability

A study recently conducted by insurance company ACE European Group found that more than four-fifths of businesses interviewed (81 percent) cited reputational risks as their most difficult to manage. Translation: the majority of companies see threats to their reputation as tougher to handle than threats to their income, their property, and their information security.

That's pretty significant. What's even more telling, though, is the reasons the surveyed companies gave for counting their reputational risk among their hardest to handle:

  • 77 percent said they had trouble assessing the financial value of their reputation. In other words, they don't know what their good name is worth and so don't know how much to invest in protecting it.
  • 68 percent said they didn't know where to turn for reliable guidance about managing their reputational risks.
  • 66 percent admitted to feeling overexposed to reputational risk from an insurance perspective. This feeling of insufficient protection could be linked to the lack of knowledge about necessary protections: without an understanding of how Errors and Omissions coverage works, it's hard to know whether to buy it for your business.
  • 56 percent said they feared (but didn't fully understand) the threats to their reputation that social networks and other forms of social media presented.

E&O and Cyber Liability Insurance: Protect Your Reputation

Business owners' focus on protecting their reputation highlights a reality of the Internet age: in an information- and advertising-saturated world, it's often the opinions of our friends and family that carry the most weight. These opinions (and the way they're expressed on social networks and through word-of-mouth communication) can significantly influence a person's decision to work with a given company, whether or not they're based in facts.

In other words: what your potential customers think about your company (and what their networks are saying about your company) is vitally important to your ability to win them over.

Imagine, then, that you're hit with a lawsuit claiming that you ripped off code from an existing application or piece of software. Or that one of your clients is victimized by a massive data breach and claims it was your business's shoddy network installation that allowed the breach to happen.

Even if you aren't actually at fault in either situation, enough chatter on social media sites or coverage on news outlets is enough to seriously batter your reputation, connecting your business with subpar service in your potential clients' minds.

So how can business insurance help you minimize the impact of such mini catastrophes? By giving you the financial muscle necessary to nip negativity in the bud and take control of the conversation about your business. Here's how:

  • Errors & Omissions Insurance: This policy pays benefits when someone alleges that your professional oversight or negligence caused them a financial loss. Often, E&O benefits take the form or legal fees necessary to defend yourself in legal negotiations or court. This might mean that your E&O coverage-funded lawyer manages to negotiate a deal with your accuser that involves settling the charges so you don't have to go through a high-profile court case.
  • Cyber Liability Insurance (aka Cyber Risk Insurance or Data Breach Insurance): If you invest in a Cyber Liability policy that includes both first-party and third-party coverage, you'll be able to collect benefits that pay for both your legal defense and the cost of launching a good-faith PR or advertising campaign to restore your reputation.

Non-Insurance Reputation Management

Beyond investing in business insurance policies to deal with legal threats to a business's reputation, owners of small IT businesses can take a few other reputation management steps:

  1. Use thorough contracts. Setting clear guidelines at the start of a project can help prevent disappointment (and E&O lawsuits alleging negligence) down the road. (Need help drafting contracts? Check out these free sample contract templates sponsored by ContractEdge.com.)
  2. Check in often with clients. Communicating any plan changes, project challenges, or other important points as they happen can prevent unpleasant customer surprises (and lawsuits).
  3. Monitor the conversation online. Social media search functions and alerts make it easy to keep track of what people are saying about your business online. Keep an eye on unhappy (or really happy) customers, listen to what they're saying, and engage with them when possible. Many potential blowups can be prevented by demonstrating that you care about your customers and are genuinely willing to help them.

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