A Short Insurance Primer for SaaS Companies
First things first, why does any company need insurance?
Well, insurance is a mechanism for shifting liability/risk by contract, and all businesses are (or should be) worried about risk. While it’s true that every type of business should have insurance, there are a few unique issues for SaaS companies.
Insurance for SaaS Companies
1) Workers Compensation, Auto Liability, and Umbrella Policies
These are vital, and you need this coverage.
- Workers Compensation: Covers employee injuries caused on the job. State law usually requires it, even though it is not a big issue for SaaS companies (since software isn’t very dangerous to work around).
- Auto Policies: Self explanatory.
- Umbrella Policies: Fills in gaps and increases limits of the other policies.
2) Commercial General Insurance
This is protection against claims for bodily injury, property damage, and personal and advertising injury. However, be aware that it only covers “tangible property damage”. That means that it won’t cover loss or damage to data or information, as they are “intangible”.
While this insurance is important for any company, it won’t do much for SaaS companies.
3) Technology Insurance
This is the interesting one, so pay attention! This type of insurance is very new and there is little standardization (i.e. the insurance policies vary a great deal). However, that being said, every SaaS company should be knowledgeable about technology-related insurance products. Here are a few things to consider:
- Does your SaaS service store or process (1) sensitive or personally identifiable information and/or (2) health, financial, social security, or driver license information? If yes, then you should research Data Breach Insurance.
- Could a bug in your SaaS service cause significant harm or damage to your customers or third parties? If yes, then take a look at insurance that specifically covers software bugs or glitches.
- Do you perform professional services (aka, implementation, integration, or consulting services)? If yes, then look for Errors & Omissions Insurance. FYI, this does not cover your actual “software/SaaS service,” as it typically covers services “performed by people” (though this is changing).
In summary, the most important thing you can do for your business is to get educated about what type of technology insurance you need. As long as you pay attention to the details, you’ll be fine. Get ready to learn!