Start-ups often overlook Technology Insurance. Most of the time, start-ups get along just fine without it because their emerging products don’t appear to be especially risky. The business model might not be fully worked out, but the team is smart and experienced, and there’s a business plan (on paper, at least). Or maybe there’s a prototype; at least there’s something tangible to work with. The start-up’s investors may have insisted anyway—it never hurts to try to save money.
Don’t let a cyber-attack destroy your company.
The danger isn’t that their servers will meltdown. Having a high-end Internet connection can probably handle the occasional huge traffic spike without losing too much sleep. It’s not even the risk of a slow leak of customer information. The real risk is a cyber-attack that burns their house down and takes their company with it. Insurance against such attacks is hard to find, but it’s becoming available. One will still have to pay for it themselves, there is no way that an insurance company can cover the risk of an attack on their computer system unless their business has already been attacked before, and then one had been buying coverage for the clean-up after the fact, not protection against an attack in the first place.
The reason for this state of affairs is simple: if someone else already knows how to break into their computers, what does one do if they tell one? They will want something in return, like part of their company or a ransom payment or stock options. And if they don’t know how to break into their computers yet, they can’t tell one how to prevent them from doing so.
Technology insurance is not about tech, and it’s about risk management.
Because of the resemblance between Technology Insurance and insurance against physical risks, one sometimes gets asked whether they are related. One doesn’t think that’s a very good question. The two types of insurance are not comparable. They serve different needs, and they appeal to different risk preferences. Physical risks are generally easier to understand; one can see what will happen. And when a physical risk is insured against, it is because we have found a way to avoid the risk or limit its effects; the point of insurance is not to enjoy the experience of getting hit by lightning. We have no idea how to do that with most technological risks, and so our only choice is whether we want to take the risk or pay someone else not to take it for them.
Maybe all this is just splitting hairs. But one does think that the resemblance between technology and physical risks somehow contributes to the confusion about technology insurance. It leads people to think that if an insurance company doesn’t insure something, there must be the reason: it’s too hard or too expensive or something. It never occurs to them that maybe the company doesn’t want their business.
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