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What next for the tech insurance market?

The COVID cloud may be lifting, but after such a rush in the tech market, where does it go next and how does this impact insurance? In this special edition of IBTV, Dan Brown, senior technology underwriter at Travelers Europe, looks at the key exposures facing customers, how tech companies can manage their risks and how brokers can bring added value.

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Paul: [00:00:14] Hello everyone and welcome to the latest edition of Insurance Business TV brought to you in association with Travelers Europe. Today we're going to zoom in on the tech markets, but with a difference. Think tech and insurance. And we're often talking about insurer tech and whether it's going to disrupt or benefit the industry. But what about insurance for technology companies themselves? Yes. With new technologies popping up on almost a daily basis, this is, needless to say, a market with massive opportunities for brokers. But what's been happening in the market and what makes a good policy? Well, to bring us up to date, I'm delighted to welcome Dan Brown, senior technology underwriter at Travelers Europe. Dan, welcome to IBTV.

Dan: [00:01:00] Hi Paul thanks very much for the intro. It's great to be here. So looking forward to our chat.

Paul: [00:01:05] Yeah. So Dan, let's set the scene. Give us your overview on the current tech insurance market, how it's developed over the last, say, 12 or 24 months and particularly of course with COVID in mind.

Dan: [00:01:18] In terms of the tech PR market, I'd say we have pockets. So tech cases with claims, for example, or US exposure have probably seen rate increases in certain parts of the industry as well. Providing biometric services, cyber services, managed service providers have all probably seen the market hardened a lot more than the average tech customer. So there's a bit of a tail to to the Raspberry Pi for larger companies, probably hardened more at the smaller end. And certainly talking to brokers, the access layer market's quite tricky at the moment. It's been hard during the pandemic. Yes. To fill up towers. Is that going to continue? Probably yes. At the moment due to all the economic uncertainty and things like inflation on the rise as well. If you move away from pie and look at cyber well, the cyber market, everyone knows it's quite hard at the moment. And that's it's no different really for tech customers. So limits in general time to come down racing up excesses up all the usual alongside that inside. But you probably got a lot of changes to wordings in terms of conditions across all carriers really from cyber minimum standards, security being inserted into wordings or look for exclusions, vulnerability exclusions. So I've got a lot of sympathy for brokers because it's moving very, very quickly and they've really got to keep their eye on the ball.

Paul: [00:02:37] Yeah, it's amazing how rapidly things are developing. I mean, what do you see then as the the key exposures for tech customers and and what cover options should they be looking for?

Dan: [00:02:47] The main cover that people buy tend to be fresh indemnity that tends to be contractually driven on the tech. So their customers are going to demand that they buy that insurance. A slight difference in some of the other classes of brokers they're listing and buying and the limits they buy might well come down. So that contracts as well. If you think about the key exposures of API, really the main ones tends to always be breach of contract because the tech firms main exposure is going to be their customer alleging they haven't delivered what's what was promised under contract. It's like too expensive or I just don't like what they ended up with, for example. And that's different perhaps to other API classes because no one has to prove negligence in that kind of scenario. They can just go straight to the fact that they had a contract for something. It's not been delivered and they're very, very unhappy. Now, if you think about the world where it is at the moment in terms of potential recessions of the COVID years as well, quite, quite tough. The exposure for a tech firm there is certainly increased because recession means you get far more trade disputes. And that's something that we covered under our policy as well. A food dispute would be the end customer getting for an implementation, for example, not wanting to exit it. That's quite difficult to do under contract unless perhaps you allege that you're not really happy with the way it is going. So it can be far quicker to bring a tactical trade dispute and try and end up in court contract and pay the penalty to get out of it. So for the year we were getting far more of those, particularly in the US, that might have tailed off a little bit now. But we the papers this morning with the inflation news, if we end up in a recession, then you think those sort of claims are going to increase. So the main sort of bits of the breach of contract are to think about. And then I guess the other side to that would be IPR, don't look for tech companies. Valuation is bought up in their own intellectual property, so be looking for a policy to give you wide, broad cover for intellectual property disputes as well. And you know, in terms of where brokers are looking at those wordings, really try and drill down into detail of what you're getting in the insurance sector. Does it have a trade secrets? Does it cover a wide territories as well? Because you'll find that as tech companies expand, which they tend to do very, very quickly. Overseas and the hazard on case can change from one month to an extra. So I'd encourage brokers to kind of stay close to clients, understand what their plans are, and then really try and use the context of where that company is going to to think about how to structure their insurance.

Paul: [00:05:28] Yeah, and I've heard you, of course, you've mentioned a few times already about PI and cyber. And of course, it's vital here, isn't it, that they're looking for the right cover. I mean, for example, if you are processing lots of data that belongs to somebody else, I mean, would that come under PI or would it come under cyber cover?

Dan: [00:05:47] Yeah, that's a great question. A lot of sympathy really for insurance brokers. Don't make it easy for them as an industry because I think every insurer recorded something different. So that's certainly tricky. I think conceptually we think technology has moved from a situation where someone said your box in the post, if you take a company like, say, the accounting software company, they might have boxes. In the old days, you load up onto your computer, that market's been gone. Now it's been replaced by companies like Intuit's QuickBooks Software as a service or platform as a service warehouse. So the whole industry, tech industries move towards cloud based solutions where they run for that data. And insurance wise, we've got to make sure that we're covering that properly as we cover software liability and its own talent. Very explicit where that cover lies. So if the tech firm loses the data or it gets corrupted, there's some kind of issue on that. That's where that's going. Other markets might blame that cover in the press and don't see light. So you're not going to find that type of policy because they might exclude professional services and it's in one tower. Now, that might create a problem after the claim because your first indemnity cover has been eroded. You think back to how tech companies contract with their customers. They'll probably have minimum API cover requirements within their contract, so having that limit around it could be problematic as well. So it's a tricky market, but definitely say the only real solution unfortunately is to read everything and a lot of detail and talk to the underwriters just to make sure you're happy with how that scenario plays out.

