10 Reasons Why Digital Companies Need Insurance

Commonly, individuals fall for the belief that only brick-and-mortar companies need insurance. While sitting out in the open on this big blue ball does leave room for exposure, so does running a business on the internet. Digital companies, such as SaaS, professional services, bloggers, app developers, etc. face unique risks that insurance can help mitigate. In this post, we unveil real-life scenarios, driving home the importance of insurance for digital companies.

1. Leaders Are Human

A director or officer of a company can be sued for plenty of reasons, including negligence of duties. Directors and officers (D&O) insurance is designed to respond to leadership-related claims. For example, let’s say an employee is embezzling from the company, but leadership fails to locate the embezzlement and stop it.

Company shareholders could sue — and probably will — for the damages arising from this particular negligence. The company’s D&O insurance policy would respond to the situation by covering the lawsuit expenses.

2. Dissatisfied Clients

Let’s be real; unhappy clients are a part of doing business. No one person (or company) can please everyone, after all. However, what happens when you advise a client to take a specific action with their money.

Perhaps, your Fintech app encourages a client to buy or sell shares, which ends up costing the client in the end. The client loses money, blames their loss on your advice, and a lawsuit ensues.

Your errors and omissions (E&O) policy, also known as professional liability insurance, kicks in to cover the third-party financial loss arising from your product’s failure to perform as intended or expected.

3. Physical Damage

Digital companies buy property insurance for the same reason people purchase homeowners or renters insurance. Imagine what would happen if a fire swept through your office — no matter where you set up camp (i.e., rented facility, mortgaged building, shared office space, etc.).

Besides potential damage to your equipment, the authorities might not allow you to re-enter your building. And not only that, employees and clients expect you to keep calm and carry on with business as usual, regardless of extensive fire damage.

This situation is where property insurance would step in to reimburse your company for direct losses. Keep in mind that property insurance is an “indemnity” policy. Unlike a “liability” policy, it evokes a response without requiring any legal action, such as a demand letter from an attorney.

4. Blogging Perils

Does your marketing strategy include blogging? If so, a general liability (GL) policy can cover personal injury resulting from a blog post — a commonly overlooked vulnerability.

Let’s say that you publish an epic 3,000-word how-to clip about executing a specific digital function, and your readers take it to heart. Although Neil Patel would be proud of your efforts, your competitor accuses you of plagiarism. A GL policy would pay for your legal costs and any incurred settlement fees.

5. Sophisticated Cybercriminals

Through multiple tiers and layers of high-caliber strikes, cybercriminals are among the most stealthy outlaws in the world. It doesn’t take but a second with a specific network for a sophisticated cybercriminal to infiltrate an entire operation.

Most digital companies know this threat, but naively believe that a data breach won’t happen to them. Sadly, once a hacker has access to your clients’ data, you will have nothing but a behemoth mess to clean up. Besides costing you mounds of dollars — the average data breach globally is nearly $4M — your business faces a significant risk of shuttering.

6. Launching Funding Campaign

At fast-tracking companies, funding rounds are frequently underway. Not only does venture capital (VC) help to catapult a business forward, but the process can establish a more well-rounded board of directors.

However, few VCs will jump on this opportunity without a firm D&O insurance policy in place.

Consider a dispute between a VC investor and company leadership. Perhaps, you disagree on the valuation of the business. Or, like Elon Musk, who accidentally misled investors via Twitter regarding Tesla’s price per share. Not only did his action upset VCs, leaving him scrambling for funds, but it landed him in the center of a costly lawsuit. As designed, a robust D&O policy would respond in situations such as these.

7. Lost Sales

Sometimes your clients lose sales because of technical issues. For example, maybe your client-onboarding SaaS platform is experiencing a bug, preventing your client from logging into their account for two business days. Because of the lockout, your client misses out on mounds of new business that week.

Unfortunately, a GL policy wouldn’t respond since no physical injury occurred to the client’s property. However, your E&O policy would, covering claims from clients for their lost sales.

8. Power Outages

Mother Nature is ruthless and unforgiving. Property insurance is one excellent way to counteract Her uncontrollable forces. For example, if a severe storm knocks out the power, causing damage to your electronics, you’ll find it challenging to replace equipment without adequate financial reserves, or a Plan B.

A property insurance policy serves as your Plan B. This policy covers damage to your physical commercial property — computers, cables, office equipment, etc. — resulting from a natural disaster.

9. Competitor Libel

The competition can be fierce in more ways than one. Maybe one of your competitors claims that one of your recent marketing campaigns defamed his business. Perhaps you didn’t mean the slight, but now you have a libel lawsuit on your hands. Fortunately, a GL policy would cover your legal defense costs.

10. Phishing Schemes

According to the FBI’s Internet Crime Complaint Center, people lost $57M to phishing schemes in one year. As one of the most common strategies of cybercriminals, phishing scams account for a significant portion of data breach tactics.

Unfortunately, it’s as simple as one of your remote employees opening an email attachment. Cyber insurance works to protect your company against third-party lawsuits and penalties from regulators.

Digital companies face vulnerabilities that other companies don’t. Having a multi-faceted and tailored insurance plan in place can help keep your business in the game for the long run.


Founder Shield is an insurance brokerage focused on providing scalable risk management solutions to venture-backed companies. Founder Shield is the leading insurance brokerage for venture-backed startups with thousands of clients worldwide that have collectively raised billions in funding. Our mission is to create the most seamless, intuitive, and responsive experience for purchasing and administering insurance for your company.






Adam Hide
Adam is the marketing director over at Founder Shield, an insurance brokerage for high-growth companies.