Protecting the Games Industry26 Oct 2022
Let’s talk about Insurance for your Games Business
This article provides a quick primer on insurance, to try and demystify it and hopefully arm you with some useful knowledge to keep your premiums down and make sure you are buying the right stuff.
As the games industry is unlike any other, many insurers are unwilling to cover it due to a general lack of understanding from the underwriters.
Do I even need insurance?
“We have good lawyers so don’t need insurance” is a very common response to this. However bear in mind that insurance is not just there to pay the settlement from a lawsuit, but it also covers the legal costs of dealing with these issues. So while we always recommend getting good legal advice, in the event of a legal dispute, regardless of who “won” you could still be stuck with a huge legal bill – which is where you’d be glad the insurance was there to pick up the tab.
There are lots of different types of insurance, so it’s more a question of which insurances do I need rather than whether you need it at all.
You may find that it is a contractual requirement to carry certain insurance (Errors & Omissions is common), in which case your hand is forced, but it does help to understand what is being asked and where to get it.
Also, depending on where you are, there may be a certain legal requirement to maintain such things as Employers Liability (UK), or Workers Compensation, for example.
So, which insurances should I get?
Below is a primer on some of the key insurances to consider for your business.
Errors & Omissions (aka Professional Liability/Indemnity)
This is very often included in contracts, especially between Publishers and Developers. This insurance is designed to cover mistakes your company does, which impact the other party in the contract. “Breach of Contract” is one of the key features of the cover, and is there to protect the developer from costs resulting from a lawsuit based on a contractual breach.
Hopefully any such issue could be resolved amicably, however by having Professional Indemnity insurance in place, it would be able to pay for legal costs and any potential settlement. Many publishers will require developers to maintain good levels of PI insurance so they can have comfort that if something did go badly wrong, there is a backstop to resolve it without the developer going bust, hence why it is written into many contracts.
This is generally the most expensive type of insurance, because it is a high risk to insurers and disputes are unfortunately quite common.
When deciding how much to buy, think about what is the most you could possibly be sued for plus the legal costs of dealing with it. If you have a contractual requirement to get a certain amount ($5mil for example) you sometimes may be able to negotiate this down if it is a smaller project and save yourself a significant amount on your premium. Bear in mind most policies are sold on an annual basis, so if you have multiple projects ongoing, ensure you have enough cover overall.
Cyber insurance is there to pick up issues from hacking, ransomware, viruses and so on and comes in 2 flavours – 1st Party Cyber covers your direct losses, and 3rd Party Cyber causes any knock on effect to others.
This cover is especially important if you are handling payments, or user data and can cover first party losses (direct losses to your business), plus third-party liabilities (you are subsequently sued after an issue), for example if you are working on a larger project and you get hacked and source files are leaked to the main project (eg the Cyberpunk leak)
The best insurance products to look out for are those which provide additional services as part of the package and have a robust incident response team, as it can be hard to quantify a financial loss and sometimes these services are more valuable than a simple payment.
Copyright and Trademark cover are often (not always) included in Errors & Omissions cover and will protect you from accusations of plagiarism. Here is a great article which explains the different types of IP and how to protect them;
Public & Products Liability
These insurances cover your business from getting sued by the general public and consumers.
It is widely available and generally cheap. Most games companies have little direct exposure to consumers, so the risks are small for insurers.
However, if you are making physical products, peripherals, or collectibles, you need to consider the risk of someone injuring themselves somehow.
Generally Video Games are safe products, however you may need to consider that if someone playing your new VR game runs into a wall – they could blame your game for causing damage or injury. Unlikely as this may sound, it does happen and even if there is no end settlement, you could still incur legal costs dealing with it.
Employers Liability & Workers Compensation
This covers your business from getting sued by your own employees and is a legal requirement in many places. It is designed to pay for legal costs and subsequent settlement of a claim from an employee due to injuries sustained at work.
As the Games Industry is a fairly safe environment to work (compared to construction for example), this cover is usually fairly cheap and widely available.
When purchasing this cover, look out for permitted activities and be mindful that if your staff are doing things outside of this the insurance may not respond, you want this to be as broad as possible.
Directors & Officers
This covers you as an individual. While you may assume that lawsuits would only be directed at the relevant business. In this industry it is common for individuals to be wearing many different company hats and may find themselves in receipt of a letter addressed to them personally.
Broadly speaking, personal claims or proceedings against directors or officers can arise from any decision made, or act carried out, in the workplace however innocuous it may have seemed at the time.
Claims range from frivolous and occasionally malicious claims made by disgruntled customers who weren’t happy about the service they received, all the way through to official investigations.
Unfortunately, there is nothing to stop someone going after you as an individual, and whether you were at fault or not you would be personally liable for the costs of dealing with it. Your professional Indemnity insurance for example, only covers the business and would not cover you as an individual.
There is a myriad of other insurances to consider depending on your business needs. For example:
- Intellectual Property
- Trade Credit
- Business Interruption
- Events Contingency & Liability
- Travel Insurance
- Legal Expenses
- Contents & Equipment
- Medical Insurance
- Personal Accident
- Broadcast & Media Liability
Where to get insurance?
There are two ways to get insurance, and it is important to know the differences between the two.
You can buy direct from an insurer or use a broker.
There are various insurers out there that offer business package insurance. And you can often find many of the aforementioned coverages at a reasonable price.
However you need to be confident that you are covered for your activities within the industry and the insurer understands the liabilities they are insuring. Despite the scale of the games industry, it is still seen by many insurers as “niche” and their off the shelf products can be a square peg for a round hole.
If you go via a broker, they will be able to negotiate with various different insurers for you and can usually apply some gentle leverage to get the prices below “book price” for you, and should present you with a few different options and explain the pros and cons of each.
Depending on the broker you choose, they should be specialised in your industry and understand your needs and thus able to give best advice on what products are (and aren’t) relevant to you and recommend the best insurers and coverages for you.
Brokers will either earn commission from the insurers, or charge fees for arranging your insurances. They usually have special deals with insurers or access to exclusive products and should be able to get you an overall cheaper package.
Make sure the insurer is 100% on-board with your activities. Despite being the largest entertainment medium in the world – games is still seen as “niche” by insurers and very few have specific policies (if they cover it at all). Ideally get something in writing that they know what you’re doing (especially if you are dealing with anything a bit more complicated such as IAPs, Gambling, NFTs, GAAS, etc)
Make sure you update your insurer or broker as your business changes. If you take on a new contract or have a really successful launch – the small policy you originally bought may no longer be enough. Conversely, if you downscale you may be able to save some money by adjusting your coverage levels.
Check the wording. Nobody likes reading insurance policy wordings, but it helps to double check you are covered for what you think you are. If you have a broker they should be able to summarize this for you.
Don’t be afraid to try and renegotiate the insurance requirements in a contract, you could save a huge amount by reducing the required limits if you think they are overkill. Often the insurance clauses in contracts are standardised and do not consider the size and risk of the project being worked on.
About the Author:
With nearly 20 years of experience across the breadth of the insurance industry, Philip Wildman is the founder and Managing Director of GG Insurance.
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