All companies require insurance for protection and security in case any unforeseen circumstances occur that could affect their business, and the same applies to tech startups. This could not be more pertinent than now where dozens of startups across the world have suffered losses and even shut down due to the consequences of the COVID-19 pandemic and subsequent lockdowns.
For founders and entrepreneurs, it is vital to understand the importance of investing in different types of insurance. Major types of insurance that are absolutely essential when for a financially secure tech business include Professional Indemnity Insurance, IT Liability Insurance, Cyber Insurance, and Management Liability/Director’s Liability Insurance.
Is insurtech the next big thing for Southeast Asia? We look into the topic.
With this article, let us explore what these different types of insurance mean, as well as, when and how they can be leveraged, and why startup owners should care.
What is IT Liability Insurance?
For startups with business models surrounding IT services and software, IT Liability Insurance is an integral part of their overall insurance needs. This type of insurance can help protect the startup against having to pay out or defend third party claims for financial loss due to the provision of IT services or products.
IT Liability Insurance combines Professional Indemnity and General Liability Insurance under one policy which is tailored for the IT industry. It also extends to provide additional benefits which address key exposures faced by IT providers and IT professionals.
For example, if an app has an update with a bug and that update causes a disruption in business for customers or clients, it could result in court action against the startup. This insurance will ensure that if a fumble ever does occur, it is easily taken care of without causing substantial losses.
What is Professional Indemnity Insurance?
In case of legal action, whether on the part of the business or the client or consumer, tech startups need to be protected. This type of insurance protects your business against financial losses arising claims from costumes as a result of the IT products or services you are providing. It also covers the legal costs associated with defending the claim.. It is not a mandatory requirement for opening a new tech company; however, many companies in Southeast Asia have found it necessary to allow them to continue to do business with other countries.
What is General Liability Insurance?
Public Liability Insurance protects you against claims arising from customers, suppliers or members of the public being injured or sustaining property damage as a result of negligent activities.
What is Cyber Insurance?
Security is everything for tech startups. Consumers and clients trust tech businesses to keep their data safe, and if there is a cyber-attack, it may destroy this trust., An attack may also lead to grave consequences if a company does not have the correct insurance or the funds to reconcile the issue. Cyber Insurance is used by tech companies to help protect against loss of income, cyber fraud and cyber liability as a result of network security breach.
What is Management Liability Insurance?
Owners and directors of tech startups must also have Management Liability Insurance to protect them because they take on many risks. These risks include any company breach of laws, regulations, or contracts, employment liabilities such as wrongful dismissal or in-office harassment, fraud or other crime-related activities within the company, tax audit expenses, and workplace legislation.
Why should startups care about insurance?
Aside from the types of insurance mentioned above, and the reasons stated as to why tech startups need each one, there are other factors to consider as well. As over 90% of startups fail and less than half make it through 5 years of business, being protected from the beginning will save money in the long run and could lead to a lot less financial ruin down the line if problems were to arise.
Investors will also need to know that a company is ready to go to market if they’re going to put their money into it, and that means having the appropriate insurance cover. Tech startups rely heavily on investors to help back their ideas, and without proper investment, many companies won’t get off the ground.
One of the key reasons why investors see insurance as a necessity is because it offers protection to the value of the tech startup. The valuation of a company is the most significant component because it indicates what it is worth and can paint a picture of future growth. While strong valuations can occur without insurance, however, most investors won’t want to get into business with a tech startup that isn’t covering all their bases.
Consequences for the uninsured
Not having insurance can cause a substantial financial burden and stress on the company and its earning potential. Even something as simple as a civil suit could gouge the pockets of the business to the point of no return.
Insurance is an essential part of beginning the journey to develop a tech startup. Companies, big and small, need to protect all those that work for them and also need to prepare for any legal repercussions that may occur over the course of the lifetime of their business. And this is where insurance advisory companies like Crucial Insurance, a business insurance broker, are stepping up to help startups secure their business. With over 25 years of experience in the global risk and financial advisory sector, founder Tony decided to create an ecosystem where businesses and entrepreneurs are empowered with information, so they can make the right choice to protect themselves and their companies against financial disasters. Although they are a business insurance broker in the Sunshine Coast and Brisbane, they service businesses in Australia and internationally.
With a tech startup, the risk of financial ruin without proper insurance is far too high to ignore. There is no better time to get insurance than before you need it, if you need it, it’s too late!
This post is sponsored