Technology Sector
The Technology sector is the fastest changing industry in the New Zealand economy. There are unique risks faced due to rapid growth, pace of change, reliance on key people and, importantly, how it is all funded.
While many of these risks can be managed through the corporate structure, directors need to be careful that they are properly protected. There is a difference between being liable to a third party and having to defend against their allegations.
Technology companies can scale quickly, which magnifies the risks. It is important to select an insurance partner who will be able to offer the cover that you require not just now, but in years to come, especially bearing in mind that not all insurers can provide cover worldwide and offer a global claims response. Laws vary, so having an insurer who is able to meet regulations in different jurisdictions whilst allowing you to manage your programme from your NZ head office is important.
Your exit strategy is another consideration as only some insurers can provide the cover for an IPO or Trade Sale. New Zealand has many international insurers with locally based branches, but if they do not fit the unique needs of your company Apex will place your cover with Lloyds of London who are the global leaders in insurance products.
Claims Examples
IT Consultants
A database management software company was sued by a competing developer who claimed a former employee stole the source code and used it to develop a competing product. Company was sued for breach of copyright and confidentiality. Alleged damages of $2,000,000 were sought along with an injunction to prevent future sales.
Lost Data
An IT company was engaged to provide a practice management system for a professional services firm. Following implementation of the system there were a number of problems with system crashes and data loss. The firm claimed compensation for consequential loss of revenue due to the loss of records of billable hours entered by fee earners and breach of contract in the amount of $700,000.
An allegation was made that a company had lost computer files by their customer. The customer had not kept a back-up and would have to recreate the data from paper files and invoices, thus incurring costs. Whilst there was no fault found on the part of the company there were substantial defence costs.
Failure to Deliver to Specification
An IT services company was engaged by an automobile insurer to provide an imaging system that could access online claims. An expected response time of two to four seconds was promised however response times averaged anywhere between 20 and 40 seconds. Initially damages of $9,000,000 were sought. Significant defence costs were incurred and the court awarded $4,000,000 in damages.
Intellectual Property Protection
Intellectual property is the heart of any tech company. It can be expensive to pursue another company who has breached your IP and other companies will zealously guard their IP or even bring an action against a competitor to obstruct their market entry. A well rafted insurance programme can protect against claims by third parties or pursue third parties who have stolen your IP.
Technology Liability
The technology sector is constantly pushing the boundaries of what a product or service is. Traditional insurance policies often can’t cope with the way this sector operates, so the technology liability insurance policy has been developed to cover all contingencies, regardless of how the loss arises. It covers both Professional Indemnity and Public Liability so the policy will respond whether the loss is caused by property damage, bodily injury, or is purely financial.
Cyber Insurance
Connected devices have opened up a new world of opportunity for businesses and criminals alike. The cyber insurance policy will respond in two ways if you suffer a cyber attack; it covers costs for investigating how the breach happened, notifying customers, lost revenue, and any associated PR. It also covers you if the cyber attack leads to claims against you by third parties, for example if they rely on your services and can’t trade, or you lose their data and they claim against you for breach of privacy.
Directors & Officers
Directors have responsibilities to all stakeholders to act in the best interests of the company. The risks associated with these responsibilities vary depending on the type and growth stage of the company. Directors & Officers liability insurance is a very broad cover which protects the director in the event of a claim against them alleging some kind of mismanagement, so it is different to insurance covering the company’s products or services. A catastrophic failure of a product or service could lead to a directors & officers claim.
Capital Raising
All companies need capital at some stage to grow, whether it is at start up or to develop new markets. The representations made when raising this money can be covered by an insurance policy which means if investors lose money and pursue the directors or the company then there is an insurance policy to respond. The way this is covered depends on the way the capital is raised, for example an IPO would require a separate policy to cover the prospectus document, or the Directors & Officers cover can be extended to cover a private raising.
Management Liability
Staff are your greatest asset but can also cause the most headaches, or worse, lead to the failure of the company. Employment Disputes are the most common liability insurance claim. The true cost of the dispute is hard to measure as, without an insurer appointed legal team, senior managers can be tied up for months. Other risks covered by Management Liability insurance include theft by employees and breaches of government regulations such as health & safety legislation and the Fair Trading Act.
Key Persons
Key persons are those staff whose skill sets are key to the ongoing operation of your business. How would your business cope with the loss of a key person? What would the financial impact be on the cashflow and ultimately, the value of your business? It is important to plan for the loss of a key person in order to minimise the impact to your business and quantify the financial costs relating to anything from sourcing a replacement to any loss of revenue attributable to that key person.
Employee Benefits
Employee benefit schemes offer your employees access to quality financial products and advice, which they may otherwise struggle to obtain themselves. These benefits can be structured at little to no cost to you the employer, yet have a high perceived value to staff who in turn are more committed, involved and effective employees.
General Insurance
While we specialise in liability insurance we also provide general insurance, which can range from a small office and vehicle in New Zealand through to a global program to cover your offices worldwide.
To discuss further or for any queries, please email the team or call us on 09 520 9441.