Solution providers need to be knowledgeable about insuring their businesses. One misstep can cost thousands -- or even put you out of business. Here, Jim Cochran, TechInsurance.com, shares the four types of insurance every VAR should have. —Jennifer Bosavage
As a small to midsize solution provider, you’ll probably have at least one client who requires you to carry some level of insurance, regardless of whether you typically work directly with customers or as a subcontractor. Maybe you have a few employees, or maybe you’re a one-person shop. Either way, our experience providing insurance to 20,000 IT firms and workers tells us that there are two questions that typically result: "Is all of that coverage truly necessary, and what are the different types I need to know about?"
You already know the bottom line: If your client says it’s necessary, you’ve got to have the proper coverage in order to get the work. The good news is that in almost all cases, the insurance coverage your client requires can be affordable and can reduce liability for your business.
Typically, clients want insurance for resellers to include some or all of the following four types of coverage:
1. General Liability Insurance
General liability insurance covers damage to property or injury to people. Client companies often require every vendor – from plumbers to IT contractors – to show proof of general liability insurance. In some cases, the mandate comes from the client’s risk managers, who want to reduce the company’s risk of liability and financial loss due to lawsuits.
If you provide your customers hardware installation and setup services, you know there is always the risk that you or an employee might accidentally damage hardware, or put a foot through a drop ceiling while pulling cable. If you are concerned about damage to your client's equipment while you are installing, configuring, or just moving it, you will want to make sure your general liability policy includes property coverage. This is actually coverage for your own business property but extends to your client's property "in your care, custody, or control." Liability insurance package with property coverage for resellers gives you peace of mind that if an accident happens, you're covered.
Any time you have client hardware in your possession or are just handling it there is still a risk that client equipment could be damaged. General liability insurance that is packaged with coverage for your property and for software developers and engineers, as well as programmers, also provides confidence that you're covered if you accidentally drop the client’s server or spill coffee onto a laptop.
2. Professional Liability Insurance
Professional liability insurance, or errors and omissions insurance, is similar to malpractice insurance for IT services. Clients require it because they know that no matter how hard working, capable and honest someone is, people make mistakes.
Your client’s greatest risk in hiring you is that your mistakes could spawn a lawsuit or financial loss. For example, if an error you make results a network security failure or in data loss, and your client spends hundreds of thousands of dollars to address the problem, your client wants to make sure that you can compensate the company.
Professional liability insurance for resellers involved in hardware and software configuration just makes sense. Without it, you’re 100 percent liable for all legal defense costs if your client claims you’ve made errors or omissions. In many cases, a misunderstanding is all it takes to get sued. Once a client alleges negligence and communications break down, your legal expenses can begin to mount.
Next: Workers' Comp3. Workers’ Compensation Insurance
Workers’ compensation insurance is required in nearly every state if you have employees. But your client may require you to carry this coverage even if your state does not. The reason: In some states, if you’re injured on the job, your client must automatically cover you with its own workers’ compensation policy. Additionally, in some cases, your client’s insurance carrier will bill the client to cover all subcontractors that don’t provide their own certificate of coverage. Both situations mean higher premiums for your client.
If your reseller services include installing hardware, you’re probably used to lifting heavy equipment and climbing ladders, and you know there’s always potential for injury. Workers’ compensation insurance covers medical costs, plus disability and compensation in the event of such on-the-job injuries.
If you have employees, workers’ compensation insurance makes sense. If you’re a solo practitioner with your own health and disability insurance, it may be redundant—but you may need it to get the work.
4. Fidelity Bond Coverage
Fidelity bond coverage is aptly described as employee dishonesty coverage, this type of insurance compensates your client if you or your employees steal money or property on the job. In particular, clients in the banking and financial services industries are likely to ask any IT contractors with access to the company computer network to carry fidelity bond insurance because they’re entrusting them with sensitive information, such as customer Social Security and account numbers.
Most self-employed IT professionals know that client information is safe with them. But if you have employees or subcontractors handling valuable property or customer information – no matter how much you trust them – anything can happen, and if it does, you could be held liable. A laptop could go missing, or a programmer working on a financial services network could steal banking customers’ account numbers and passwords to take money from their accounts. If that happens, fidelity bond insurance compensates your client for the missing money or property.
The moral of the story is that no matter your company’s track record in delivering service for clients, all it takes is one mistake—a foot through a ceiling, an error in your code or an unfortunate hire—to cause it all to crash down around you. If you understand your risks, however, and take steps to counter them, you can ensure your company will be around for the long haul.