Why do cloud computing providers need business insurance?
If a client can't access important data when they need it, the result could be a lawsuit. Cloud computing business insurance helps you recover quickly from costly legal battles over service outages, workplace injuries, data breaches, fires, theft, and more.
Get the right insurance
6 insurance policies every cloud computing provider should consider
Cloud insurance helps your company comply with state laws and the terms of leases and contracts. These policies can aid with disaster recovery, legal issues, theft, and data breaches.
Technology errors and omissions insurance
Technology E&O, sometimes called professional liability insurance, helps pay legal costs related to cloud outages and technical errors. Intellectual property (IP) and media liability coverage can often be added.
- Delays in real-time computing
- Loss of data from system failures
- Service level agreement (SLA) breaches
General liability insurance
This policy protects cloud service providers and data centers from the most common lawsuits. To save money, bundle general liability insurance with property coverage in a business owner's policy (BOP).
- Accidental client injuries at your office
- Accidental damage to client property
- Defamation and copyright lawsuits
Cyber liability insurance
Security breaches are a tremendous risk in a cloud environment. This policy helps cloud computing firms recover from data breaches. It also covers legal costs if a client sues over a breach.
- Fraud monitoring expenses
- Client notification costs
- Data recovery efforts
Commercial auto insurance
If your business vehicle is involved in an accident, this policy can help pay for legal defense costs, repairs, and medical bills. Almost every state requires this coverage for business-owned vehicles.
- Injuries caused by your vehicle
- Property damage caused by your vehicle
- Vehicle theft and vandalism
Workers’ comp insurance
State laws usually require that cloud service companies with employees carry this insurance coverage. It helps cover medical costs when an employee is injured on the job.
- Medical bills from work-related injuries
- Disability benefits
- Lawsuits from work injuries
Fidelity bonds
If a cloud provider’s employee steals from a client, a fidelity bond compensates the client. It’s also called an employee dishonesty bond and is often required for client contracts.
- Unlawful data access by an employee
- Employee embezzlement
- Other employee theft or fraud
Cloud computing business insurance costs
Average costs come directly from policies purchased by TechInsurance customers.
General liability: $31 per month
Errors and omissions: $91 per month
View more expected costs.
Factors that can influence your premiums include:
- Type of tech services you offer, such as machine learning (ML), artificial intelligence (AI), or software-as-a-service (SaaS)
- Value of your business property and equipment
- Types of insurance products purchased
- Coverage limits and deductibles
- Number of employees
- Claims history
- Business size and annual income
- Endorsements, including additional insureds
Start a free application to see how much insurance will cost for your business.
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"If your cloud systems fail, the financial impact of the service outage can extend across many clients, which is why cyber and errors and omissions coverage are must-have policies."
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Common questions about cloud computing insurance
Why is insurance coverage essential for cloud computing companies?
Cloud computing service providers offer critical services to their clients, including data storage, automation, infrastructure management, and security.
Because your business provides such important services, even a single incident can lead to expensive litigation, regulatory scrutiny, and reputational damage. If you've been in business for years or you're a fresh startup, having the proper coverage is essential.
Two important coverages to consider are cyber liability coverage and technology errors and omissions insurance.
Cyber insurance - If your business is compromised through a data breach, ransomware attack, phishing, insider threat, or other security failure, your company could be liable for the financial consequences.
For example, if a hacker obtains access to client data hosted in your service, you could face costs related to:
- Legal defense costs, judgments, and settlements
- Customer notification and credit monitoring
- Public relations and crisis management
- Forensic investigation costs
- Fines and penalties
Cyber insurance helps cover these expenses, enabling your business to recover faster after a cyber incident.
Technology errors and omissions insurance - You may face a liability claim from a mistake, failure, or other professional oversight that impacts your clients.
If your cloud computing system experiences a failure, misconfiguration, or security gap that disrupts your customers' operations, they could sue for the resulting financial damages.
Common allegations include system failures, outages, misconfigurations, data exposures, and insecure APIs.
Technology errors and omissions insurance (often called tech E&O or tech professional liability insurance) is a bundle of E&O with cyber insurance. This bundle helps cover legal fees, settlements, and court costs if a client claims that your professional negligence or error caused them financial harm.
These two policies offer comprehensive protection against security incidents and professional liability risks, safeguarding your cloud computing business from common, costly risks.
Does insurance cover my client if my cloud computing business has an outage or is breached?
Whether or not your client is covered in the event of an outage or breach depends on both your insurance coverage and your client's.
A single cloud technology breach or outage can impact many businesses at once. Clients may lose revenue, suffer operational downtime, incur data recovery costs, or face regulatory penalties.
In the event of a major, costly outage to your IT infrastructure, several insurance claims can stem from one incident, increasing your financial exposure.
