Insurance for IT software and service providers: Claims examples

Insurers, Chubb has released their latest case studies highlighting the typical claims they are seeing made against IT software and service providers to illustrate the areas where cover is essential.

These examples illustrate the scenarios that should be considered during your risk management assessments and decisions over insurance cover to ensure your business is protected.

Technology firms are increasingly challenged to meet their customers’ needs on time, on budget and within performance standards. Complex technology products and projects have volatile financial and liability risks that could put you out of business.

Over the past five years, claims severity for technology products and project dispute litigation has soared due to the following reasons:

  • More and more customers are willing to sue established business partners for performance failure or delay
  • Dramatic increases in the average size and length of contract raises the plaintiff’s chance that a performance failure “will be worth the fight”
  • With companies putting more reliance on technology it increases the likelihood that software solutions will be core business solutions. As a result, much more is at stake if the software fails, can’t be accessed or doesn’t perform as promised.

Here are some of the loss scenarios that Chubb has revealed. If you feel that you might be at risk from any of these examples you may wish to talk to us in order to re-assess whether you have adequate insurance protection in place.

Example 1: Cloud Migration: Settlement £1.5m

An IT service provider specialises in moving data and systems into the cloud. Despite extensive system and network due diligence, a recent client’s data was encrypted during the migration process and due to an incompatibility between systems, the data was damaged. The client provided marketing and advertising services, and claimed that its data was its key asset. They were unable to operate until this data was repaired or recreated.

Example 2: Cloud Failure: Potential Cost £2.5m

An analytics company uses cloud-based storage for data sets, to avoid the costs of local storage and allow better access to a global employee and client base. Due to a cyber incident at the cloud provider, the company is unable to access its data, and thus could not carry out core business activities for 6 days. This led to both a loss of income during that period, as well as a loss of key clients, who were able to void contracts with the insured due to the incident.

Example 3: Missed deadlines: Settlement £76,000

An IT services company was awarded a contract to be the outsourced vendor for an online retailer. As part of the contract, the IT company was responsible for upgrading its client’s inventory management system and provide other customer service solutions. To accomplish this upgrade, the IT company needed to replace customer hardware, software and infrastructure, as well as telecommunications and related services. Due to a high turnover of staff and breakdown in project management, the IT company failed to meet deadlines.

Example 4: Big Data Loss: Settlement £600,000

A software developer created a customer database for a client, including indicators for the overall profitability of the customer relationship. The wrong profitability codes were mapped to each class of customer, inadvertently identifying the strongest customer relationships as the least profitable to the client, and vice versa. The error was discovered when a promotional campaign was launched, and the least profitable customers began redeeming offers that should only have been available to the most profitable relationships. The client was obligated to honour the discounted offers provided to the least profitable customers, and incurred additional expense sending amended communications with new offers to its preferred customer.

And there are more…

The list of examples in the Chubb communication was much more extensive, and whilst we have only highlighted four, we hope this has given you food for thought. If you are uncertain whether your current policies provide the protection you need or you believe that you may be underinsured we would be happy to help you assess your risks and insurance protection. Please get in touch for a free no-obligation discussion.