Information Technology Insurance

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Why specialist IT insurance is ESSENTIAL - A warning for all suppliers/maintenance of computer systems.

Information technology (computers, systems, software and associated services - and its convergence with telecommunications and multimedia services has created a new industry.

There is a new class of specialists such as computer consultants, software engineers, software retailers, computer systems integrators, software importers and exporters and a host of other computer related professions and commercial activities.

Their requirements simply do not fall within traditional insurance boundaries or experience. The problem facing insurance brokers and their clients is "how do we protect our businesses from liabilities that may arise out of new technologies?"

The legal goalposts are being shifted almost on a case by case basis, both in Australia and around the world.

There are many areas where you may be exposed to economic loss as a result of an error or omission by you or one of your employees. Exposures to those working in the IT industry include:

• Loss of data
• Business interruption
• Incompatible, inappropriate or ineffective hardware or software
• Data migration difficulties
• Inadequate hardware or software support
• Injury caused by faulty hardware or software
• Physical loss of equipment

Information Technology has advanced so rapidly in the last few years that the law and most insurance policies have not been able to keep up with this rapid change. We can provide insurance policies that have been designed for businesses involved in Development or Implementation of software, Consulting, Maintenance and Support, Supply and Management Services and those who provide Internet Services.

Information Technology Coverage
People have a heightened awareness of their legal rights and are increasingly turning to litigation when their lives are disrupted by the failure of technology.

Why Information & Communication Technology Liability Insurance?
Information & Communications Industries are now tightly interrelated. Categorising a company into either industry is virtually impossible and largely irrelevant.

This innovative new policy supersedes the Professional Indemnity and Product Liabilities policies, and removes the need for category specific insurance. It provides coverage for claims arising from failure of the insured products, services and/or advice. It also provides coverage for infringement of copyright, trademark, registered design, or any other plagiarism, libel, or slander. It also covers breach of confidentiality and privacy.

Checklist
Below is a quick checklist - if you answer yes to any of the questions you need the cover.

• Manufacture Computer Hardware?
• Develop Computer Software?
• Integrate & implement systems?
• Provide outsourcing or disaster recovery services?
• Maintain hardware or supports software?
• Work with telecommunications?
• Provide project or quality management, education or training courses?
• Simply sell hardware or software?

Australia is an increasingly litigious society. Information technology contractors who choose to ignore this fact, like the emu with its head in the sand, risk a nasty kick to the rear.

Estimates suggest however that in spite of mounting litigation in the field, as many as three in five I.T. contractors remain uninsured, leaving many extremely vulnerable in the event that they are sued over their output, whether that be in the form of advice, or a finished piece of code.

But there are early signs this may be changing. A lot more contractors are becoming aware of the need for professional indemnity insurance because it is increasingly a condition of their contract, and this has been an increasing trend over the last couple of years. It is more prevalent in part because the government has become more stringent about whom they will and will not use for I.T. work.

Although some contractors who work within umbrella contracting agencies may be covered through that agency's insurance cover, it still believed that at the smaller end of the I.T. contracting community, as many as 60 per cent may go uninsured, and it may be much more.

Professional indemnity policies as a rule cover claims over professional negligence, which result in an economic loss to a third party through the advice or design of a system. While PI insurance is well entrenched among other professional groups such as doctors, engineers, architects, and lawyers, the software sector is a new and growing industry and the insurance industry has lagged a little behind in giving this the sort of exposure it needs.

The speed at which the I.T. industry develops means that even contractors who do have professional indemnity and public liability coverage, may still need a broader insurance programme to provide more complete coverage.

For example, anyone involved in the design of web pages, which can be deployed on the Internet, and accessed internationally, may need an insurance programme, which provides broader cover. Indeed anyone involved in the production of product - such as software code - might also need product liability insurance besides professional indemnity and public liability cover.

Anyone working on any form of I.T. project which may be deployed internationally need to carefully check the territorial limits established in their insurance policy, to ensure they would be covered irrespective of which jurisdiction in which they might face a legal challenge. The extent of the cover purchased is a very personal issue, which depends hugely on the nature of the work carried out.

A policy which delivers $1 million of cover may be adequate for many contractors, but probably is insufficient for a contractor working in avionics where the potential risk exposure, and hence magnitude of possible claims, balloons.

Contractors should be seeking policies, which offer at least $2 million of cover, and much more for high-risk work. For many contractors though $2-5 million of cover might be adequate to cover legal costs and potential damages bills.

The premiums a contractor might expect to pay obviously differ widely according to the individual and his or her requirements, but an example of a contractor who has just paid $1,500 annual premium which secured $2 million worth of cover. The premium is of course fully tax deductible, representing a legitimate business cost.