Insurance Solutions for the Technology Sector

Solutions for Technology Firms

The risks and exposures faced by technology firms are evolving as quickly and as radically as the leaps in technological progress. The lightning pace of accelerated innovation is making it challenging for businesses to protect themselves against the myriad of new threats.  From cyber threats, artificial intelligence and the mounting pressure to continually evolve, protecting your organisation with the same innovative thinking that is used to develop your technology advancements is crucial.

What are the threats that technology firms need to be aware of?

Fast growing and even faster evolving, the technology industry is responsible for a range of innovative solutions that consumers can’t live without.  However, as technology firms consistently advance their products or invent fresh solutions, such untested innovations can bring about numerous threats that organisations may or may not be prepared for. Some of the most prominent risks to the industry include:

1.      Artificial Intelligence

Artificial Intelligence (AI) is evolving at a rapid pace, often resulting in more questions than answers in the context of risk. For example, is an AI-based intervention designed to provide simple assistance to end users a product or service? If a loss is cause to a third party, will this be a claim alleging poor service (professional indemnity) or a faulty product (products liability)? Or, if the AI service is hacked and unavailable, is there a business interruption risk (cyber insurance)?

These emerging risks need to be considered holistically across your entire business or you could be in a position where you’re not covered because there are gaps in your insurance cover.

2.      Blockchain

The benefits of blockchain, while seemingly unlimited, present unprecedented risks for technology firms. The loss of control of data in a user-validated environment, where you can only make amendments and not deletions, introduces complex and largely untested threats in the form of data security and third party liability exposure.

3.      Enhanced General Business Risks

Did you know that as at September 2018, there are 94 representative proceedings in the Courts nationally¹? In fact, according to the Australian Institute of Company Directors, there is great fear around shareholder class actions based on environmental, social and governance (ESG) claims². This involves instances with data breaches or non-compliance with privacy laws and regulations, two prominent exposures in the technology space.

Are you and your boards facing exposure when it comes to the possibility of shareholder class actions? Have you reviewed your directors and officers (D&O) liability cover in conjunction with your core business exposures? These are just some of the essential considerations that technology firms face.

What is the potential impact?

Litigation in Australia is on the rise. A study by Professor Vince Morabito from Monash Business School revealed that since 1992, there have been a total of 563 class actions filed as of May 2018, resulting in an average of 21.4 class actions annually. However, his study also finds that from June 2014-June 2018 there was a total of 98 federal class actions filed in Australia, both above the annual average and amount recorded for any other time period³.

From product liability, significant data breaches or claims against professionals, companies need to worry about the threat of lawsuits, which could come from litigious end-users or customers. You could still incur significant costs to defend even frivolous lawsuits. In this age of litigation, if something goes wrong with a product for which your company supplied a component or piece of code, you could be sued, even if your software is error-free. 

What should you do?

For businesses operating in the technology sector, the evolving environment calls for proactive and continual assessment of risks via:

• Review of your risk register to ensure it remains current
• Benchmarking of your risk register against peers
• Gap analysis of your key risks against your insurance program
• Review of your current insurance program to ensure adequacy and adaptability to change
• Benchmarking of your current insurance program limits, deductibles, premium and cover.

Failure to understand your risk and insurance framework through the activities described above can leave your business exposed to significant uninsured risk.

Insurance policies that may respond to emerging threats in the Technology sector

Professional Indemnity and Products Liability – offers litigation protection to third party claims alleging loss as a result of your firm

Cyber Protection for technology firms – offers protection to the consequences of data breaches including direct costs such as fines or compensation or coverage for business interruption in the event you can’t continue business for a period of time.

Directors and Officers (D&O) –offers management and board leadership protection.

Next steps

It is imperative that technology firms ensure that a robust and effective insurance program is in place to protect against the constantly evolving threats faced in the industry. For more information, get in contact with our Marsh technology specialists today.

_{Marsh Pty Ltd (ABN 86 004 651 512, AFSL 238983) arrange insurance and are not an insurer. Any statements concerning legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as legal advice, for which you should consult your own professional advisors. This document is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy.  Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Marsh makes no representation or warranty concerning the application of policy wordings or the financial condition or solvency of insurers or re-insurers. Marsh makes no assurances regarding the availability, cost, or terms of insurance coverage.}

_{1 Federal Court of Australia (2018) Current Class Actions. https://www.fedcourt.gov.au/law-and-practice/class-actions/class-actions}

_{2 Tom Featherstone (2018) the Growing Impact of Rising Shareholder Class Actions, Australian Institute of Company Directors <https://aicd.companydirectors.com.au/membership/company-director-magazine/2018-back-editions/october/class-actions>}

_{3 Professor Vince Morabito (2018) Competing Class Actions and comparative perspectives on the volume of class action litigation in Australia, page 8-9, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3212527}

_{LCPA: 19/053}