Technology Errors & Omissions: Rating Factors for Software and Tech Firms

Technology Errors & Omissions (Tech E&O) insurance is essential for software companies, SaaS providers, app developers, IT service providers, and any company that delivers technology solutions or services to clients. When your software, system, or technical advice causes a client's business to suffer loss, Tech E&O insurance provides critical protection.

Yet tech companies often don't understand what influences their Tech E&O premiums or why identical-looking companies pay dramatically different rates. The answer lies in how insurers assess the unique risks of technology delivery, client dependencies, and the contractual structures that define your technology relationships.

Why Tech E&O Is Different From Traditional E&O

While traditional professional liability covers service-based businesses like consultants and accountants, Technology E&O addresses the specific risks of technology companies:

Unique Tech Risks:

• Availability Risk: If your software goes down, clients' businesses are impacted
• Data Integrity Risk: If your system loses or corrupts client data
• Security Risk: If your software is compromised, exposing client data
• Integration Risk: If your technology fails to integrate with client systems as promised
• Scalability Risk: If your system doesn't perform under load as specified
• Third-Party Dependencies: Your platform relies on other vendors' services

Example: An accounting software provider's error that causes clients to miss tax filing deadlines could result in penalties, fines, and lost business for dozens of clients simultaneously—creating massive aggregate exposure.

Rating Factor 1: Type of Technology Services/Products

Your specific technology offering dramatically affects your Tech E&O premium. Insurance companies recognize that different technology types carry different risks.

Technology Category Classification

Lower-Risk Technology (Lower premiums):

• Business process outsourcing services
• Staff augmentation and IT staffing
• Consulting services with no technology products
• IT infrastructure services (basic hosting)
• Website design without custom development
• Training and education software

Moderate-Risk Technology (Moderate premiums):

• Industry-specific software (non-critical)
• Mobile applications
• Data analytics and reporting tools
• Collaboration and communication platforms
• Basic SaaS applications
• IT support and managed services

Higher-Risk Technology (Higher premiums):

• Financial technology (fintech) software
• Healthcare IT systems
• Enterprise resource planning (ERP) systems
• Payment processing technology
• Critical infrastructure software
• Supply chain management systems
• Inventory and point-of-sale systems

Highest-Risk Technology (Highest premiums):

• Banking and lending platforms
• Medical record management systems
• Insurance platform technology
• Trading and securities software
• Safety-critical systems
• Aircraft or industrial control systems

Why Risk Varies by Technology Type

The potential financial damage varies enormously:

• A data analytics tool down for a day = modest impact = smaller claims
• An ERP system down for a day = significant business disruption = substantial claims
• A financial trading platform error = potentially millions in client losses = massive claims

Example: A consulting firm providing IT staffing might pay $2,500-$4,000 annually for Tech E&O, while a fintech company with similar revenue pays $15,000-$30,000 due to the nature of financial technology risk.

Mission-Critical vs. Non-Critical Assessment

Underwriters differentiate between technology that's mission-critical to clients versus supplemental:

Mission-Critical (Client's business cannot operate without your technology):

• Higher premiums
• Stricter underwriting
• Potentially higher deductibles

Non-Critical (Supplemental tool that enhances operations):

• Lower premiums
• More flexible underwriting
• Better deductible options

What You Can Control:

• Position your technology as non-critical where possible
• Educate clients that your service is supplemental
• Implement clear contracts defining limitations of your service
• Encourage client data backups and contingency planning
• Develop service level agreements with realistic expectations

Rating Factor 2: Annual Revenue and Client Base Size

Annual revenue is the primary exposure metric for Tech E&O insurance, reflecting the scale of your business operations and client exposure.

Revenue-Based Premium Calculation

Tech E&O premiums typically scale with revenue, but not linearly:

Premium Structure: Premium = (Industry Rate × Revenue) + Client Concentration Factor + Contract Adjustment

Example Rates by Revenue (SaaS company, typical):

• $500,000 revenue: $2,000-$3,500 annually
• $1,000,000 revenue: $3,500-$5,500 annually
• $2,500,000 revenue: $6,500-$10,000 annually
• $5,000,000 revenue: $12,000-$18,000 annually
• $10,000,000+ revenue: $20,000-$35,000+ annually

Revenue growth increases premium but may bring other benefits (better negotiating power, larger coverage limits become available).

