When you're relying on technology, a lot can go wrong. Systems can go down, customer data can go missing, and there's the inevitable risk of a cyber attack.
Unsurprisingly companies are increasingly looking to insure themselves against these sorts of dangers. However, the older, established players in the insurance industry often seem to come up short.
"The insurance industry is traditionally really bad at understanding technology businesses," says Ben Rose, founder of insurance broker Digital Risks.
Common issues include insurers refusing to provide cover to tech startups or excessive quotes that don't cover the required risks, according to Oliver Belin, chief marketing officer of blockchain trade finance startup TradeIX.
"There is not a lot of digital innovation happening within the insurance sector itself, be it covering innovative products or making claims in a more innovative way," says Atik Ahmed, a lawyer for TradeIX.
Digital Risks, an insurtech startup launched in 2014, focuses solely on providing insurance to startups working in the digital, media and tech space. 'More straightforward' businesses can sign up online, while those with more complex needs can use Digital Risks' team of account managers to provide a bespoke service, Rose explains.
"We insure things like challenger banks, peer-to-peer lending, payments, medtech, teleadvice, fraud detection, cyber security software, and sharing economy businesses," Rose adds. "The general focus is around technology."
Digital Risks also arranges insurance to cover ransomware attacks, startup founders' financial liability, social engineering, and other tech-related issues.
Digital Risks doesn't provide insurance itself – rather, it acts as a broker between companies and a group of about 20 different underwriters.
A lot of tech startups are currently going uninsured because they don't know that there is insurance available in the first place. Often, the issue only crops up when insurance is required by investors, partners or customers, according to Jean-Luc Crowther, an account executive at Digital Risks.
For example, TradeIX needed to secure insurance as a requirement from its partners on the first blockchain-enabled trade finance transaction: AIG and Standard Chartered, and to cover core risks for the business.
TradeIX initially tried traditional insurers but it didn't work out for the company.
"Principally that was down to a lack of understanding of what TradeIX is," Belin says. "Parts were understandable but when we incorporated blockchain technology, a lot of traditional insurers were just befuddled. We got quotes that were excessive or didn't cover the risks we needed."
Trade IX started looking at alternative solutions, and that's when Digital Risks came into play.
"Digital Risks took time to visit us, talked to us for an hour and a half about our business model and what they thought we might need in place, then emailed across a solution after the meeting," Belin says.
The insurance covers various aspects of the technology the company uses, including the data it holds and the risk of a cyber attack.
Digital Risks prides itself on this approach, where it gains a deep understanding of the client's technology. The business also helps advise on how to avoid risks in the first place – for example, good security practices to help prevent a breach from occurring.
"We dive into the tech and how it's working," Rose says. "We provide an IT forensics team and a legal advisor if you do suffer a breach.
"After a security breach we check things like whether data is encrypted. We check the type of data they collect – do they have consent for it? It's also understanding the data they hold, how they secure it and how they monetise it."
Of course, it's worth noting Digital Risks is just one of many insurtech startup that have started to crop up across the UK, hoping to both provide insurance for new tech and use it to improve customer service.
It remains to be seen how much the big insurance incumbents should worry about the threat from these new businesses – but the early signs are that they are starting to offer some stiff competition.