Technology Companies May Face Overlapping Cyber, Tech E&O and General Liability Exposures. Here Are 3 Ways Integrated Policies Can Help
When technology malfunctions or falls prey to cyberattacks, the consequences can be widespread, affecting both the technology provider and any clients or customers who rely on it. The resulting losses are often complex: first party investigation and remediation expenses may be addressed on the Tech firm’s Cyber policy, while any issues experienced by clients could trigger coverage under their technology E&O policy.
“There’s definitely some gray area and overlap between the types of claims that we see,” said Evan Fenaroli, vice president of management and professional liability underwriting for Philadelphia Insurance Companies.
“A cyber incident that affects a technology service provider oftentimes becomes a cyber incident for their clients and their end users, which in turn becomes a tech E&O claim against the technology service provider.”
“It could even be difficult to separate where a GL claim stops and an E&O claim starts, depending on the end damage that might be caused,” added Jason Keeler, integrated tech product manager and underwriting executive at Philadelphia Insurance Companies.
If different carriers write their cyber, tech E&O and general liability covers, they may have a disagreement about whose responsibility it is to cover a particular portion of a claim, creating additional stress for insureds.
To avoid this infighting, technology companies are increasingly working with a single carrier for all their coverage needs. Integrated technology policies may offer coverage for property, general liability, umbrella, and auto, along with professional liability forms that include tech E&O , cyber, and media covers. That way, insureds know everything will be taken care of in the event of a claim.
3 Advantages of Integrated Technology Policies
The need for bundled policy solutions for technology companies arose a few years ago, Fenaroli said. In the early to mid-2000s, insureds and their brokers started realizing there were overlaps in claims and that an interconnected insurance solution would help streamline the process.
“We definitely saw an opportunity when speaking with our agents and brokers,” he explained. “There was a need for a dedicated policy form for the tech community that offers a package of lines as a one-stop solution.”
Here’s a look at three benefits of integrated technology covers:
1) You Work With a Single Carrier in the Event of a Claim
One of the primary advantages of integrated technology policies is that insureds can work with a single carrier when a claim occurs. Instead of one carrier for cyber and another for tech E&O debating which parts of a claim they’re responsible for, a single entity will respond to a claim, making the process more straightforward for insureds and carriers alike.
“You avoid a lot of back-and-forth and finger-pointing between carriers,” Keeler said. “Integrated policies allow the carrier to just work on responding to the claim, rather than focusing on this infighting that can happen.”
2) Subcontractor Coverage
Technology companies often work with subcontractors to outsource certain operations. If one of these parties makes an error and a claim occurs, it’s important for the insured to know they’ll have coverage for this mistake.
“It’s a common business practice within the technology industry,” Keeler said. “Most companies now are relying on outsourcing large portions of their IT operations to cloud service providers or software-as-a-service (SaaS) providers. Then those same IT companies are in turn relying on their own outsourcing. So it’s just a web of interconnectedness, and that’s why the subcontractor coverage is important.”
Since these integrated policies were created with tech companies in mind, they offer coverage for subcontractors — something traditional insurance solutions may have excluded. “These policies are designed to automatically cover these subcontractors when they’re doing work on behalf of our insured,” Keeler said.
3) Stable Pricing and Capacity
When carriers integrate coverages, it can help them offer more consistent pricing and capacity. They can balance risks within the different lines in ways that suit their appetite and book of business.
“It helps us to support the worst-performing lines of business on an account if we can write all of the lines of business and help to smooth out the loss curve over the course of many years,” Fenaroli explained.
Insuring the Technology of the Future
Technology is ever-evolving. One need look no further for an example than earlier this month, when the internet buzzed with the potential of ChatGPT, a powerful artificial intelligence (AI) chatbot that can simulate casual conversations and even compose limericks.
But where ordinary people saw a new digital tool that could make high school English papers or Google searches obsolete, Fenaroli and Keeler saw potential risks. As AI becomes more widespread, they worry about its legal ramifications.
“When it comes to AI, there are concerns about the implicit bias that’s baked into it and how that affects certain individuals and their interaction with technology,” Fenaroli said. “We’re already seeing litigation around some of this new technology and where it intersects with privacy and regulatory concerns.”
Evolving exposures and their potential claim impacts are something underwriters think about a lot when new technologies hit the market. Integrated technology insurance solutions are prepared to manage these new risks.
Take driverless cars, for instance. If an accident occurs, it can be unclear who is responsible for paying the insurance claim. “One thing that people haven’t talked about much with driverless vehicles is who owns that loss when it happens. Is that a product liability claim for the manufacturer of the driverless vehicle or is that an auto insurance claim?” Keeler said.
Integrated solutions are prepared to address these kinds of risks, since the exposures are managed by a single carrier. As Keeler reiterated, it can reduce confusion if a claim occurs.
“Having one carrier writing all the coverages is going to make the process of making the insured whole again much smoother. It’s going to get paid somewhere; it’s just a matter of which bucket it gets paid in,” he said.
Keeler and Fenaroli said that carriers are constantly working to adapt their policies so they can meet the needs of new technologies. Philadelphia Insurance Companies is currently in the process of making updates to its cyber and E&O forms that will roll out in 2023, and its underwriters are always willing to work with insureds to customize policies to meet their needs.
“Something unique about technology in general is it requires specialization on the part of the underwriters to understand what the technology is doing, what its use case is, who’s relying on it, what could go wrong,” Fenaroli said.
“Clarifying the exact nature of the operations and services that we’re intending to cover is something that’s important for a lot of brokers, especially when you have boilerplate policy language that could be vague or maybe overly broad. There may be some piece of it they’re not necessarily comfortable with or that they want us to specify and spell out.” &