How can you reduce risk and cost?
Founders and C-level executives would love to spend less money on insurance. But is that possible without taking on unnecessary risk? Using contracts to properly transfer risk to your clients, vendors, and subcontractors is one way to reduce risk AND reduce cost. While this may sound complicated, it’s not. All it requires is a basic understanding of contractual risk transfer and technology insurance coverages.
Transferring Risk
When you transfer risk to third parties, you have to make sure there is a financial mechanism to support the risk transfer. In most cases this is an insurance policy. However, it has to be the RIGHT insurance policy or policies. If you’ve transferred data breach risk, requesting a general liability policy doesn’t do you any good. Therefore, the insurance policy you ask for should match the risk you’ve transferred. There are many different policies that can provide coverage for technology risks. These include professional liability, media liability, cyber liability, and others. Make sure the insurance policies you’re requiring match the technology risks you’re transferring.
Limit Decisions
As you are choosing between a $10M and $20M limit for your own technology errors & omissions or cyber liability policy, you’ll need to consider risk transfer. As mentioned above, you can significantly reduce the risk you assume with your contracts. And if you’re assuming less risk, you need to purchase less insurance. A $10M policy is going to cost significantly less than a $20M policy. Given the fact you’re assuming less risk and need to purchase less insurance, you’ll spend significantly less money on that policy.