How Agents Can Serve Their Local Technology Sector

Late last year, Paul Allen, co-founder of Microsoft, filed a lawsuit over alleged patent infringement against some of the biggest names in technology, including Facebook, Google and Apple. For some, the lawsuit may appear to be a case of technology behemoths knocking heads. While that may be true, it also is a high-profile example of a growing trend. Increasingly, technology companies are being targeted for lawsuits arising from intellectual property rights and other professional liability issues, and most are small to mid-sized companies that don’t have the deep pockets of the industry giants.

While patent infringement insurance, which will likely be tapped as part of Allen’s lawsuit, is expensive and hard to find, there are intellectual property and professional liability coverages that are more reasonably priced and more readily available for small to mid-sized business.

For independent agents, what’s happening in the technology sector creates an opportunity to build strong relationships with a growing number of local technology business owners. This opportunity is being influenced by a number of trends:

A greater reliance on computer products. Because technology is at the core of what most businesses do today, companies can defer spending on upgrades and new technology for only so long. For this reason, among others, the technology sector is expected to lead the way in the economic recovery.

Better geographic spread. Ironically, because of advances in technology, the technology sector is no longer concentrated in just a few high-tech regions, such as California, Virginia, North Carolina, Texas and Massachusetts. Technology business is everywhere. So, wherever an agent is, there are small to mid-sized technology companies.

More lawsuits than ever before. With the economy struggling, businesses are increasingly aggressive about recovering losses when something goes wrong. Even if a company does everything right, it may still be sued by a customer who claims financial harm. All it takes is one lawsuit to place a business at risk.

Today, more technology companies recognize the risks they face. An agent I spoke with recently said that, while other business owners tend to ask, “What coverages can I reduce or eliminate to save costs,” tech company owners are more inclined to ask, “What can I add to make sure I am properly covered?”

General Liability Versus E&O

Although technology products are far more likely to generate lawsuits alleging financial harm than bodily injury or property damage, many tech companies still are not purchasing errors and omissions (E&O) coverage. Because physical injuries from tech products are rare, and because general liability coverage is typically required, whereas E&O coverage may not be, this important exposure is often overlooked.

There is also a misconception that only software makers need E&O. This is not true. Nearly all technology products and services — hardware, software, communications — can give rise to E&O claims. A classic example of E&O exposure is a billing software developer that is sued by a customer who claims that billing records were corrupted by the software and, as a result, they were unable to collect some of their accounts receivable.

Another risk for tech companies arises from the frequent movement of personnel. If the hot programmer who was just hired away from the competition uses code that he or she developed at a previous job, then the new employer can be sued for copyright infringement. Many E&O policies would not respond to this claim.

Partnership is Key

For agents, these trends translate into opportunities. Independent agents should assess their carrier relationships to ensure that they are getting what they need to win in this market. The best carriers offer a total solution, including not just standard lines coverage (ie. property, general liability or workers’ compensation), but also E&O, management liability, marine, fidelity and surety. Agents should also look for partners that offer specialized loss control services for technology businesses. Hanover has found that technology firms are more likely to take advantage of these services.

Also, rather than appointing every possible agent, the preferred carriers limit the availability of specialized coverages, providing agents with a distinct advantage.

The technology segment is expected to grow by six percent annually between now and 2015. The majority of these companies are not the Microsofts of the world, but rather, small- and mid-sized companies that help drive local economies. An agency that invests in the business and finds the right carrier will be well-positioned to grow by meeting the distinct needs of this growing sector.

Topics Lawsuits Agencies InsurTech Tech