Article Reviewed by a licensed insurance professional: Sam Meenasian (CA dept of insurance license #0F75955).
Estimated reading time: 9 minutes
Insurance can be difficult to understand, especially when you are launching a technology company. Tech startups face risks that look different from those of a traditional business. A SaaS company, app developer, IT consultant, fintech platform, AI startup, or managed service provider may handle customer data, provide mission-critical software, rely on cloud vendors, sign enterprise contracts, and work with remote employees across several states.
The right insurance program can help protect your balance sheet, satisfy customer and investor requirements, and give your company a process for responding to covered claims. It will not prevent every loss, and it will not replace good cybersecurity, legal review, or operational controls. Coverage depends on the specific policy wording, limits, exclusions, endorsements, retentions, and facts of a claim.
Q: Why do I need to insure my tech business?
A: A tech startup can face lawsuits, contract disputes, employee claims, property losses, cyber incidents, and leadership-related claims before it becomes profitable. Insurance helps transfer some of those risks to an insurer, subject to policy terms.
Even if your company stores data in the cloud, you may still be responsible for how customer data is collected, accessed, transmitted, configured, and protected. Cybercrime affects businesses of all sizes, and small companies can be attractive targets because they often store sensitive information while having fewer security resources than larger companies.
Insurance is also a commercial requirement. Many enterprise customers, investors, lenders, landlords, and marketplaces require proof of coverage before they will sign a contract. Common requirements include technology E&O, cyber liability, general liability, workers’ compensation, commercial auto, and directors and officers liability.
The goal is not to buy every policy available. The goal is to match coverage to your actual exposures, contracts, headcount, revenue, data practices, and funding stage.
Q: What is technology E&O, and why would I need it?
A: Technology errors and omissions insurance, often called technology E&O or professional liability, helps protect a company when a client claims that your professional services, software, advice, implementation, or work product caused financial loss. Claims may allege negligence, an error, an omission, missed deadlines, failure to perform, incorrect advice, or failure of software to meet promised specifications.
For example, a customer might claim that your platform outage caused lost revenue, that your software integration failed, or that your consulting advice led to a costly operational problem. Technology E&O can help pay defense costs, settlements, or judgments for covered claims.
This coverage is especially important for SaaS companies, software developers, IT consultants, MSPs, cloud service providers, data analytics firms, AI companies, and any startup that provides technology services for a fee. SBA describes professional liability coverage as protection against financial loss from malpractice, errors, and negligence.
Q: What is cyber liability or network security and privacy liability?
A: Cyber liability insurance helps address certain costs that may arise from a data breach, ransomware event, network intrusion, privacy incident, business email compromise, or security failure. Cyber coverage is often divided into first-party and third-party protection.
First-party coverage may help with costs your own company incurs, such as breach response, forensic investigation, data restoration, business interruption, cyber extortion, notification, credit monitoring, and public relations.
Third-party coverage may help when customers, regulators, or other parties claim your company failed to protect data or maintain network security. This may include privacy liability, network security liability, regulatory defense, and certain media or data-related claims.
Do not assume your general liability or property policy covers cyber risk. NAIC notes that most commercial property and general liability policies do not cover cyber risks, and cyber policies are highly customized.
Ask your broker whether the quote includes social engineering, funds transfer fraud, dependent business interruption, cloud provider outage, PCI coverage, bricking, reputational harm, ransomware, and invoice manipulation. These items may be excluded, sublimited, or available only by endorsement.
Q: What insurance questions should I ask before buying coverage?
A: A startup should ask direct, practical questions before purchasing a policy. Good questions include:
- Do you have experience placing insurance for startups in our specific technology sector?
- Do we need technology E&O, cyber liability, or a combined technology E&O and cyber policy?
- Is the policy claims-made, and what is the retroactive date?
- Are defense costs inside or outside the policy limits?
- What are the deductibles or self-insured retentions?
- What exclusions apply to breach of contract, intellectual property, intentional acts, prior acts, unpaid fees, professional services, or cyber events?
- Does cyber coverage include first-party and third-party coverage?
- Are social engineering, funds transfer fraud, ransomware, dependent systems, cloud provider outage, and business interruption included?
- Are breach counsel, forensic vendors, and incident response vendors pre-approved by the insurer?
- Can the policy satisfy customer contract requirements, including additional insured status, waiver of subrogation, primary and noncontributory wording, and specific limits?
- How quickly can we receive certificates of insurance?
- What risk controls will underwriters require before binding coverage?
- Who will service our account after the policy is issued?
- What happens if we expand into a new state, country, product line, or regulated industry?
- How should we update coverage after funding, hiring, revenue growth, or signing larger customer contracts?
These questions help you understand the policy before a claim happens.
Q: What types of insurance does a tech startup usually need?
A: The right insurance program depends on your business model, contracts, employees, funding stage, and legal requirements. Many tech startups evaluate the following policies:
Technology E&O: Helps protect against claims that your professional services, software, or advice caused financial loss.
Cyber liability: Helps cover certain costs from privacy breaches, network security incidents, ransomware, data recovery, business interruption, and regulatory response, depending on policy wording.
