What Type of Insurance Does a SaaS Business Need?

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However, SaaS providers face significant liability risks that require a customized technology insurance policy to safeguard their finances from customer claims, regulatory fines, or breach of service level agreements (SLAs) with their customers. Let’s explore why.

What Liability Risks Do SaaS Providers Face?

Because of the data they manage and the nature of their services, SaaS providers face several liability risks, including:

• Cybersecurity Incidents

Among the greatest threats to SaaS providers are data breaches and cyber-attacks. SaaS providers can be liable for cybersecurity incidents that affect their customers, especially if confidential customer information is stolen or exposed. 

• Business Interruptions

SaaS providers are expected to maintain customers’ access to their systems and minimize downtime. However, unexpected downtime and prolonged outages can occur for a variety of reasons, causing customers financial harm, lawsuits, and a loss of trust.

• Regulatory Compliance Infractions

Canadian SaaS providers are required to adhere to laws and regulations such as the Personal Information Protection and Electronic Documents Act (PIPEDA), which is comparable to the Health Insurance Portability and Accountability Act (HIPAA) in the U.S., but it’s broader. PIPEDA protects customer data from being accessed by unauthorized parties and ensures SaaS companies are accountable and responsible for protecting the customer data they collect and store. Failing to do so may lead to expensive fines and legal action.

• Third-Party Vendor Failures

SaaS providers commonly rely on third-party software vendors for things like digital payment processing and cloud computing infrastructure. Should one of these vendors experience an outage, it can disrupt a SaaS provider’s services and, in turn, their customers, leading to a breach of customer contracts and Service Level Agreements (SLAs). That leads to the next point.  

• Service Level Agreement Violations

SLAs are legally binding contracts between SaaS providers and their customers. They outline the minimum level of service a SaaS vendor offers. They define the provider’s guarantees, the metrics used to measure performance, and the penalties imposed if the provider fails to meet expectations and services. If a SaaS vendor’s services go down and they violate their SLAs, it can lead to lawsuits.

• Property and Equipment Risks

Although a SaaS provider’s business property risks may be lower than those of other businesses, damage to offices, data centres, and equipment caused by fire, floods, natural disasters, theft, and vandalism is still a distinct possibility. Such incidents can devastate a SaaS vendor’s operations and cost several thousands of dollars to address.

What Does a SaaS Insurance Policy Cover?

A comprehensive SaaS insurance policy provides various coverages customized to address the risks they face. A technology insurance policy of this type may include the following:

• Cyber Liability Insurance

Cyber liability insurance covers the expense of cyber-related incidents such as data breaches, various cyber-attacks, and other cybersecurity risks involving your technology systems and customer data. It is designed to pay for legal, forensic, and breach management expenses, repair and restoration costs to software systems due to a cyber event, and financial losses sustained because of an outage following a cyber-attack. 

• Business Interruption Insurance

Business interruption insurance is intended to replace a SaaS provider’s earnings or lost profits if it has been affected as a direct result of an insured peril, such as a fire, that forces your business to close temporarily for repairs. It also covers other costs (utility bills, employee payroll, lease payments) for a set time period up to its coverage limit.

• Commercial Property Insurance

Commercial property insurance is essential to cover damages and losses to property and business contents for any SaaS provider, and it’s required to have as part of your overall policy to get business interruption insurance. Also called business property insurance, it pays for damages and losses to your property and business contents due to fire, water damage, natural disasters, theft, and vandalism.

• Errors and Omissions (E&O) Insurance

E&O insurance, or professional liability insurance, covers claims and allegations of subpar work, failing to deliver a service as promised, incorrect advice, mistakes, professional negligence, and omissions. 

• General Liability Insurance

General liability insurance is designed to cover third-party bodily injury and third-party property damage claims against you that occur on your business property or that arise because of your operations at customer locations. It also includes coverage for injuries or damages to customers and other third parties caused by a product you sell or supply and allegations of defamation or false advertising.

9 Ways SaaS Providers Can Minimize Their Liability Risks

Despite your best efforts, unexpected accidents and incidents are unavoidable. However, taking a proactive approach to minimizing your SaaS business’s liability risks can reduce that possibility. Here are nine things to consider as part of your risk management and business continuity plan:

1. Have Rigid Data Security Measures

It is critical to routinely encrypt data, secure access controls to software and physical premises, and continuously monitor your systems to protect customer data. This helps reduce the threat of data breaches or unauthorized individuals accessing systems and confidential information.

2. Use Robust SLAs and Customer Contracts

Draft clear contracts and SLAs that outline the scope of services, limitations of liability, data handling practices, and dispute resolution processes. We recommend you consult an experienced lawyer to assist with drafting and reviewing customer contracts and SLAs. If you don’t have an in-house legal team, consider adding legal expense insurance to your policy to cover costs to access legal advice and representation for a set of common business issues. A well-drafted contract or SLA can reduce the risk of being sued.

3. Regularly Update Software and Backup Data

Software patch management is essential to address vulnerabilities and ensure the software you provide remains secure and reliable. Likewise, regularly conducting or automating mission-critical data backups must be done to prevent or address performance issues and cybersecurity incidents.

4. Conduct Security and Compliance Audits

Equally critical is regularly performing internal and third-party security and compliance audits to assess cybersecurity practices and ensure compliance with laws and regulations to identify possible risks and address them promptly before they evolve into crises.

5. Adhere to Laws and Industry Regulations

Keep abreast of changes to PIPEDA and other laws and regulations governing your business and the industries you serve. Ensuring you’re on top of these responsibilities can minimize the possibility of violations that could result in fines and lawsuits.

6. Provide In-Depth Training to Employees

SaaS providers should ensure all employees and hired contractors are fully trained on data security best practices and legal and industry compliance requirements. Your employees should be aware of all potential risks and how to identify and prevent them, know what to do when responding to a security incident, and be educated on preventing human errors that can lead to significant issues.

7. Limit the Amount of Customer Data You Store

Keep the amount of sensitive customer information you store to a minimum and purge excess data once it’s no longer needed. This will reduce the fallout of a data breach if it happens.

8. Obtain Adequate Insurance Coverage

We’re biased in advocating that every small business or independent professional has a comprehensive liability insurance policy, but protecting your finances and reputation should not be left to chance. Obtaining a customized SaaS insurance policy is as vital as every other measure on this list to help your business recover quickly from accidents and unexpected incidents that could spell the end of your company.

9. Maintain Communication with Customers

Not only is maintaining regular communications with your customers a tenant of world-class customer service, but it’s also critical to be transparent and honest about any service-related issues that may arise. Making the effort to contact your customers when something is amiss before they reach out to you maintains their trust and confidence in you, knowing you and your team are on top of any issues and are working to address them promptly.

How to Get Low-Cost SaaS Insurance Fast

Zensurance can help protect your SaaS business with a customized, low-cost technology insurance policy. Through our partner network of over 50 insurers, we help thousands of technology companies and professionals across Canada safeguard their finances and reputations.

Fill out our online application for a free quote in less than five minutes.

Our experienced, licensed brokers will shop the market for you, answer your questions, and get the protection you need quickly.