Overview of the SaaS industry

If there’s one “new” industry that has entrenched itself with no signs of going away, it’s Software as a Service (SaaS). It evolved from the days of a few mail-order software companies into a vast landscape of cloud-based behemoths with steady subscription-based revenue, low overhead and plenty of happy customers.

Companies categorized under this industry include Microsoft, SalesForce, Cisco, Adobe, Amazon Web Services, Slack and Zendesk. And those are just a few. These giants are setting the standard for how tech companies deliver their services, whether to other businesses or direct to consumers.

The value this model adds for innovators and their clients is undeniable and reflected in the growth of the industry. Two key points made by Forbes:

  • The total global public cloud market will be $178B in 2018, up from $146B in 2017, and will continue to grow at a 22% compound annual growth rate (CAGR).
  • Forrester predicts that more than 50% of global enterprises will rely on at least one public cloud platform to drive digital transformation and delight customers.
cloud usage growth

Some of the biggest risks SaaS companies face

Data Breaches

Data breaches are when sensitive information is data is copied, transmitted, viewed, stolen or used by an individual unauthorized to do so. IBM study estimated that the average cost for companies who are victims of cyber attacks is a whopping $141 per record.

Cyber Attacks

SaaS companies are often victims of cyber crime such as DDoS attacks and randsomewear attacks. These attacks can lead to data being stollen or destroyed. The average cost of a cyber attack for enterprises grew from $1.2 million in 2016 to $1.3 million in 2017.

System Failures

By nature SaaS companies are heavily reliant on back end & front end systems and third party services providers for their applications, servers and data services. Any outages, downtimes or failures can result in lawsuits from customers who rely on their platforms to run their business.

Why is Insurance for Software as a Service Companies Important?

SaaS companies need their service to be as stable, fast and effective as advertised, but service outages can come from anywhere. Anything from routine system maintenance to targeted DDoS or cyber extortion attacks can trigger a business interruption. If the service fails (whether it’s because of an attack on their system or the system of a critical vendor like AWS) and then clients lose money, SaaS companies will have to pay the price in the form of lost income or, worse, lawsuits.

The damage to the company’s value, reputation, customer confidence can be significant after system failures and data breaches. Microsoft experienced this early on, soon to be followed by the likes of YahooLinkedIn, and Adobe.

Moving beyond the more technical, computer-based crises that can happen, there’s also the possibility of a more traditional failure in the company’s professional service. Sometimes a more carefully tailored professional liability (E&O) policy will also be required to cover unique exposures. An accounting software provider will want Tech E&O coverage in case a glitch causes a client some sort of financial loss, but what about run-of-the-mill accounting errors? Those would be excluded from a Tech E&O policy so a separate Accountant’s E&O policy may be necessary.

Some of the largest SaaS data breaches in history

Yahoo (2013)

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LinkedIn (2012)

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Adobe (2013)

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Weebly (2016)

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Protect Yourself and Your Organization

What Insurance do SaaS companies need?

Crime Insurance

What it covers:
Protects the company from loss caused by certain illegal activities. Unlike many other commercial insurance policies, it has nothing to do with defending against lawsuits from third parties. This policy instead reimburses the company itself for losses of money, securities or other tangible property that it directly experiences.

Why you need it?:
Most businesses are exposed to the risk of criminal activity. This insurance protects your company from crimes committed within the company itself as well crimes committed by people or other factors outside of your company. Common claims include: Employees stealing money from the company or clients. Inadvertently accepting stolen credit cards, Robbery of valuables, Computer and wire transfer fraud.

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