Tech E&O (Technology Errors and Omissions) Insurance
When your trading platform, your software or your technology infrastructure fails and a client loses money because of it, Tech E&O insurance covers the legal defense, settlements and judgments that follow.
For fintech platforms, broker-dealers and asset managers whose technology handles other people's money, a single bug, outage or system error can trigger a claim far larger than the cost of the software itself.
What is Tech E&O insurance?
Technology Errors and Omissions insurance protects your company when a client alleges that your software, platform or technology failed to perform as promised, and that failure caused them financial harm.
It covers legal defense costs, settlements and judgments tied to system errors, outages, bugs and other technology failures, the same way E&O covers a failure of professional advice.
Who needs Tech E&O coverage?
Any financial services firm that provides a service, advice or a work product to clients for a fee, including:
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Fintech platforms handling payments, lending or trading
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Broker-dealers and market makers running automated or algorithmic trading systems
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Asset managers and RIAs relying on proprietary software for client reporting or portfolio management
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Any financial services firm whose technology directly affects a client's money or financial outcomes
What Tech E&O covers
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System errors, bugs or outages that cause a client financial loss
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Failure of software or a platform to perform as represented
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Negligence in the design, development or deployment of technology
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Claims arising from automated or algorithmic processes that malfunction
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Legal defense costs, even when the underlying claim is later found to be without merit
What does Tech E&O not cover?
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Bodily injury or property damage (covered under General Liability)
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Intentional misconduct or fraud
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Criminal acts
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Claims covered under a standalone Cyber policy, such as a data breach or ransomware event, though many claims touch both (see below)
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Claims arising from conduct before the policy's retroactive date
Real-World Examples
On August 1, 2012, a software deployment error at Knight Capital, a market-making broker-dealer, activated obsolete trading code that had been left in the system. Within 45 minutes, the firm had sent millions of erroneous orders into the market, resulting in a $440 million trading loss.
In 2013, the SEC fined Knight Capital $12 million for violating market access rules and failing to maintain adequate technology controls and supervision. The incident is one of the clearest examples of how a single technology failure can escalate into an existential threat for a financial services firm in minutes.
Source: U.S. Securities and Exchange Commission, press release and administrative order, October 16, 2013. Additional detail from Knight Capital Group Form 424B3, filed with the SEC, 2012.
Is Tech E&O insurance worth it?
For any financial services firm whose technology touches client money, yes. A single system error can generate losses far beyond what a company could absorb on its own, Knight Capital's $440 million loss took 45 minutes to occur.
Tech E&O is also increasingly required by enterprise clients and institutional counterparties before they will do business with a technology-driven financial services provider.
Tech E&O vs. Cyber Insurance
Tech E&O and Cyber insurance often respond to the same incident from two different angles.
Cyber insurance
Responds when a security incident occurs, a data breach, ransomware or unauthorized access, regardless of whether your software itself malfunctioned.
Tech E&O insurance
Responds when your technology fails to perform and a client suffers a financial loss as a result, a bug, an outage, a system error.
A single event, a system outage caused by a cyberattack, for example, can trigger both policies at once. Most technology-driven financial services firms carry both.
If you are looking for coverage against data breaches, ransomware or unauthorized access, visit our Cyber Insurance page. If your concern is a client alleging your platform or software failed to perform, this page covers what you need.