Understanding the Differences Between Cyber Insurance and Technology Errors & Omissions (E&O) Insurance

Introduction

As technology becomes increasingly integral to business operations, the risks associated with data breaches, cyberattacks, and service failures are higher than ever. In response, many companies are turning to two key types of insurance—Cyber Insurance and Technology Errors & Omissions (Tech E&O) Insurance to manage these risks. While both types of coverage are essential for businesses operating in the tech-driven world, they address different types of risks and often overlap.

This white paper clarifies the differences between Cyber Insurance and Technology E&O Insurance, helping businesses and insurance professionals understand when and why each policy is necessary. It also highlights how these coverages for tech firms, can and should often be combined for more comprehensive protection.

1. Cyber Insurance: Protecting Against Data Breaches and Cyber Attacks

Cyber Insurance is designed to cover the financial losses that arise from cyber-related incidents such as data breaches, ransomware attacks, or other forms of cybercrime. This type of coverage is critical for businesses that handle sensitive customer or employee data, such as personal identifiable information (PII), health information, or payment card details.

Key Coverage Elements of Cyber Insurance:

• Data Breach Response Costs: Covers the expenses related to responding to a data breach, including notification to affected parties, public relations costs, and credit monitoring services for impacted individuals with pre-negotiated vendor rates.
• Business Interruption Losses: Reimburses the business for lost revenue or additional expenses incurred due to a network downtime or cyberattack. This could be both direct or indirect/contingent and also respond to both “hacks” as well as human error (Systems Failure)
• Cyber Extortion/Ransomware: Covers the cost of responding to extortion demands, such as paying ransoms or negotiating with cybercriminals.
• Regulatory Fines and Penalties: Helps pay for regulatory penalties, such as those imposed under privacy laws like GDPR or HIPAA.
• Legal Defense and Settlements: Covers legal expenses and settlements that arise from lawsuits related to a cyber incident, such as class-action lawsuits from customers impacted by a breach.

When Cyber Insurance is Necessary:

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• Companies that rely heavily on online platforms or cloud-based services, making them more vulnerable to attacks.

Cyber Insurance focuses specifically on protecting a business from cyber risks and their immediate consequences, such as data breaches and the costs to respond accordingly. It is not designed to cover failures in the performance of technology services or products, which is where Technology E&O Insurance comes into play.

2. Technology Errors & Omissions (E&O) Insurance: Protecting Against Professional Failures

Technology E&O Insurance provides coverage for businesses that deliver technology products or services, such as software development, IT consulting, and cloud hosting. It covers claims of negligence, errors, or omissions in the delivery of these services or products that cause financial loss to a client. Essentially, it is a form of professional liability insurance for tech companies.

Key Coverage Elements of Tech E&O Insurance:

• Negligence in Service Delivery: Covers claims arising from failure to deliver the promised technology services or products, or delivering services that do not meet performance expectations.
• Errors in Software or Systems: Provides coverage for financial losses resulting from software bugs, coding errors, or failures in the design or implementation of IT systems.
• Contractual Breaches: Covers liabilities from unintentional breaches of contract where a tech company fails to meet agreed-upon terms in delivering technology services or products.
• Third-Party Financial Losses: Protects against claims from clients who suffer financial loss due to a tech company's professional mistakes, errors, or omissions.

When Technology E&O Insurance is Necessary:

• Businesses that provide technology services or products, such as software-as-a-service (SaaS) providers, IT consultants, web hosting companies, and software developers.
• Companies involved in designing, implementing, or managing technology systems for clients, as mistakes in these areas can lead to significant financial damages for customers.

While Tech E&O Insurance primarily addresses professional liability, it doesn’t typically cover cyber risks like data breaches or ransomware attacks that affect the business itself. This is where Cyber Insurance comes in, often as a complementary coverage.

3. Key Differences and Overlaps Between Cyber Insurance and Technology E&O Insurance

Though Cyber Insurance and Technology E&O Insurance provide distinct coverages, there is sometimes overlap in how these policies are structured. Many insurers offer combined Tech E&O/Cyber liability policies, bundling both coverages into a single policy to address both professional liability risks and cyber threats with the same carrier.

Technology E&O Policies with Cyber Liability Coverage:

• Bundled Coverage: It’s very common to see Technology E&O policies include some form of cyber liability coverage. This combined policy protects against both errors in professional service delivery (Tech E&O) and cyber-related incidents (Cyber Insurance), offering comprehensive protection in one streamlined package.
• Comprehensive Protection: A Tech E&O/Cyber form provides coverage for a broad range of risks, such as software or service failures that result in client losses, as well as data breaches, cyber extortion, and regulatory fines. This dual coverage ensures businesses are protected from both internal risks of delivering faulty tech services and external threats from hackers or cyberattacks. Having the same carrier on both exposures is often beneficial to our clients at the time of a claim.
• Cost-Effective and Efficient: For technology companies, having both coverages on a single form can simplify the insurance process and provide more seamless protection, avoiding potential coverage gaps that could occur when purchasing two separate policies. It also tends to be more cost-effective compared to buying two standalone policies.

Key Differences Still Exist:

Even when written on a combined form, it’s important to understand the distinct purposes of each coverage part:

• Cyber Liability in Tech E&O Policies focuses on cyber-related risks such as data breaches, ransomware, and regulatory fines.
• The Tech E&O portion focuses on professional errors or negligence in the delivery of technology services, such as software bugs, failure to meet contractual obligations, or performance issues that cause client financial loss.

By having a combined Tech E&O/Cyber policy, businesses in the technology sector can enjoy more comprehensive protection with fewer gaps between cyber-related and professional risks.

4. Why Both Types of Coverage Are Essential

For businesses that operate in the technology space, both Cyber Insurance and Technology E&O Insurance play crucial roles in managing risk:

• Cyber Insurance is indispensable for protecting against the growing threat of cybercrime. Businesses that handle sensitive information or have any sort of operations online need this coverage to safeguard themselves from the financial and reputational damage caused by a breach. It’s a must have in the insurance portfolio.
• Technology E&O Insurance is critical for companies that develop or implement technology products and services. A client can sue for losses caused by the failure of the technology, and E&O insurance ensures that a business is protected against these professional risks.

A comprehensive risk management strategy for technology companies often requires both types of insurance. Combined Tech E&O/Cyber policies offer a cost-effective way to bundle these coverages, ensuring businesses are protected from both external cyber threats and internal service delivery failures.

Conclusion

As technology continues to evolve, businesses face a growing array of risks that require specialized insurance coverage. Understanding the differences between Cyber Insurance and Technology E&O Insurance is essential for businesses to ensure they are adequately protected. Each type of coverage addresses different vulnerabilities, but together they form a robust safety net against both external cyber threats and internal professional liabilities.

For businesses operating in the tech space, having both types of insurance is not just a good idea—it’s essential for protecting both the bottom line and long-term reputation.

About PLRisk Specialty Insurance Agency, LLC:

At PL Risk Advisors, we specialize in providing tailored Professional and Management Liability insurance solutions for our retail insurance partners. Whether your clients need Cyber Insurance, Technology E&O, or any other executive liability placement, we’re here to help you navigate the complexities of today’s market conditions.

For more information or a quick discussion, please feel free to contact me at:

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Matthew Culkin,?AVP Sales

p:?201-847-9165 (ext 116)?|?m:?845-313-9521? |??e:?[email protected]

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