Paul: [00:07:25] Yeah, I think you've given us a great overview so far, but this is the the portion of the program where I'd like to sort of tap into your expert knowledge, if you don't mind. So so what tips do you have for for tech companies who are looking to contractually manage their risks?

Dan: [00:07:41] Sure. I mean, so in terms of what we look out for as an underwriter, I think overall you're looking to understand how a customer contracts, how they interact with their customers, what they're willing to accept, what they won't accept. Read that the mood of them, if you like, and where their contractual redlines are. And a lot of this is in the context of how big that company is, perhaps how hazardous the product is in general. But you're looking for sensible contractual liability caps, so you don't want them back to the insurance value because that could be very problematic for everybody, particularly me. And you're looking potentially to cap the value of the services, provide or multiple of that. So that gives you a really great starting point. So if you mention fast forward to a claim dispute situation, we're going to start reserving at that contractual liability cap. So you don't want that to be insurance value and then kind of work from there. So multiple of annual fees or the fees received in the last 12 months, that's probably a good, good place to be. I guess the other kind of watch out would be not to put the cap too low. That is seen as ridiculous in court and then the whole thing can get thrown out effectively. It becomes uncapped. I guess the other thing we've seen really over the last few years going back to data breaches and it's quite often customers will try and carve out data breach from the cap so it has its own cap or would be unlimited and that's unfortunately getting more and more known now.

Dan: [00:09:11] And this ultimately quite hard for tech companies to contract around that to allow underwriters to really understand that situation and put the right terms on it. And the other thing you tend to find around data breach get accepted is indemnity paragraphs and stating exactly what everyone has to do at the point of a breach can be quite onerous and problematic. So go where possible, try and try and push back on that type of thing. And the other standard things you expect the tech customers be able to do is exclude loss of profit. So my software service fails. We're not going to be paying your customers lost profit and also a consequential loss as well. So that kind of knock on a domino effect, what might exclude it out of contract and other popular things would be dispute resolution clauses because they're easily missed. That's a great thing to have in the contract and try and make sure it states where that resolution has to happen because it's far cheaper to do that in the UK and that would be in Delaware or Switzerland or no fantastic places. Are our claims to get sent that I don't so. I'm going to talk tiptoe around that, really. But in terms of underwriting it, working with a broker, we're really just trying to understand that the insurers attitude to contracting and then how they use legal advice throughout that process. A lot of the big companies might have in-house legal sort of firms might have their own favorite local law firm that they can talk to.

Paul: [00:10:34] So let's extend those top tips out, if you don't mind, Dan, and let's zoom in on the brokers as well, because obviously it's going to be vital for them to establish relationships, partnerships with these tech clients. So what added value can they bring? What do they need to be emphasizing here?

Dan: [00:10:50] Well, I think, yes, brokers got a great role in kind of explaining some of the pitfalls to their customers and also in bringing us in so that we can form a kind of freeway relationship with their customer and really understand the detail of what a tech company does. The ultimate downside of their services failing looks like in terms of the knock on effects that are on customer. So you have this trading software platform, for example, that says it's failing, that people suddenly can't execute, execute trades. So we can understand the kind of reality of the situation after after an outage, but it also the contractual side of it as well. What kind of dispute looks like? It's great. Brokers can help us get on the skin of a business, make the client and spend time with them to figure it all out, to be able to underwrite a package off the back of that meeting. And also, brokers have got a great job to do in terms of educating customers on the importance of multi-factor authentication across the business and avoid detection. Because the cyber landscape is changing so fast, it's hard for everyone to keep our customers included.

Paul: [00:11:53] Yeah. Thanks, Dan, if you don't mind, I'm just going to tap into you one last time for one final tip, just for our broker audience that are watching out there. If you could leave them with sort of one thought, one key message, one takeaway for dealing with these tech clients, for reaching them as well, what would that message be?

Dan: [00:12:12] Well, I think it's absolutely great sectors work. I really, really enjoy it myself. As fast paced, exciting the end customers are really, really interesting. Quite often when you meet them get a glimpse into the future and it's just so it's about working in it. I guess the one takeaway I'd say is a lot of people might listen to think it's very London centric industry. It certainly isn't. Now, whilst we've got London Tech coming up in June and Birmingham last October as a similar event, there's a big award ceremony is going on in Manchester, Big Tech Expo just in March in Manchester as well. So really whatever city you're in in Britain at all and there'll be something going on, the break is going to tend to start making these customers networking and building up contacts. So you get a really vibrant, exciting industry and I'll just say like get involved is you won't regret it.

Paul: [00:12:58] Yeah, absolutely. Definitely is the industry to watch? Without a doubt. Thank you very, very much for all those tips, Dan. And I think you've given everybody watching a lot to work with. Huge thanks to you and to travel as Europe as well. And while Dan is of course, the man to turn to for all things tech insurance related. If you want the latest updates on the insurance market in general, then there's only one place to be. And that's right here on insurance business TV.