Colonnade: How IT liability insurance works

IT liability insurance for professional errors: what can be insured and how much it costs

Colonnade is an international insurance company operating in Ukraine since 1998. Has the highest reliability rating – AAA and no branches. The team quickly resolves all issues online. Colonnade’s clients include large corporations and small startups, many providing IT services.

In a partner article from Colonnade, Oleksandra Nevydomska, head of the liability insurance department, explains why IT liability insurance is needed and what can be insured.

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Who is this insurance for and why is it needed?

Our clients are companies or private contractors who provide services in the field of IT: it can be development, support and sale of software, IT products, project management, web design, IT consulting.

Risk management is actively developing in Western countries. If you want to participate in an international tender or enter into a contract with a foreign customer, liability insurance will often be one of the requirements. In the English version, it sounds like professional indemnit IT liability insurance for professional errors: what can be insured and how much it costsIT liability insurance for professional errors: what can be insured and how much it costsprofessional indemnity or errors & omissions insuranceIT liability insurance for professional errors: what can be insured and how much it costsIT liability insurance for professional errors: what can be insured and how much it costsinsurance against errors and omissions.

This is why you need such insurance:

  1. Protects the customer of the project: the insurance will compensate him for direct losses resulting from your professional error in the development of the software.
  2. Protects you from unnecessary stress, saves money and time for conflict resolution and court, if it comes to it. We will guide you through all stages: from communication with your client to finding loss assessors, lawyers, paying court costs and the damage itself.
  3. Protects your future customers. If you run into problems with a previous customer while working on a new project, you can safely continue working. Knowing that your previous projects are insured, new customers can be sure of your stable work now.
  4. Insurance is an additional argument in the tender or at the negotiation stage. This is a guarantee that you are a reliable partner and fulfill your obligations under any circumstances.

Coverage Area and Jurisdiction

We offer two coverage options:

  • The whole world except the USA and Canada.
  • The whole world, including the USA and Canada.

What can be insured?

You can insure all professional activities for all contracts during the year or one specific project in which you participate or lead.

What exactly do we cover?

  1. Direct financial losses of the customer that can be calculated and confirmed. Usually, in contracts, this type of insurance is designated as professional indemnity, errors & omissions or product/service liability . This can be a loss due to an error at any stage of the project. Here are some simple examples:
    an error in the formulation of the technical task. Due to incorrectly set parameters, the system gave site buyers too high a discount, due to which the store lost $1 million. until the problem is found.
    an error in the project architecture. The loyalty program did not accumulate the amount of the purchase of goods from some tables. Noticing the problem, buyers turned to the company for compensation for the promised discount on the amount $250 thousand
    – Error in the code. The software generated incorrect tax reports, for which the customer received a fine from $900 thousand
  2. Costs for investigation, damage assessment experts, pre-trial and court costs. Until the time when the victims receive compensation, they have to go through a difficult path. Namely, to find out the circumstances, guilt and participation of each of the parties. On this way, we accompany our clients, help conduct negotiations, select the necessary specialists (technical and legal), pay the cost of their services and court costs, if the matter goes to court.
  3. Additionally, we can insure civil liability. Usually, in contracts, this type of insurance is defined as public liability, general liability or third party liability. This is insurance protection in case you receive claims for compensation for damage to life, health or property of third parties caused during business activities. For example, if a fire due to a short circuit in the outlet of a work computer damages the property of a neighboring office, or you simply spill coffee on expensive equipment in the working room that you rent.
  4. Companies can to insure the employer’s liability. Usually, in contracts, this type of insurance is defined as employer’s liability. It covers damages due to injury to life and health of employees. For example, if the coffee maker explodes in the office kitchen and your developer gets burned, he could file a lawsuit for improper working conditions.

What we don’t cover

  1. We do not insure projects related to the development of payment systems, software for money transfers.
  2. We do not compensate moral damage.
  3. We do not cover lost profits, only losses.
  4. We do not cover reputational risks for freelancers, but there is such coverage in insurance for IT companies.
  5. For freelancers, we do not cover cyber risks – losses due to data leakage, costs of information recovery, but such an extension is available for IT companies.

You can consult and order insurance for an IT company here.

An example of the settlement procedure:

  1. An error was made in the process of professional activity.
  2. The error caused financial losses for clients and customers. The customer applies to you for compensation for damages.
  3. You connect us to further communication with the customer.
  4. We evaluate all documents and the actual amount of damages. If necessary, we hire experts and lawyers.
  5. The parties agree on the final compensation amount and we transfer the funds to your customer’s account.
  6. If it was not possible to reach an agreement, we accompany our client in the legal process, compensate the relevant costs for the protection of your interests. In case of reasoned claims of the opposite party, we compensate the established damages.

5 questions in Colonnade

1. What does the cost of insurance depend on?

For FOP the following factors will be decisive:

  • insurance period: we insure only the contract or the entire activity for a year;
  • the cost of the contract and services used to issue the insurance;
  • the amount of the liability limit under the contract is the maximum amount of payments and compensations in the event of an insured event;
  • geography of coverage: including whether you need insurance coverage to cover the US and Canada.

For companies, that is, legal entities, the cost of insurance will additionally depend on:

  • the types of activities of the company or the services it provides;
  • the number of specialists involved in the work on the project;
  • deductibles – the share of the client’s own participation in payment under the insurance contract;
  • number of additional insurance protection options.

2. For what period can a contract be concluded?

A standard contract is concluded for one year from the date you agreed to all the terms. At the end of this period, we will contact you to discuss the terms of further cooperation. The updated insurance coverage for the following year will apply to the previous year’s contracts.

Three months is the minimum insurance period for one-time contracts with one customer.

3. Which is more profitable: to insure each project or to insure for a year at once?

It will be cheaper to insure one project. But if you add the cost of insurance of several contracts for at least half of the annual turnover of the business, it is more profitable to take annual insurance. Not to mention the cost of time spent.

Usually, new clients take out test insurance for the project, then switch to annual cooperation and renew the contract annually.

4. Is it possible to issue insurance online?

So. If you work as a freelancer, you can calculate the cost according to individual requirements and immediately take out insurance on our website. If the standard options are not suitable or you want to consult, we will organize everything in a convenient format for you.

Companies need to fill out a form. We can also issue and sign all documents electronically.

5. Why are contracts operating in the US more expensive?

The market of the USA and Canada is riskier, because there clients are used to lawsuits even for minor reasons. In addition, the costs of pre-trial or judicial regulation are significantly higher there.

How much does insurance cost?

Example 1
Contract for one project.
Action: on the territory of Europe and Asia.
Fee for the project: $10 thousand
Duration of the project: three months
Damage Limit: $500 thousand
Cost of project insurance: 351 USD.

Example 2:
Annual contract.
Action: on the territory of Europe and Asia.
Annual fee: $50 thousand
Damage Limit: $500 thousand
Insurance cost: 778 USD.

Example 3:
Annual contract.
Action: the whole world, including the USA.
Annual fee: $50 thousand
Damage Limit: $500 thousand
Insurance cost: 1089 USD.

Calculate the cost of insurance in 1 minute here.

About the Colonnade company

Colonnade is part of the Fairfax holding. This means that our clients are protected by an international financial giant. In addition, we reinsure our liabilities with global reinsurance leaders with Standard & Poor’s ratings not lower than A-.

Colonnade works in the format of digital insurance without branches, and all questions are quickly resolved online by the team. The head office is located in Kyiv, in the “Illinsky” BC.

If you are interested in the exact cost of services or need the help of a specialist to issue online insurance, write to Telegram Colonnade.

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