A cyber insurance policy may cover costs related to a security failure, and technology errors and omissions (tech E&O) insurance can assist with legal expenses if clients claim your services caused financial harm.
Your clients may also purchase their own cyber insurance policy with contingent business interruption (CBI) coverage, which helps cover their lost income when a third-party provider experiences a breach or outage that disrupts operations.
Having the right coverage in place is critical to protecting your company, especially when your business can affect the operations of many others.
Do cloud computing companies need to carry professional liability coverage?
Professional liability coverage, also called professional indemnity insurance or E&O insurance, is typically not required by state law for cloud computing providers and other tech professionals.
This policy is still recommended, as professional liability coverage helps protect your business if a client sues you or your cloud computing service for negligence, oversights, or other professional errors. This is especially true if you're working in industries with heavy oversight and regulations, such as finance or healthcare, where service downtime or SLA breaches can result in numerous claims and/or considerable financial damage.
Legal fees and lawsuit costs arising from professional errors can be exceptionally expensive, making professional liability a necessary policy for cloud service providers. Even if you didn't do anything wrong, frivolous or baseless lawsuits can still be a financial drain on your small business.
For example, if your cloud infrastructure suffers an outage that causes hours of downtime for clients, it can lead to litigation over lost income. Tech E&O insurance covers lawsuits related to professional errors and helps with the costs associated with a lawsuit.
Cloud service providers can combine professional liability insurance and cyber coverage at a discount in a bundle called tech professional liability insurance, also called tech E&O. This combined bundle provides protection against claims related to both satisfaction with your cloud services and cyber incidents that result in a financial loss for clients.
The right insurance policies can protect your business from a huge financial hit caused by common business risks.
What's the difference between first-party and third-party cyber insurance for cloud computing businesses?
There are two kinds of cyber insurance, both equally important for cloud computing service providers:
- First-party cyber insurance: Protects you against data breaches and cyberattacks that affect your cloud business, such as a phishing attack that compromises your network and exposes your clients' personal information, including names, addresses, and credit card numbers. This coverage is also called data breach insurance.
- Third-party cyber insurance: Pays for legal costs if a client blames your cloud service company for failing to prevent a data breach or cyberattack at their business.
Tech E&O coverage includes third-party cyber insurance along with errors and omissions insurance to protect against lawsuits from dissatisfied clients.
Additionally, you can purchase first-party coverage as a standalone policy or an endorsement to your general liability coverage or business owner's policy.
What other business insurance policies do cloud service businesses need?
Cloud computing service providers may need additional insurance policies to protect against other exposures:
- Business owner's policy (BOP) combines a general liability insurance policy with a commercial property policy to cover many of the most common liability risks, as well as your business property. Equipment breakdown coverage can be added as an endorsement to your BOP to protect your business if specialized machinery and computers break down.
- Electronic data processing (EDP) insurance protects your electronic equipment, including computers, if you experience data loss due to a power surge, fire, or covered natural disasters.
- Business interruption insurance helps your cloud computing business recover financially from a temporary closure tied to a fire, storm, or other covered property claim. It's often included in your commercial property insurance or BOP. This policy is also called business income insurance.
- Employment practices liability insurance (EPLI) covers lawsuits arising from violations of an employee's rights, such as wrongful termination or discrimination.
- Directors and officers (D&O) insurance protects your board of directors and other key decision-makers from legal fees resulting from claims of poor direction and mismanagement.
- Intellectual property insurance protects against the legal costs associated with IP lawsuits resulting from claims that your business violated intellectual property laws.
How can you save money on cloud computing insurance?
It's easy for cloud infrastructure as a service (IAAS) businesses to save money on business insurance through a few simple steps:
- Shop around. Get quotes from several insurance carriers to find pricing that matches your budget. TechInsurance makes this simple with one easy online application.
- Bundle policies. When you buy policies from the same provider, you can combine coverages for a discount. The most common bundles are a business owner's policy and tech E&O.
- Pay the annual premium. Insurers generally offer two options for paying your premium: monthly or annual. Paying the annual amount in full usually costs less.
- Risk management. Avoid costly claims that can increase your premiums by reducing your risks. Remove clutter that could cause accidents and bodily injuries, use detailed written contracts, and include redundancy in your systems to prevent failures.
- Implement security protocols. Using data security measures, such as multi-factor authentication (MFA), to protect against digital vulnerabilities can keep your business safe from potential cybersecurity incidents and help maintain compliance with GDPR and HIPAA.
- Personalize your coverage for your needs. Picking lower coverage limits or a higher deductible can help reduce policyholder premiums. However, it's crucial that you pick a deductible you can afford to pay in the event of a claim, or your insurance provider may not cover it.
You can speak to a licensed insurance agent about the best policies for your needs and budget.
