How to insure emerging tech companies

Technology companies today can run the gamut from those resembling traditional manufacturers to others dabbling in artificial intelligence or emerging tech – which are more difficult to insure.

This variety means both insurers and brokers need to thoroughly understand a tech company’s operations as well and have enough time to fully investigate potential insurable risks.

Tech company coverages should be all-encompassing, addressing everything from manufacturers of cell phones or watches, for example, to developers of intuitive applications, games or software.

Insurance coverage should include property, casualty, cyber, and tech errors and omissions, said Ivan Au, director of technology in specialty lines at Intact Insurance. An example of tech E&O is a gaming developer that’s contracted to complete a sports game within a certain timeframe but misses the deadline.

“This is something we see,” Au said. “The game is developed, but it’s not to the satisfaction of the gaming company. In a best-case scenario, the client is given a little bit more time to complete the game and they find an agreement to continue the relationship. In the worst case, the game company will sue the client.”

From a product standpoint, tech E&O and cyber coverage tend to meld, Au explained.

“That’s unique because tech companies are not like regular companies where it’s just maybe a CGL exposure or property-driven exposure,” he said. Tech companies also tend to be more cyber-sophisticated and have a good understanding of adequate controls and risk mitigation techniques.

With technology, there’s always something new; right now, it’s AI. “But a lot of these emerging technologies are relatively untested…which makes them difficult to insure,” Au said.

To understand the risk, Intact recommends taking time to consider how the technology will develop. Think about how the metaverse, non-fungible tokens or cryptocurrencies are viewed now compared to several years ago.

“The hype is a fraction of what it used to be,” Au said. “What we want to see is maybe a year, two or three years of just consistency before we really investigate into [whether] these are insurable risks.”

As an example, a ChatGPT-like risk may prove challenging to insure, while a B2B solution may be easier to address. “What I always tell our brokers is that we will do some of the investigation on our side to fully understand it,” Au said. “We’re going to ask questions and I think that they need to be prepared for that in today’s environment.”

It’s also important for brokers to identify all aspects of a tech company. For example, a tech company may have 10 different products, but only two or three of them will be core products, while others are a smaller part of the business.

“That’s often where something can be overlooked,” said Au. “On the underwriting side, it’s important to ask those questions and advise our brokers to provide us with a descriptive list of the company’s products or services, so that none of it’s missed. We don’t [want to] run into a situation where there may be a loss and we didn’t have a good understanding of what the insured does.”

This story is excerpted from one that appeared in the August-September print edition of Canadian Underwriter. Feature image by iStock.com/BlackJack3D