Why Revenue Indicates Tech Risk

Higher revenue typically means:

• More clients depending on your platform
• Larger aggregate exposure from potential issues
• More complex integrations and implementations
• Larger data volumes processed
• More systems/versions in production
• Greater likelihood of larger clients with high-impact needs

Client Base Size and Concentration

Beyond total revenue, underwriters evaluate your client concentration:

Concentrated Client Base (High risk):

• Few large clients represent majority of revenue
• If one client sues, it's significant exposure
• Limited ability to diversify away from risk
• Premium Impact: May include 20-40% surcharge

Example: A SaaS company with $3M revenue where one client represents 40% of revenue pays higher premium than identical company with diversified 200-client base.

Diversified Client Base (Lower risk):

• Many clients with no single client above 10% of revenue
• Losses likely capped by individual client value
• Better economic stability
• Premium Impact: May earn 5-15% credit

What You Can Control:

• Diversify your client base (reduces concentration risk)
• Document your client distribution
• Monitor client concentration and work to reduce large client dependencies
• Communicate diversification to underwriter

Rating Factor 3: Cybersecurity Controls and IT Security Scoring

Technology companies face elevated cybersecurity scrutiny because their platforms themselves are potential attack vectors and may store sensitive client data.

Security Control Assessment

Underwriters evaluate your infrastructure security:

Critical Controls Evaluated:

• MFA/Authentication: How do clients and employees access your platform?
• Data encryption: Is customer data encrypted in transit and at rest?
• Access controls: Principle of least privilege; segregation of duties
• Vulnerability management: Regular scanning and patch management
• Incident response: Process for responding to security incidents
• Audit logging: Comprehensive logging of system access and changes
• Third-party risk: Assessment of your vendors and dependencies

Security Assessments and Scoring

Many Tech E&O underwriters conduct automated security assessments:

Automated Security Scanning:

• External vulnerability scanning of your systems
• Configuration assessment of your infrastructure
• Web application security testing
• Cloud configuration review

Security Scoring Impact:

• Strong security score (80+/100): May earn 10-15% premium reduction
• Average score (60-79/100): Standard premium
• Poor score (below 60/100): Potential 25-50% surcharge or non-coverage
• Critical vulnerabilities: Potential policy decline

Security Certifications

Professional security certifications and compliance demonstrate commitment:

ISO 27001: Information security management system

• Premium Impact: 10-15% reduction

SOC 2 Type II: Security, availability, processing integrity, confidentiality, privacy

• Premium Impact: 10-20% reduction

PCI DSS Compliance: Payment card security (if applicable)

• Premium Impact: Required for payment processing; 5-10% reduction if compliant

HIPAA Compliance: Healthcare data protection (if applicable)

• Premium Impact: Required for healthcare; 5-10% reduction if compliant

What You Can Control:

• Implement strong security controls on your platform
• Conduct regular security assessments
• Fix identified vulnerabilities promptly
• Pursue relevant security certifications
• Maintain security documentation and evidence
• Demonstrate ongoing security investment

Rating Factor 4: Number of Employees and Development Team

The size and composition of your development team and support staff affect premium because they correlate with code quality and support capability.

Development Team Size

Small Teams (1-5 developers):

• Higher risk due to limited peer review
• Potential knowledge concentration
• Premium Impact: May incur modest surcharge

Mid-Size Teams (6-20 developers):

• Adequate for quality control and knowledge sharing
• Standard premium rates

Large Development Teams (20+ developers):

• Better code review and testing capability
• Redundancy in knowledge and skills
• Premium Impact: May earn modest credit

Team Expertise and Experience

Underwriters assess team qualifications:

• Average years of experience
• Relevant certifications and credentials
• Training and professional development
• Turnover and stability

High Expertise Teams: Lower premiums Junior Teams: Higher premiums

Support and QA Staffing

Beyond development, underwriters evaluate:

• Dedicated QA/testing team
• Customer support capability
• Incident response capability
• Documentation quality
• Release management processes

Strong QA and Support: Supports lower premiums Limited QA/Support: May incur surcharge

What You Can Control:

• Invest in hiring experienced developers
• Implement peer code review processes
• Establish formal QA testing procedures
• Develop comprehensive documentation
• Create incident response procedures
• Maintain stable, experienced teams

Rating Factor 5: Contractual Risk and Service Level Agreements

How you define your services and commitments to clients significantly affects your Tech E&O risk.

