Tech E&O vs. cyber insurance
Technology errors and omissions insurance (tech E&O) and cyber insurance are two forms of protection against cyberattacks for small businesses. While tech E&O focuses on cybersecurity errors that harm your clients, cyber insurance offers financial coverage for breaches that directly affect your business.
What is cyber insurance and what does it cover?
Cyber insurance, also called cyber liability insurance, covers the high costs of dealing with a data breach or cyberattack at your own business. That includes legal expenses, credit monitoring services, notifying customers, and data recovery efforts. You may also see this coverage called data breach insurance or first-party cyber liability insurance.
A less common kind of cyber insurance is third-party cyber liability insurance, which is crucial for tech businesses, including cybersecurity companies and IT consultants. This coverage helps with your legal costs if a client sues you for failing to prevent a data breach or cyberattack that affects their business.
What is tech E&O insurance and what does it cover?
Technology errors and omissions insurance combines errors and omissions insurance with cyber insurance and can be less expensive than buying these policies separately.
Also known as professional liability insurance, errors and omissions insurance covers your legal expenses if a client sues you over a claim of professional negligence, such as failing to deliver on a contract, not meeting a deadline, or making a mistake that costs the client money.
E&O insurance covers client lawsuits and claims of:
- Errors or oversights
- Undelivered professional services
- Missed deadlines
- Budget overruns
- Incomplete work
- Breach of contract
- Advice that causes a financial loss
Tech E&O includes third-party cyber coverage for legal costs related to data breaches and cyberattacks that affect a client.
What is the difference between technology errors and omissions, and cyber insurance?
Tech E&O insurance and cyber insurance offer similar types of liability coverage, though they each address different types of risks.
Cyber insurance covers your company in the event of a data breach
Cyber insurance, or data breach insurance, covers cyber risks faced by your own company.
If your business faces a cyberattack or data breach, your cyber insurance covers the costs of:
- Investigating the breach or cyberattack
- Notifying customers and regulators (often required by state or federal laws)
- Credit monitoring for those affected by the breach
- Cyber extortion payments
- Public relations and reputation management costs
Tech E&O protects your company from financial harm to a client
Technology E&O insurance covers lawsuits from customers if they accuse you of a mistake that costs them money, including errors that lead to a data breach at their business.
This policy includes coverage for your legal expenses, such as:
- Attorney fees and the costs of litigation
- Court costs
- Out of court settlements
- Legal judgments against your business (e.g., orders of payment from a judge or jury)
Should your company have E&O or cyber insurance?
The type of insurance you need depends on the risk exposures for your business.
If you store customer data, such as credit card numbers or email addresses, then you likely need first-party cyber coverage. If your data storage is compromised, this policy will pay for customer notification costs, a PR campaign, and other recovery expenses. Data breach insurance can be added to your general liability policy or business owner's policy (BOP).
If your professional services or advice could result in a financial loss for a client, you should carry E&O insurance.
With errors and omissions or professional liability insurance, you might consider:
- Does your expertise and advice impact your client’s profits?
- What are the odds of you or an employee making a mistake?
- Do you and your staff always meet client deadlines?
- Do customers ever complain about your work?
- How likely are your clients to sue if they’re dissatisfied with your work?
- Could your business afford an expensive lawsuit, even a frivolous one?
If you're responsible for a client's cybersecurity, then your risk increases and you need tech E&O insurance coverage. If your negligence leads to a data breach at a client's business, this policy will cover your legal defense costs.
Tech E&O covers risks related to both technology products, such as a vulnerability in an app made by your company, and technology services, such as a consultant who recommends insecure software.
How can tech E&O insurance help my business?
In such a litigious society, many small business owners find a tech E&O policy is an affordable way for technology companies to manage risks and reduce the impact a lawsuit can have on their bottom line.
Consider how this type of coverage could benefit several tech professions, such as:
- Software developers and managed service providers (MSPs) could be at risk if a software glitch exposes their customers to a network security breach.
- Network security and cybersecurity companies could face an expensive lawsuit, as well as data recovery costs, if they’re accused of failing to block a ransomware attack.
- Website designers might face a customer lawsuit for failing to meet a deadline, or for creating a faulty website that costs the client money.
By combining your E&O coverage with a cyber liability policy, tech E&O coverage can be an affordable part of your risk management plan. A tech E&O policy is typically less expensive than buying errors and omissions insurance and cyber insurance separately.
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