Tech Risk Management: The Top 4 Exposures

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February 21, 2017

When you run a technology company, you’re up against a long list of complex risks. Whether it’s changing regulations, increasing cyber vulnerabilities, the growth of mergers and acquisitions, product liability concerns, or increasing competition for talent and market share, it’s a dynamic industry that never stands still, and those risks are constantly evolving.

Every year, the financial consulting firm BDO analyzes the top risk factors in the technology sector and other industries. Their annual Technology RiskFactor Report provides a breakdown of the biggest risks facing the industry, based on the most recent shareholder reports from the 100 largest publicly traded U.S. technology companies.

According to the most recent 2016 BDO Tech RiskFactor Report, not a lot has changed from the previous year’s report, though cybersecurity has risen to the top of the list of risks mentioned by these tech companies.

Here are the top four risks your tech firm is facing for 2017 and beyond:

  • Cybersecurity. Whether perpetrated by individuals, groups, or rogue states, cybercrimes continue to grow and wreak havoc on businesses in every industry. The threat is one of the few things the biggest technology companies agree on, and it’s an especially dangerous risk for the technology sector because the financial impact of a data breach can go well beyond the direct expenses of remediating the incident. If a tech company is thrown offline due to a failure in security or a technical glitch, it can have serious negative repercussions for the company’s reputation and the trust of its clients. Fortunately, both awareness and funding are on the rise. According to CB Insights, cybersecurity funding reached $3.8 billion in 2015, and MarketsAndMarkets forecast the cyber security market will be worth more than $220 billion by 2021.
  • Changing regulations. Tied for first place with cybersecurity threats are regulatory risks. Regulations and laws are changing and regulatory agencies are increasing their oversight, and every tech company in the BDO survey noted that they struggle to maintain compliance. However, noncompliance can kill profits and reputations, so it’s crucial to stay on top of this evolving regulatory environment.
  • Competition. Increasing competition for contracts, market share, and talent continues to be one of the top challenges for tech companies, and those challenges are only compounded by the increasingly global nature of the industry. That’s one reason so many companies are continuously seeking out new markets and buying up other, smaller companies.
  • Managing mergers and acquisitions. Although overall funding in the tech industry has slowed somewhat, there’s still plenty being spent on M&A. Many are using M&A to mitigate some of the risks they face by increasing their market shares, acquiring more talent, and increasing their cybersecurity measures. But managing M&A can be dicey when you consider the risks involved in identifying and valuating appropriate M&A targets, negotiating a takeover, and attempting to integrate new employees and technology into the organization.

Modern technology risks need modern financial protection

Given the complexity and evolving nature of these risks, operating a technology business today without insurance protection isn’t an option. But making sure every aspect of your operation is insured can be complicated. That’s why you need a partner like Heffernan’s Technology Insurance Practice. With our years of industry experience and team of specialized insurance, risk, and technology professionals, we have the expertise to protect your bottom line from today’s evolving risks.