Service Level Agreements (SLAs)

Aggressive SLAs (High risk):

• 99.9% or higher uptime guarantees
• Guaranteed response times for support
• Performance guarantees that may be difficult to meet
• Premium Impact: May incur 20-50% surcharge

Realistic SLAs (Lower risk):

• 99% uptime guarantee (more achievable)
• Reasonable support response times
• Clear definitions of service boundaries
• Premium Impact: Standard or reduced premium

No Published SLAs (Lowest risk):

• Services provided "as-is"
• No performance guarantees
• Clear limitation of liability
• Premium Impact: May earn credit

Contract Provisions and Liability Limits

Favorable Contract Terms (Lower risk):

• Limited liability caps (e.g., 12 months of fees)
• Clear exclusions for indirect/consequential damages
• Waiver of third-party claims
• Limitation of liability per client
• Premium Impact: Supports lower premiums

Unfavorable Terms (Higher risk):

• Unlimited liability exposure
• Broad indemnification obligations
• No exclusion for consequential damages
• Unlimited client indemnity
• Premium Impact: May incur substantial surcharge

Example: Tech company with industry-standard limitation of liability clause ($100k cap per client) pays $8,000 annually, while identical company without limits and broad indemnity pays $15,000 or higher.

Warranty Disclaimers

Effective warranty disclaimers protect you and reduce premium:

• "Services provided AS-IS"
• "No warranty of non-infringement"
• "No warranty of compatibility"
• "Client assumes all risk"

What You Can Control:

• Review and revise SLAs to realistic, achievable commitments
• Implement limiting liability clauses in all contracts
• Exclude indirect and consequential damages
• Include warranty disclaimers
• Ensure all clients sign service agreements
• Educate sales team on contract limitations
• Don't verbally commit to performance beyond written SLAs

Rating Factor 6: Client Concentration and Contract Structures

Beyond client base size, underwriters examine your largest client relationships and contract terms.

Mega-Client Risk

Contracts with Major Clients:

• What percentage of revenue do top clients represent?
• What are the financial implications if a major client sues?
• What SLA commitments exist with major clients?
• How dependent is your business on specific large clients?

Major Client Concentration Surcharge:

• 1 client = 30%+ revenue: Potential 30-50% surcharge
• 1-2 clients = 50%+ revenue: Potential 40-60% surcharge
• Top 3 clients = 70%+ revenue: Potential 50-75% surcharge

Channel and Reseller Risk

If you sell through resellers or channel partners:

• You may have liability for their actions
• Lack of direct client relationship control
• Premium Impact: May incur surcharge for indirect distribution

What You Can Control:

• Diversify your client base
• Monitor client concentration
• Implement contractual protections with large clients
• Include indemnity clauses with resellers
• Document client agreements carefully

Rating Factor 7: Years in Business and Development Maturity

Newer technology companies typically pay higher premiums than established companies.

Company Age and Track Record

Startup/New Company (Less than 2 years):

• Unproven product and market fit
• Limited claim history
• Potential for rapid pivots in service
• Premium Impact: May pay 25-50% more than mature company

Established Company (5-10 years):

• Proven product-market fit
• Established processes and procedures
• Track record of customer success
• Premium Impact: Standard rates

Mature Company (10+ years):

• Long operating history
• Demonstrated stability
• Proven development and support processes
• Premium Impact: May earn 5-10% credit

Product Maturity and Release Cycles

Early-Stage Products (Recent launch):

• Higher risk due to limited field testing
• More likely bugs and issues
• Premium Impact: Higher premium while maturing

Mature Products (Long track record):

• Extensive real-world usage
• Issues identified and resolved
• Stable and proven
• Premium Impact: Lower premium

Rapid Release Cycles:

• Frequent releases (daily/weekly)
• Higher risk of issues in production
• Premium Impact: May incur surcharge

Stable Release Cycles:

• Monthly or quarterly releases
• Thorough testing between releases
• Premium Impact: Supports lower premium

What You Can Control:

• Implement rigorous testing processes
• Maintain stable release cycles
• Document product maturity and field history
• Build customer case studies and references
• Demonstrate product stability over time

Rating Factor 8: Claims History and Technical Support

Your company's past technology errors and how well you manage client issues directly affect premiums.

