Tech firms need professional indemnity
NORTHERN Ireland's economy has changed dramatically in recent decades, with the tech and new media sectors increasingly responsible for many of our economic success stories. No surprise then that ICT was the fastest growing sector for job creation last year, up by 8 per cent.
Although the sector includes high profile inward investors and stellar indigenous success stories such as First Derivatives, the 1,200-plus firms which make up the sector are predominantly SMEs.
And as the sector matures and becomes increasingly more international in its outlook, it's essential that firms ensure that their insurance cover keeps pace with the rapidly changing nature of their market.
Professional indemnity insurance maybe something more commonly associated with traditional professions, but it's just as applicable to tech and media firms. It's designed to protect firms from allegations that they have provided inadequate services, designs and advice, and any liabilities that might subsequently arise. It also covers areas such as the loss of data, breaches in copyright and professional negligence.
As I've noted previously, 2018 will mark the introduction of the General Data Protection Regulation (GDPR) in May. This will create the prospect of eye-watering fines, up to £20 million or 4 per cent of global turnover, for data breaches. Tech firms handling data for clients will be exposed and it's likely that customers will also try to spread their GDPR risks to suppliers.
The other emerging risk of 2018/19 is Brexit which may complicate doing business in the EU and open firms up to more international trade. More business opportunities are, of course, good news, but insurance requirements can vary significantly, be that limits, legal liabilities, risks or even what's covered. And that's before currency, legal or language complications are considered. Navigating these can be minefield and firms should turn to their brokers for advice.
The above risks may be mitigated by professional indemnity cover, but its main purpose is to protect firms from breach of contact claims which currently make up the vast majority of disputes involving tech firms.
Every year the commercial world becomes more litigious and contracts ever more complex. Contract management is a Byzantine area with clauses becoming increasingly nuanced. This is a particular challenge for the ICT sector as firms can experience rapid growth and are designed to scale-up to meet demand.
Firms, which are understandably unwilling to turn away business, can find themselves taking on too much work. This creates tensions in itself, but it means there may not be the time or resources available to absorb the full implications of a new contract.
Scaling up to meet demand can also lead to a reliance on third parties and freelancers who may not be accustomed to your company's systems and processes. A mistake doesn't need to be deliberate to provide a claim for breach of contract.
The flip side of our more litigious world is a society that's more concerned with reputation. If required professional indemnity policies can also cover the cost of PR support to help protect and redress reputational damage.
No matter how good your relationship with a client is, they are likely to claim if your mistake causes significant financial damage. Professional indemnity insurance is your safety net in this eventuality.
:: Diane Johnston is head of SME at Autoline Insurance Group (www.autoline.co.uk/business)