What is insurance?
The importance of insurance is felt in every sphere of life. Life involves risk and while it is often unavoidable, you can certainly take steps to minimize its effects. Many individuals opt to buy insurance to protect their needs. Insurance is a contract between an insured and the insurer where the latter agrees to compensate the former against potential future losses upon payment of premiums.
Who needs Information Technology (IT) insurance?
Information technology services involve the provision of both products and advice and yet the purchase of appropriate insurance is usually the last decision a business will make. Typical IT insurance protects the firms from claims arising out of professional negligence or failure to perform professional duties. IT insurance firms also covers errors and omissions that result in loss or client data, system failure, claims of non-performance or careless overselling of services.
Professional Liability Insurance
The basic idea behind professional liability insurance is that it provides protection against Claims arising from third party loss i.e. settlement is not made to the Insured, but to the third party who has suffered the loss. Any act, error or omission that results in a direct financial loss to a third party client may result in allegations of negligence against the company which can result in both financial loss and also damage to reputation and good will. In the event of a Claim, some insurers also agree to pay defence costs as well as any settlement amounts up to the limit of indemnity taken under the policy.
The provision of information technology services includes computer consultancy, database management, hardware networking, web design and development and internet services.. Companies providing internet services can also be subject to substantial claims resulting from allegations of copyright and trademark infringement or the effects of computer viruses. Web designers may inadvertently use copyright protected materials while conducting their professional services which may result in substantial fines and penalties..
General Liability Insurance
The General Liability section of an IT insurance policy ensures the company's physical assets and equipment are covered, in addition to providing cover for any product damage that a third party may suffer as a result of the company's professional services. The insurer provides protection against fire, theft, flood and accidental damage. General liability insurance does not cover damages incurred as a result of mechanical failure, virus attacks or equipment left behind in public transport or public places. If equipment is stolen, or the damage is beyond economic repair, the insurer may consider providing the insured with replacement equipment.
However, it is important to note that most Information Technology liability policies are written on a 'claims made basis'. This means that you must have an IT insurance policy in place at the time a Claim is made against you, rather than the time the alleged act, error or omission is committed. Therefore, the policy in place at the time a Claim is made against you is the policy that will respond to that Claim, rather than a policy in place at the time of the alleged act, error or omission.