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Professional indemnity cover in the tech sector is being eroded by wariness over cyber, but Berkshire Hathaway Specialty Insurance is carving a long-term niche for its bespoke solutions

IT'S OFTEN said that the law can’t keep up with new tech – but perhaps insurance coverage can. When there is a professional indemnity problem at a tech firm, the novelty of the technology involved or the fast-moving environment in which the company operates can mean that the insurance solution is a collection of square pegs being used to plug a round hole in the claims dyke. The uniqueness of many tech products at the vanguard of change in the digital world can lead to uncertainty in terms of policy response, which can undermine the confidence of businesses and/or open them up to financial losses. But the PI solution offered to tech companies by Berkshire Hathaway Specialty Insurance (BHSI) provides comprehensive cover that can be tailored to each customer’s needs. “The tech PI form is a broad civil liability PI coverage enhanced by the fact that we have separate general liability and cyber coverages, which reduces the possibility of gaps in cover,” says Joe Bone, BHSI's manager for PI in Australia. The strength of the product stems partly from BHSI’s broad knowledge base across different insurance fields that it can co-opt when creating a tech PI solution. One example might be a technology company working in the telehealth field. BHSI can bring in experts from its healthcare liability and casualty team to help the company understand the exposures that may cause a loss, which informs the policy construction and underwriting process. “Not many insurers will be able to provide an offering like that, but it's something that we like to do,” Bone says.

Berkshire Hathaway Specialty Insurance (BHSI) Australia provides commercial property, mining and energy, construction, casualty, executive and professional lines, marine, transport and logistics liability, accident and health, healthcare liability, surety, and multinational solutions and risk engineering. BHSI’s wide range of insurance products is expanding; this is combined with financial strength, a yes-oriented culture and great flexibility in customising solutions for clients’ needs. BHSI is customer-first, through and through. It views every claim as an opportunity to strengthen its customer relationships and industry reputation because, as BHSI says, ‘Claims is our product’.

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Data security front of mind for many Australians

of Australian organisations have experienced a data breach in the last 12 months

“We have this blank canvas in terms of being able to provide a solution that meets the needs of the customers across product lines within different departments”

Joe Bone, Berkshire Hathaway Specialty Insurance

When everything is cutting edge and emerging risks pop up from seemingly nowhere, as they often do in the tech world, rolling out a generalist solution can come back to bite an

BHSI is not in such a position thanks to its consistent and careful approach. “We haven't been pulling back or restricting our cover in any way on the cyber piece,” Bone says. “We've always had a very clear risk appetite and approach in the tech space; we like to write customers that we can partner with. We've really spent time to dig in, understand our customers’ businesses and really understand what their exposures are so we can formulate a solution.”

It comes back to BHSI’s underlying ethos of building a ‘forever business’ with its customers. “We really want to provide a consistent offering to our customers throughout the market cycle,” Bone says. “Whether it's a hardening market or a softening market, we want to put forward a solution that will withstand the ups and downs.” The tougher times underscore the need for a tech PI approach even more. “This is really important in this space because the tech PI product essentially covers professional indemnity, general liability and cyber. It’s become increasingly important for insurers to be offering all three of those coverages because of the overlap in exposure and the increased tendency for cyber claims to flow through into PI claims.” Mixing and matching insurers could result in holes in coverage and policies at cross-purposes. “To have that sort of integrated approach, it makes sense to have all of those coverages with the same insurer,” Bone says.

Being able to ride out the tough times can be hard in a market such as the tech space, where exposures evolve tremendously quickly. The recent focus on data security and retention is one key issue with a growing profile. The growth in regulations around tech and data matters is also on the radar as a key risk. According to the S&P Global Market Intelligence Cappitech Global Regulatory Reporting Survey 2022, 99% of respondents have reporting obligations in at least two regimes, and a solid 13% are reporting in more than 10. Several states in the US have passed or amended privacy regulations in the last year. Updates to privacy laws related to the General Data Protection Regulation in the EU, and the extension of the California Consumer Privacy Act regulations

with the California Privacy Rights Act, which took effect in 2023, are some of the latest rules that Australian tech firms need to be across in terms of their PI obligations, along with more than 100 proposed amendments to the Privacy Act in Australia. More regulatory change is also expected in the EU, the UK, Singapore and Japan in 2024. “Now that we are seeing the evolution of the regulatory landscape globally, that’s increasing the exposure for customers that have that overseas exposure – and very many tech companies do have overseas exposure,” Bone says.

