What Is the Best Time for a Tech Start-Up to Set Its Professional and Cyber Liability Insurance Programme?

Despite the number of layoffs in 2023 in the Tech sector, the need for innovation, digitalisation and outsourcing transactional processes to the digital world will only grow in the decades to come. The innovation we witness daily with respect to AI and its business impact would require Tech companies to better manage their professional and data liabilities. The greater the share of the digitalised business, the greater impact it will have in case of wrongdoing, error, omission, or data breach. Business critical processes being down due to an error could lead to a negative financial impact and large financial claims. The Tech sector must look at mitigating the risk of unexpected financial losses due to data or professional duty breaches. Apart from good governance proper insurance coverage should be secured.

So when is the right time to purchase Professional (PI) and Cyber Liability (Cyber) insurance?

The easiest answer would be – the moment you start selling your product or services to your clients. Having said that, in that early stage of а company’s development, entrepreneurs have a whole lot of risk to look at for the business to survive. Insurance usually falls down the priority list. Nevertheless, this topic should not be underestimated, and proper actions must be taken. The earlier the better.

There are three distinctive points in any startup development when PI & Cyber coverage should be on the to-do list:

  1. Start selling your products to international markets. This is specifically valid if you are selling your products and services to developed countries in Europe, USA/Canada or Asia where data and professional breach law cases are not uncommon. Often in the B2B segment clients require their Tech partner to maintain proper PI & Cyber insurance covers with reputable companies. Limits vary depending on the size of the company and the project scope, but it is not uncommon for SME and MidSize companies the limit to be between EUR/USD 1mln to EUR/USD 5mln. Larger companies may need to look in excess of those limits. The B2C companies should be managing well the risk of breach of personal data, especially given GDPR and similar personal data regulations across the globe.
  2. Series A, B, C… etc. funding with reputable international Ventur Capital investments. VC’s would like to increase the chances of their investment bringing good returns. This often means mitigating some of the risks along the way. Proper protection of the Tech Startups’ financial cash flow in case of unexpected claims from a client is a must. Depending on the terms of the round often a Director’s and Officer’s insurance is required as well. The D&O insurance becomes a must-have in case of planned mergers, acquisitions or IPOs.
  3. Lastly, when the company is at the end of its early stage of development and is looking to transform itself into a well-governed operation. This involves streamlined and well-documented processes, certifications, design and implementation of proper business continuity plans, etc. Usually at this stage companies would have larger contracts with some of their clients which can involve business-critical infrastructure. The potential for larger claims increases and companies should consider higher limits.

The best way to manage the risk of professional or cyber breachesis to have an insurance broker who can be with you along the entire journey. Understanding your needs at each stage of the company’s development is critical to properly designing your insurance program. An insurance policy is not unconditional and matching the insurance placement to your needs is vitally important as gaps in the cover are not uncommon. This could be the difference between surviving a professional or data breach event and bankruptcy. The appointment of a professional consultant with a proper understanding of the tech-related risks and the available insurance solutions is what makes a broker a proper partner.

Broxio is a leading insurance broker for the Tech sector in Bulgaria. We are partnering with some of the most prominent companies in the sector continuously delivering our promises and beyond.

👉 Reach out to Stilian Milanov for a free discussion.

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