The information technology and outsourcing industry is one of the largest industries in India. As per Nasscom, the sector’s revenue for FY 2016 was USD 145 billion. India also happens to be the No. 1 sourcing location for information technology and outsourcing business. The entire IT/ITES industry has multiple The IT and ITES industry has four major segments – IT services, Business Process Management (BPM), software products and engineering services, and hardware.
The technology companies are more concerned with reputational risk above others. Errors in the software product/services, scheduled delivery delays and data breach can all lead to expensive lawsuits.
is also exposed to wide spectrum of risks that could impact their business. More significant than drop in revenue risk (property damage) is the reputational risk that makes it imperative for the industry to go for insurance protection.
Cyber risk Insurance
Data breach and internet related risks are among the critical risks faced by technology companies. A lot of sensitive information is more prone for theft.
A Cyber risk insurance protect businesses from Internet-based risks, generally, from risks related to information technology infrastructure and activities. The coverage under this insurance is structured as below:
- First-party losses - Direct losses accruing to the healthcare company that got breached. Coverage under this include data breach/privacy expenses related to management of the incident, legal costs, Business interruption (monetary loss) due to a network downtime resulting out of a cyber attack.
- Third-party losses are the costs suffered by related third parties — customers or partners — as a result of a cyber breach. Companies in the Technology space have greater exposures in third-party incidents.
Personal Accident Insurance
Technology companies should buy a Group personal accident policy cover for their employees. The personal accident insurance policy provides compensation for any bodily injury resulting solely and directly caused by an accident. Benefit is payable for accidental death, disability (permanent total & partial, medical expenses incurred due to any accident, and even for loss of earning through a weekly compensation benefit.
Group health insurance for employees and their families is a must for technology companies. This is an excellent way to epitomize a company’s commitment towards their employees. Health insurance provides protection for all incurred medical expenses of the insured person in an event of an unexpected illness or injury under the following heads:
- Room rent charges
- Surgical charges including the fees of surgeon, physician, and consultants.
- Operation theatre charges, surgical appliances, medicines, drugs, diagnostic charges and similar expenses.
- Both pre and post hospitalisation expenses.
- Cashless facilities for claims are also provided under this insurance policy.
Liability insurance for Technology companies
Any third-party lawsuit, especially from clients will not only be a financial drain on the technology companies, but also a serious reputational risk that can stop them operating in their business. Insurance will safeguard their financial protection against any lawsuit coming for third-parties. The companies can buy the following insurance policies:
- Commercial General Liability insurance.
- Errors & Omissions insurance.
- Cyber risk insurance.
- Directors’ & Officers’ liability insurance.
- Workmen compensation insurance.
Commercial General Liability Insurance (CGL)
Commercial General Liability Insurance can protect technology companies from the following third-party liabilities:
- Bodily injury including medical expenses.
- Property damage.
- Personal advertising injury.
Technology companies often have clients visiting their premises for meetings and the CGL policy will provide the required protection. The CGL policy will provide necessary financial support to companies against any legal liabilities due to a bodily injury or a property damage by paying for:
- Legal defense costs and judgement/settlement costs to defend the legal suit.
- Medical expenses for bodily injury caused by an accident.
The Sum insured (limits of insurance) payable under the policy is the maximum liability of the insurance company, irrespective of number of claims made or suit brought and the persons or organization making claims. These limits called “limits of Indemnity” are applicable for various sections under this policy.
There are two limits of indemnity considered under this policy:
- Maximum limit of indemnity for entire policy period - Any one Year limit (AOY).
- Limit for each occurrence or Any one Accident (AOA).
Errors and Omissions Insurance
Technology companies mandatorily need to purchase the Errors and Omissions (Professional Indemnity) coverage. This policy cover breach of professional duty due to errors or omission committed or occurring in good faith and resulting in loss or damage to clients.
Technology Errors and Omissions is for companies engaged in any of the following:
- Software Development & Maintenance
Infrastructure Management Services
- Research & Development
- System Integrators
- Business Process Outsourcing
- Data Centre Services.
- Infrastructure Engineering other Information
Directors and Officers Insurance:
Directors and Officers (D&O) Insurance provides for financial protection for a manager, in the event of a claim against them, alleging a wrongful act in a managerial or supervisory role in the organization.
D&O insurance pays for defense costs and financial losses resulting from this lawsuit.
Exposures in D&O insurance
- Regulatory investigations.
- Accounting irregularities
- Exposures relating to mergers and acquisitions
- Vulnerability to shareholder/stakeholder claims:
- Employment practice violations:
- Sexual harassment, discrimination allegations and other employment practice violations including wrongful termination and failure to promote, negligent evaluation or unfair discipline, breach of employment contract, discrimination.
Types of losses paid under a D&O insurance policy
- Defense costs – Legal expenses and costs, which the company is legally liable to investigate, defend or appeal a claim. Defense costs also include Bail bond and civil bond expenses.
- Public Relations expenses – Costs incurred to retain a public relations consultant to reduce or prevent negative publicity.
- Extradition costs – Costs to have a legal adviser or tax consultant towards advice on extradition proceedings.