Tag: Business Insurance for Tech Companies

Business Interrupted? Don’t Let a Property Loss Jeopardize Your Business

Did you know that nearly 40% of businesses do not reopen and another 25% fail within a year after a catastrophe or disaster? The actual loss or damage to buildings, facilities and property is often the reason for this frightening statistic, but it isn’t the only reason. Businesses are increasingly struggling to recover after a property loss because of the economic impact caused by the interruption of business operations during and after the event.

It’s common for business operations to be suspended temporarily after a property loss. Depending on the severity of the loss, a business may be forced to shut down for weeks, possibly months. Though revenue often stops, expenses continue. The inability to pay expenses (payroll, mortgage, suppliers, taxes, etc.) can turn a temporary suspension of business operations into a permanent shut down. Business interruption insurance can prevent this from happening.

Business Interruption, also known as Business Income, is a type of commercial insurance that protects against loss of income when a covered loss causes a business to reduce or suspend its operations. In the event of a covered loss, business interruption insurance will cover lost revenue and fixed expenses, like rent and utilities, during the suspension of operations. Extra expense coverage is also available to reimburse costs over and above normal operating expenses, like temporary relocation costs.

Business interruption coverage is triggered when there is direct physical damage to property that was caused by a covered peril. For example, if wind damage is covered under a commercial property insurance policy, there would be business interruption coverage if operations were suspended due to a windstorm. On the other hand, if wind damage is not covered, there would be no business interruption coverage.

To calculate a business interruption loss, insurance companies need to determine how much the business would have earned if the loss had not occurred. They may review and consider various financial documents, such as tax returns, bank statements, profit and loss statements and balance sheets, to establish the amount of a business interruption loss.

According to the Insurance Information Institute, a recent report found that the economic impact from business interruption is often much higher than the cost of physical damage. Business interruption losses now make up a much larger part of overall property losses than they did just ten years ago. The increasing interdependence among businesses locally and globally also means that business interruption losses are expected to increase in frequency and severity.

Businesses should consider adding business interruption coverage to their existing insurance program. Though many aspects of this coverage are relatively standard, there are some variations among insurers and policy forms. For example, some policies may provide Civil Authority coverage. Given the relative complexity of business interruption coverage, an experienced and reputable insurance agent should be consulted to help identify needs and evaluate options.

Please contact us to learn how business interruption insurance can protect your business.

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Using the Benefits of Representations and Warranties Insurance When Buying or Selling a Business

Deals to buy or sell a business typically include statements of fact by the seller about the business. These representations and warranties are then combined with indemnification provisions to allocate risks and liabilities between the parties. Negotiating representations and warranties can be challenging, and deals often fall apart because the parties cannot reach an agreement. Representations and Warranties Insurance (RWI) can simplify negotiations and possibly save the deal.

RWI protects against unintentional and unknown breaches of a seller’s contractual representations and warranties. Though RWI is not a new insurance product, it’s increasingly being used by both buyers and sellers to shift liability to insurers for a fixed cost.

These policies cover many of a seller’s standard representations and warranties, such as statements about:

  • Capitalization and debt;
  • Accuracy of financial statements;
  • Title to real, personal and intellectual property;
  • Tax matters;
  • Accounts receivable/payable and inventory;
  • Employee benefits and compensation; and
  • Compliance with laws and regulations.

 

In the past, RWI was typically reserved for buyers, but today RWI is used by both buyers and sellers. A ‘buy-side’ policy covers a buyer’s losses, including defense costs, due to the seller’s breach of a representation or warranty. A ‘sell-side’ policy covers the seller for defense costs and losses resulting from claims made by the buyer that the seller breached a representation or warranty.

Sellers can use RWI to:

  • Reduce potential liability for future representation and warranty claims;
  • Lock in their return on investment;
  • Cleanly exit a business or industry;
  • Eliminate the need for purchase price escrows or holdbacks;
  • Retain, use or distribute all or most of the sale proceeds;
  • Protect passive sellers; or
  • Expedite a sale.

 

Buyers can use RWI to:

  • Ensure a source of recovery for the seller’s breach of representations and warranties;
  • Ease concerns created by a sellers’ poor financial condition or other practical considerations that can make it difficult to collect from the seller in the event of a breach, such as sellers that are numerous, geographically dispersed or difficult to locate;
  • Distinguish its bid and appear more attractive to a seller;
  • Provide additional time to detect and report problems by extending the duration of a seller’s representations and warranties; or
  • Protect relationships with sellers who may continue working with buyer after the sale as a key employee or business partner.

 

Unlike standard general liability and property insurance policies, RWI coverages and exclusions can be relatively complex and can also vary depending on the specific policy form and insurance company. You should consult a reputable insurance agent with experience handling RWI applications and policies.

Please contact us if you would like more information about obtaining Representations and Warranties Insurance coverage.

Additional information is also available in our weekly Risk Management Newsletters.

Insurance for Tech Companies

Since most businesses rely on technology, providing technology services has become big business. Technology companies provide goods, services and expertise that can increase efficiency, productivity and profitability. These businesses may involve:

  • System / network development and administration
  • Application and website programming and design
  • Hardware installation and repair
  • Website hosting, maintenance and optimization
  • Information Technology consulting, staffing and training
  • Project management
  • Consulting

Technology companies face the same risks as other businesses, so traditional insurance coverages are required, such as general liability, property, automobile and workers compensation insurance. However, additional insurance coverage may also be necessary to address the unique risks facing technology companies.

For example, many technology companies do not believe they need Errors & Omissions (Professional Liability) insurance. The reality is that technology companies, just like doctors and lawyers, can be held liable for errors and omissions committed in the performance of their professional services.

Unfortunately, a traditional E&O policy may not protect against many of the risks unique to technology companies. This is why technology-specific insurance is needed to cover technology-specific risks. To ensure adequate insurance coverage, technology companies should look for an E&O policy that, at a minimum:

  • Broadly defines “Computer Technology Services”
  • Provides coverage for failure to prevent unauthorized access to or use of any electronic system or program of a third party
  • Provides coverage for unauthorized, corrupting or harmful pieces of code, including, computer viruses, worms and Trojan Horses
  • Covers personal injury claims alleging wrongful entry, wrongful eviction, wrongful detention, false arrest, false imprisonment, libel, slander or defamation, advertising injury or violation of any right of privacy
  • Provides sufficient coverage limits

The right E&O policy lets technology companies focus on their business knowing that they are protected in the event of a claim. And, since clients are increasingly requiring proof of E&O insurance from their technology vendors, an E&O policy may also create new opportunities.

Given the complexity of the risks facing technology companies, evaluating insurance needs and options is not always easy. For example, in addition to E&O insurance, technology companies may also need coverage for cyber liability claims, including data security breaches, which are becoming more common.

An experienced insurance agent can guide you through the process of protecting your technology company. If you would like to learn more about insuring a technology company, contact us.

If you would like to learn more about preventing data security breaches, take our online course Information Risk Management: Strategies for Preventing and Mitigating Information Security Breaches.

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