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“Whether it’s a hardening market or a softening market, we want to put forward a solution that will withstand the ups and downs”

Joe Bone, Berkshire Hathaway Specialty Insurance

36%

of Australian IT professionals believe security threats are increasing in volume or severity

45%

of Australian IT professionals are worried about 5G network security threats

75%

International reporting requirements for tech companies

of firms have reporting obligations in at least 2 regimes

99%

Source: Thales 2023 Data Threat Report

Source: S&P Global Market Intelligence Cappitech Global Regulatory Reporting Survey 2022

of firms have reporting obligations in over 5 regimes

50%

of firms have reporting obligations in over 10 regimes

13%

“We are able to consider risks differently, in that we can provide multi-line solutions to customers, [whereas other insurers] can only play in certain spaces due to their reinsurance restrictions or just the silos in which they operate. “We have this blank canvas in terms of being able to provide a solution that meets the needs of the customers across product lines within different departments.”

insurer that hasn’t kept up with the evolution of the risks it is underwriting. Many insurers have been finding this out the hard way as high-profile cybersecurity incidents make the market increasingly difficult to operate in for some. Following a higher frequency of large losses, cyber insurances have seen premium rate increases. This has been coupled with reducing market capacity and more selective underwriting for some high-risk industries. “With the increase in claims activity, we've seen some of the key players correct their book in an attempt to maintain profitability,” Bone says. Tech is no exception. “We're seeing insurers really pull back in terms of the coverage they are providing, particularly in the cyber section of the tech PI wording. In the worst-case scenario where they don’t believe that they can write a risk profitably, the only thing to do really would be to not provide cover to certain sectors within the tech space at all.”

A cyber winter

While the PI risks for tech can evolve at a quicker rate than in other sectors, the business opportunities are also outsized for tech firms and those insurers that can innovate at pace to meet these companies' unique needs. In their Technology and Innovation Report 2021, UN analysts estimated that the size of the frontier technologies market would multiply by a factor of nine by 2025, with innovations in the internet of things, big data, solar panels and robotics contributing to a US$3.2trn market.

Another issue that Bone is concerned about is whether the recent round of layoffs at tech companies will hamper firms in their ability to deliver services to the standard contractually required. “Whether they’re going to lose core competencies or individuals with specialist skill sets and knowledge, whether it’s around certain types of projects that they’ve been working on, or software or the like, losing that knowledge from the organisation is a big challenge.”

Risk, regulations and contractual obligations

The timing isn’t great when expertise in IT security is seen as increasingly critical by many firms. “How [tech companies] adapt to that going forward to ensure that they’re able to actually provide the same quality of services that they previously did on a reduced workforce basis I think is a real challenge for the tech sector and something that may potentially lead to an uptick in claims.” Bone sees the area of biometrics as a potential minefield given the higher incidence of data security breaches. Indeed, a large biometric data hack is likely just a matter of time, and many in the tech sector are already thinking through the consequences. “You can’t just change someone’s face or their eyes [the way you would a password]. Once that information is taken, it's unique and pretty valuable to those people… I feel that there would be a very emotive response from the public,” Bone says. Core competencies and data breaches all come back to the contractual liabilities that tech firms have to their customers, which are a key driver of PI claims. “Contractual liabilities are a really big, important piece for tech companies. [Problems arise] where customers don’t have that proactive approach to risk management in terms of reviewing contracts, having a clear scope of works, defining what works are within scope, and what works, more importantly, are out of scope.” As the prospect of a global recession is raised in various financial media, customers might also be expected to generally become more litigious. “Recessionary pressures would place increased scrutiny on services that have been provided and any losses that have been sustained by customers, or any delays in projects. In such an environment, contracts would likely be applied to the letter of the law,” Bone says. “There probably would not be leniency provided if there have been cost overruns or time delays in projects.”

BHSI sees the startups of today as the ones most in need of a tech PI solution, partly because they have the potential to grow exponentially. “They're probably going to have a new or unique or innovative idea,” Bone says. As startups are focused on developing and bringing their tech products to market, insurance may not necessarily be a top consideration. “[It] takes a great deal of thought from an underwriting perspective in order to actually understand what they’re doing and provide them with a solution.” BHSI often brings in its claims team to talk through the latest trends, or its financial institution team in the case of fintech clients to help it create a product tailored to the risks that the technology in question might give rise to over the horizon. “[This is] so we're able to understand all of the exposures, as opposed to just the tech piece, or the financial products or financial software piece as well,” Bone says. “It takes a greater deal of underwriting to write those companies consistently over a longer period of time.”

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