Prior Technology Claims

No Prior Claims:

• Standard premium rates
• Access to full range of coverage
• Favorable underwriting

Prior Claim (3+ years ago):

• Modest surcharge (10-25%) as incident ages
• Questions about remediation and response
• Impact gradually diminishes

Prior Claim (1-3 years ago):

• Significant surcharge (25-50%)
• Detailed underwriting required
• Proof of system/process improvements

Multiple Claims or Recent Claim:

• Substantial surcharge (50-100%)
• Potential policy non-renewal
• Requirement for major improvements

Support and Issue Resolution

Underwriters evaluate your ability to support clients and resolve technical issues:

• Response time to support requests
• Resolution time for reported issues
• Escalation procedures
• 24/7 support availability (for mission-critical systems)
• Customer satisfaction ratings

Strong Support Capability: Supports lower premiums Limited Support: May incur surcharge

What You Can Control:

• Maintain excellent support and issue resolution
• Document your support processes
• Respond promptly to issues
• Build a track record of issue resolution
• Gather customer testimonials and references
• If you've had a claim, demonstrate improvements

Putting It All Together: Tech E&O Premium Calculation

Your Tech E&O premium combines technology type, revenue, security, team expertise, contractual terms, and risk history:

Premium = (Base Rate × Revenue) × Technology Risk Factor × Security Factor × Contract Risk Factor × Claims Factor

Example: SaaS Company

Company Profile:

• Cloud-based project management software
• Founded 6 years ago
• Annual revenue: $2,500,000
• 12 employees (8 developers, 2 QA, 2 support)
• 150 customers, largest customer = 8% of revenue
• 99% uptime SLA with liability caps at 6 months fees
• No prior claims
• ISO 27001 certified
• Realistic development and support processes

Rating Factors:

1. Technology type: SaaS project management = Base rate $0.35 per $1,000 revenue
2. Revenue: $2,500,000 × ($0.35 ÷ 1,000) = $875 base premium
3. Client concentration: 8% largest client, 150 customer base = 0.95 modifier (slight credit)
4. Contractual terms: Liability caps, standard SLA = 0.90 modifier
5. Security: ISO 27001 certified = 0.88 modifier
6. Team experience: 6-year-old company, experienced team = 0.93 modifier
7. No claims: 1.0 modifier
8. Support capability: Dedicated QA and support = 0.92 modifier

Final Calculation: $875 × 0.95 × 0.90 × 0.88 × 0.93 × 1.0 × 0.92 = $623 annually

Comparison—Similar company with poor contracts and no ISO cert:

• No liability caps, aggressive SLA: 1.20 modifier
• No ISO 27001: 1.15 modifier
• Limited QA/support: 1.10 modifier
• $875 × 1.0 × 1.20 × 1.15 × 1.10 × 1.0 × 1.10 = $1,336 annually (2.1x higher)

Actionable Strategies to Optimize Tech E&O Costs

Immediate (0-3 months)

1. Review client concentration - Identify largest clients and revenue dependency
2. Audit service contracts - Document liability limitations and SLA terms
3. Security assessment - Conduct or obtain external security assessment
4. Support documentation - List QA procedures, testing processes, support capabilities
5. Team assessment - Document developer experience and certifications

Short-Term (3-6 months)

1. Revise aggressive SLAs - Move to realistic, achievable commitments
2. Strengthen security controls - Address findings from security assessment
3. Implement code review process - Formal peer review if not in place
4. Expand QA/testing - Dedicated testing and quality assurance
5. Document procedures - Formalize development and release procedures

Medium-Term (6-12 months)

1. Pursue ISO 27001 - Work toward security certification
2. Diversify client base - Reduce concentration with large clients
3. Implement incident response - Formal procedures for security/technical incidents
4. Client testimonials - Build case studies and customer references
5. Vendor management - Assess and document third-party dependencies

Long-Term (12+ months strategic)

1. Industry leadership - Position as thought leader in your technology vertical
2. Advanced security - Implement advanced threat detection and response
3. Continuous improvement - Regular assessment and process enhancement
4. Premium benchmarking - Compare your rates to similar technology companies
5. Expand coverage - As company matures, consider higher limits

Key Takeaway

Technology Errors & Omissions insurance pricing reflects the financial risk your technology solutions create for clients. While some factors (technology type, industry) are largely fixed, many others—including contractual terms, security controls, team expertise, and support capability—are significantly within your control.

By implementing realistic service commitments, strong security controls, rigorous testing processes, and excellent customer support, you can manage Tech E&O costs while reducing your actual exposure to technology-related claims.

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Next in the Series: Directors and Officers Insurance: Rating the Leadership Risk

Ready to optimize your Technology E&O insurance? The Volare Risk Management team can review your service contracts, assess your security posture, and identify opportunities for coverage improvement and cost reduction.