When the International Association of Cloud & Managed Service Providers (MSPAlliance) and Lockton Affinity LLC this week introduced their Cloud and Managed Services Insurance Program for MSPAlliance members, it put the spotlight on the topic of risk and liability -- a topic that still needs to be hammered home to channel partners before they need it, rather than when it's too late.
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In the same way that lawyers and doctors, among other professionals, purchase professional liability insurance, also known as errors and omissions insurance (E&O insurance), there will be a day when cloud service providers (CSPs) and managed service providers (MSPs) consider it a given for their business.
For now, however, the idea of purchasing professional liability insurance isn't mainstream among MSPs and CSPs. But that doesn't mean companies shouldn't purchase it.
"The No. 1 reason to buy professional liability insurance is to help you close more deals," said Robert J. Scott, managing partner at Scott & Scott LLP, a law and technology service firm in Southlake, Texas. That's because the first question customers ask about the cloud is whether their data is safe, he said. "The next question they ask is, 'What if it goes missing?'" he added.
Scott, an MSPAlliance board member for the past eight years, helped craft the new group insurance policy, which includes cyber liability insurance coverage to protect against lost data, data breach response problems, regulatory response problems and copyright infringement.
However, at its core, the MSP insurance offering is about data security, data loss and information loss, and loss of productivity -- or what's known as a "lost profits" situation. Scott explained the concept: If an MSP maintains a client's website that makes $1,000 per hour and the website goes down for 24 hours, the client turns to the MSP and claims it is owed for lost profits.
The MSPAlliance insurance covers technology E&O, cyber liability, contractual liability, general liability and property liability. The limits-of-liability options range from $1 million to $10 million per claim, with deductibles from $2,500 to $10,000 per claim, according to the organization.
The Cloud and Managed Services Insurance Program is a master policy that covers professional liability, including cyber liability, that MSPAlliance members can purchase.
While MSPAlliance already offered MSP insurance, with this latest offering, the group has a new broker -- Lockton Affinity -- and the cyber liability insurance is underwritten by Lloyds of London. "Lockton … brings a level of personal attention and ease of administration for members that they weren't getting from the previous broker," Scott said.
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For cloud service brokers wondering if they too should purchase professional liability insurance, the answer is "maybe," depending on the customer contract.
If a customer contract excludes you from liability for the services, then you probably don't need any. However, if the contract has holes in it from a legal perspective, the fact that you're fulfilling the service from a third-party subcontractor doesn't change your legal responsibility. "Therefore, your need for coverage," Scott said.
Customer contracts and professional liability insurance are the two key vehicles by which an MSP, CSP or cloud services broker can limit their legal liability. "The goal is to get to zero risk for the provider, and that's achieved with insurance and a customer contract," Scott said.
When a partner has coverage, the customer gets access to the insurance the provider purchased so that the customer is covered to the extent of the insurance and the provider isn't exposed to further liability.
The group insurance program offered by MSPAlliance and Lockton is just one source of such professional insurance for the industry. Many carriers in the marketplace offer professional liability insurance with the ability to add cyber liability insurance and network security and data privacy coverage. It comes in a variety of flavors and prices.
The vital issue for CSPs and MSPs is to take action and not assume that their general liability insurance is sufficient. Experts say that shopping for professional liability insurance isn't about where you shop, but rather about informing your insurer about your concerns and about the relevant coverage, and making sure that you get the professional liability coverage that's right for you in your industry.