I have just finished our review of the Technology E&O marketplace, which will be posted at betterley.com. In researching this report, I was struck by the divergence of opinion amongst participating carriers and their insureds.
Carriers have had a rough year (no surprise) as tech insureds shrink in size (read: have a lower premium base) and seek to reduce costs (read: ask for even more rate reduction). With strong competition from other carriers – some new to this product segment – the market leaders have had a challenge to defend their market share.
Insureds have had a rough year, too (though not with insurance costs – see above). But there is hope for carriers.
Demand by third parties is starting to drive the market—Technology product and services providers, the audience for this coverage, are seeing greatly increased demand for proof of privacy insurance by their business partners. These clients are concerned about technology risk, and want proof that their vendors are covered. Proper coverage and significant limits are required by new or existing vendors if they want to do business with many organizations.
Mark Greisiger of netDiligence updated for us the substantial costs of responding to a breach (page 6 of the Report), reinforcing the benefit of the coverage for post-breach response costs.
We think that this demand will be a strong force in growing the market for Technology E&O products. While historically many technology companies have been reluctant to buy coverage, the demand by clients to buy it or perhaps lose a valuable business relationship will greatly expand this market. As more and more data is held by multiple parties, the desire for protection is increasing—a positive for the market segment.
Many tech companies may have had the view that they were too big/too small/too capable to need E&O insurance, but with customers telling them to buy it – they’ll have to buy it. From good companies with adequate capacity, too. As we see it, this can only be a good thing for the market segment.
Some other observations from the Report:
Options for the small- to middle-market insured are increasing—Hanover Insurance Group, a company that is expanding its role in the specialty lines area, has hired Anthony (Toby) Levy, formerly of The Hartford, to build their technology insurance capabilities, including new E&O products. Although not the only carrier entering this market space, Hanover represents a trend of hiring experienced technology underwriters to add specialized capabilities to their Main Street insureds. We included Hanover’s new BOP product as an example of how carriers might offer cost-effective coverage to their smaller insureds.
To be fair, we should note that this product is intended to be a cost-effective option for insureds that may not be interested in securing a standalone policy, and so should be judged a bit differently than the higher-end products. Hanover intends to bring out more specialized Technology E&O products later this summer.
Increased interest by risk management service providers in supporting Technology E&O insurers—Much like the Employment Practices Liability market segment, risk management service providers are seeing that they can greatly extend their reach by providing their services through an insurance policy. We think that it is a natural fit for carriers to identify quality vendors that can help the insureds avoid data breaches, and to provide cost-effective responses if a breach occurs.
New this year – we asked Matt Cullina, CEO of Identity Theft 911, to comment on Data Breaches and their impact, cost and ramifications. Entitled, “We Had a Data Breach, Now What Do I Do?,” it sheds light on how a company or organization might respond after a data breach occurs. (See page 9.)