Monday, July 14, 2008

What kinds of insurance do IT consultants need?

Chip Camden has an interesting Tech Republic blog entry today on how independent consultants should go about purchasing insurance. He admits that he doesn’t carry some of these kinds of insurance himself but is considering it.

The obvious one is health insurance, and we all know that this is a big public policy issue. For the nation to adopt a Canadian-style single payer health care system would make it easier for a lot people to become consultants. But so could other reforms, like improving portability and pre-tax privileges and enabling independents to form purchasing groups across state lines.

On life insurance, he’s right that term life provides better protection for cost for most people. It wasn’t always like that. But right now, several major financial institutions have sales operations trying to convert people from whole life to term. (One sales pitch for a job in this told me that this is a $40 trillion business, but I take that with a grain of salt.)

It’s liability insurance that gets complicated, and there are several pieces of this coverage to consider. One is “errors and omissions.” What seems chilling to me is to look back over the salaried jobs that I had and remember those “nervous moments” about elevations and implementations, and overnight or end-of-month cycles that took so long to run (particularly, in my case, in the mainframe IBM and MVS world). I also remember one occasion in 1989 where I was working for a small company (although salaried) and where one error could cause the company to fail, and it turned out that a specification in a federal register document had been wrong, which I could prove by comparing a federal government’s COBOL code to what the government said the specifications (in a particular Medicare calculation) were supposed to be. Even so, judging from Chip’s article, actual suits are relatively rare. However, litigation could become more common because of the increased incidence of consumer or stakeholder personal data loss from major companies, governments, and other data centers.

General liability sounds more like umbrella coverage, and particularly involves “accidental” slander or libel (which could happen in an email or verbal statement) There is a particularly interesting concept called “advertising injury” (Findlaw link from Nossaman Guthner Knox & Elliott) that he mentions, that “joins” concepts like copyright and trademark infringement that might somehow happen when a consultant is promoting his or her services.

I wonder personally whether insurance coverage could be complicated by personal blogging (or social networking site) activity of the consultant, by some complicated and connected set of circumstances including search engine “discovery” and what we’ve discussed before, “online reputation defense.”

One other observation: GEICO, as do other property and auto insurers, offers umbrella coverage, but it has always sounded dangerous to me to combine auto coverage with miscellaneous liability coverage for intellectual property problems (that might even include illegal downloading!) In fact, the last time I checked, the highest level of liability coverage was available only through the umbrella program; that doesn’t sound like a good idea, so this might have been changed. My own feeling is that liability coverage for physical hazards (like auto and natural disaster) ought to be unbundled from professional or intellectual property liability ("media perils") coverage, because of the actuarial uncertainties. (By the way, I interviewed GEICO for a mainframe job in 2005 and they were concerned I had been out of the loop too long; but you never know. I could try again.)

It’s a no-brainer that everyone should try to carry short term disability. I slipped and fell in a convenience store in 1998 and had a serious hip fracture. Fortunately, some very state-of-the-art surgery at the University of Minnesota got me back to work in three weeks, and I never missed a day afterwards. And, fortunately, at the time my employer offered 100% short term disability.

I suppose that in most W-2 contract programmer arrangements (not quite the "independent life"), some of these coverages (especially liability coverage) would be available from the staffing company. Health insurance might be available only in a corp-to-corp arrangement.

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