High-tech success: underwriting the technology sector requires a full-time investment.

The technology industry thrives on risk-taking and cutting-edge business practices, but that adventuresome spirit shouldn't extend to insurance. Savvy tech companies generally choose carriers that have demonstrated long-term commitment to this industry, and offer a full range of insurance products and services. Working with a knowledgeable agent or broker, these tech firms purchase coverage that protects them against the actual risks associated with their business.

The technology sector is exceedingly diverse. The different types of manufacturers and service providers, the myriad of products or services, and the variety of industries and end-users require coverage tailored to the unique requirements of each business. Tech companies need to work with underwriters who truly understand the sector and its specific niches. With more than $6 billion in premium and prospects for robust future growth, the technology industry presents an attractive opportunity to insurance carriers. In fact, many carriers aggressively enter the market one minute and just as aggressively leave it the next--once the losses start rolling in.

Such dabbling in technology underwriting can be hazardous to a carrier's overall financial health. It can be equally hazardous to the customer or agent if they partner with the wrong carrier. To date, only a few carriers have been able to develop the product and underwriting capabilities to profitably serve this market long term. Why? Because serving this industry well requires a significant investment to build the necessary expertise, products and services.

Three major components are needed for long-term success underwriting the technology sector:

* expertise;

* a comprehensive product portfolio; and

* appropriate service and support infrastructure.

For underwriters without expertise, reading a tech company's Web site can be like reading a foreign language: The underwriter can get lost in all the acronyms and industry jargon and overlook important underwriting information. And the often complex business models used by technology companies make it extraordinarily difficult for generalist underwriters to perform even the most basic tasks: risk classification, exposure and control identification, and pricing.

A generalist underwriter may decline the risk because he doesn't understand it, or he may just try to wing it. In the first scenario, he may pass on some very viable opportunities. In the second, he may be putting the company's bottom line at risk.

In addition, a carrier that lacks tech industry expertise is likely to waste the producer's time by asking for explanations of acronyms and common technology business concepts. An underwriter with tech expertise can seamlessly guide the less-than-expert producer to effectively serve the client.

As far as a product portfolio, an insurer should provide an array of solutions tailored to meet the needs of different businesses. A small, 10-person systems integration firm does not have the same coverage needs as a prepackaged software developer with 3,000 employees.

Size of risk isn't the only differentiation to be considered; industry sub-segment and geographic scope of operation also must be factored in. A rural telecommunication service provider in Des Moines, Iowa, has different coverage needs than a San Jose, California-based printed circuit board manufacturer with manufacturing and sales operations in 11 different countries.

To fully serve the tech market, a carrier must offer coverage beyond standard property and liability lines, including errors and omissions and management liability (directors and officers, employment practices and fiduciary) and international coverage. In addition, the carrier must have the flexibility to tailor coverage to the specific customer. Falling to do this can involve significant consequences, including partial to complete gaps in coverage that can create problems for customers and leave producers open to E&O claims.

Just as critical are claim handling and risk management know-how. This is not a once-and-done service, but rather an ongoing process validated through the life cycle of the tech business.

A carrier must continually follow emerging trends and anticipate potential exposures, adjusting its products and underwriting guidelines accordingly. A carrier that takes its eye off the ball runs the risk of missing an opportunity, or worse--accumulating unacceptable exposures.

Carriers seeking to underwrite technology business must be willing to make the investments necessary for success. Technology customers need to look for an insurance carrier with a long-term commitment to their industry, and a comprehensive portfolio of customized products and services.

Carriers that choose to dabble won't be successful here.

Judy Blades, a Best's Review columnist, is senior executive vice president for property-casualty at The Hartford Financial Services Group Inc. She can be reached at [e-mail]