Commercial general liability: Covers certain third-party claims involving bodily injury, damage to others’ property, and personal or advertising injury. It does not replace professional liability or cyber coverage. NAIC describes CGL as covering categories such as bodily injury, damage to others’ property, personal injury, and false or misleading advertising.
Commercial property: Protects business property such as computers, equipment, furniture, inventory, and office improvements from covered causes of loss. NAIC lists computers and data processing equipment among property that may be considered business property.
Business owner’s policy: A BOP may combine property, business interruption, and liability coverage for eligible small businesses. However, a BOP typically does not include workers’ compensation, professional liability, commercial auto, health, disability, or wrongful professional practices coverage.
Workers’ compensation: If you have employees, workers’ compensation is commonly required and should be reviewed in every state where employees work. Requirements vary by state and business structure. SBA notes that certain insurance may be legally required and that insurance laws vary by state.
Employment practices liability insurance: EPLI helps protect against certain employee-related claims, such as discrimination, harassment, retaliation, wrongful termination, and failure to hire or promote. NAIC notes that these claims are not covered by standard CGL and must be addressed through employment practices liability coverage.
Directors and officers liability: D&O coverage helps protect directors and officers from certain claims made against them while serving in leadership roles. This is especially important for startups with investors, board members, outside directors, or fundraising plans. III notes that D&O can address claims involving shareholder suits, investor claims, fiduciary duties, mismanagement, regulatory compliance, and similar leadership exposures.
Key person insurance: Key person life or disability insurance can help the company survive financially if a founder, executive, or critical technical leader dies or becomes disabled. The company usually owns the policy and uses the proceeds for hiring, debt, investor obligations, customer retention, or transition costs.
Commercial crime and social engineering coverage: Cyber insurance does not always cover theft of money. Ask about crime coverage, funds transfer fraud, invoice manipulation, social engineering, and employee dishonesty.
Commercial auto or hired and non-owned auto: If employees drive for business, even using personal vehicles or rented cars, review whether commercial auto coverage is needed.
Q: How can I reduce cyber risk before a cyberattack happens?
A: Insurance is only one part of cyber risk management. Underwriters, customers, and investors often expect basic security controls before they approve coverage or sign contracts.
At minimum, consider the following:
Use multi-factor authentication for email, cloud platforms, administrator accounts, remote access, code repositories, payment systems, and customer data systems. FTC and SBA both recommend MFA for small businesses.
Back up important data and test restoration procedures. SBA recommends regular backups, and FTC recommends backing up important files regularly.
Keep software, operating systems, browsers, and security tools updated. FTC and SBA both recommend regular updates and automatic patching where possible.
Train employees to recognize phishing, suspicious downloads, unsafe browsing, and social engineering. FTC recommends regular employee security training, and SBA recommends training employees to identify phishing and protect vendor and customer information.
Limit access to sensitive information. Employees should have access only to the systems and data they need to do their jobs.
Encrypt sensitive data at rest and in transit.
Review vendor contracts and cloud configurations. A cloud provider may secure the infrastructure, but your company may still be responsible for access controls, permissions, data settings, and contractual obligations.
Create an incident response plan before a breach happens.
Q: What should I do if a cyber incident happens?
A: Start with your written incident response plan. Do not improvise under pressure.
First, contain the incident. This may include isolating affected systems, disabling compromised accounts, rotating credentials, preserving logs, and preventing further unauthorized access.
Second, notify your broker or cyber insurer as soon as possible. Many cyber policies require prompt notice and may require you to use approved breach counsel, forensic investigators, ransomware negotiators, or public relations vendors.
Third, involve legal counsel before making public statements or sending notices. Breach notification laws vary by state and by the type of data involved.
Fourth, preserve evidence. Do not wipe systems or delete logs unless incident response counsel or forensic experts instruct you to do so.
Fifth, communicate carefully with customers, vendors, regulators, and employees. Accuracy matters.
Finally, document lessons learned and improve controls after the incident.
Q: How do I choose a policy that is right for my startup?
A: Start with a risk assessment. Identify what you sell, who your customers are, what contracts require, what data you collect, where employees work, what vendors you rely on, and what losses your company could not absorb.
Then compare policies based on coverage quality, not just premium. The cheapest policy may have exclusions, low sublimits, weak breach response support, narrow professional services wording, or poor contract compliance.
Review the following before binding coverage:
Policy limits
Deductibles or retentions
Retroactive date
Claims-made reporting rules
Exclusions
Defense cost treatment
Cyber sublimits
Business interruption waiting periods
Approved vendors
Contractual liability wording
Additional insured options
Waiver of subrogation options
International coverage
State-specific requirements
Customer certificate needs
A licensed commercial insurance agent or broker can help compare policy forms and explain tradeoffs.
Q: How can I get in contact with an insurance agent?
A: The right insurance partner should understand technology companies, not just general small business coverage. A good agent should ask about your product, revenue, contracts, data, cloud vendors, funding stage, headcount, remote employees, security controls, and customer requirements before recommending coverage.
If your startup needs help reviewing technology E&O, cyber liability, general liability, commercial property, workers’ compensation, EPLI, D&O, key person, or crime coverage, contact our agency today. We can help you understand your risk profile, compare options, and build an insurance program that supports your next stage of growth.
