Top 3 Lessons From the CrowdStrike Outage: Why You Need Small Business Insurance

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One of the biggest fears of anyone who makes money online from a small business is: "What if all the computers crash at once?" On July 19, 2024, that kind of worst-case scenario actually happened: the CrowdStrike outage was (perhaps) the largest IT outage of all time.

Caused by a faulty update to security software, the CrowdStrike outage crashed millions of mission-critical systems, wreaking havoc for airlines, banks , and public sector organizations like hospitals and public transit. The CrowdStrike outage may cost Fortune 500 companies over $5.4 billion in damages.

Even if your small business was not directly impacted by it, the CrowdStrike outage is a powerful reminder of why you need small business insurance. We talked with small business insurance expert Wayne Bernstein from XPT Specialty, Inc., to see what business owners can learn from this incident.

Let's look at a few top-of-mind lessons from the CrowdStrike outage for small business owners.

1. No one is safe from the worst IT outages

The CrowdStrike outage got the biggest headlines for the damage and service interruptions it caused for big corporations like airlines. But one ominous lesson from this episode is that even small businesses can be affected by tech outages -- and might owe big financial liabilities.

"Due to the complexity of this incident, no company is safe from the fallout," said Wayne Bernstein, Senior Vice President of Professional Lines at XPT Specialty, Inc . "Smaller companies may find themselves just as liable and responsible as the larger ones, but that largely depends on their contractual relationships with the parties that were actually or allegedly injured by this incident and many other factors."

Don't assume that crises like the CrowdStrike outage are only a problem for big businesses and their tech vendors. Wayne Bernstein warns that small businesses that provide tech support, tech consulting, web hosting, or other cloud-based services might be especially vulnerable to problems like the CrowdStrike outage. "Perhaps the reality is that the outage may be far more damaging to smaller businesses, due to the amount of smaller technology companies that exist," Bernstein said.

2. Re-read your small business contract language

Understanding the small business insurance impacts of a global incident like the CrowdStrike outage can be complicated. Bernstein says it's too early to tell how many small businesses might have to pay damages to their clients and customers due to service interruptions or other business disruptions.

But this could be a good occasion for small businesses to revisit the fine print of your service level agreements (SLAs) and contracts, to see where your liability is limited (or not) for third-party problems like the CrowdStrike outage.

"It's unlikely that smaller businesses will have to pay the same volume of damages, as bigger players tend to have deeper pockets and more insurance coverage," Bernstein said. "Nevertheless, contractual obligations may play an important role in determining liability. Some contracts include a waiver of subrogation provision, which the insurance company may or may not grant. If the carrier agrees to the waiver subrogation, then the insurer cannot subrogate against the responsible party. So, the payment of the claims may rest with multiple carriers arising from the same incident."

The CrowdStrike outage is especially concerning for any small businesses in the information technology (IT) space. If you run a small business that sells web hosting or software as a service (SaaS) solutions, your customers might have been impacted by CrowdStrike -- and your business might be on the hook for damages.

"Even the smallest of IT consultants, including SaaS and web host providers, may be at risk due to the implementation of the Falcon software update," Bernstein said. "The update might have impacted their clients and other dependent client businesses. At the end of the day, there will likely be a large ripple effect throughout the IT and digital world."

3. Get professional liability insurance for your small business

Whether or not your business was hurt by the CrowdStrike outage, high-profile incidents like this are a good reminder of the value of small business insurance. The best small business insurance policies can provide coverage for worst-case scenarios like CrowdStrike, even if the damages weren't "your fault."

"A Professional Liability policy will usually address the legal liability arising out of covered wrongful acts alleged by a third party, for which the insured may be liable," according to Bernstein. "This can be the small business's best defense in this type of situation. For first party claims, a Network Security or Cyber Liability policy with an insuring clause for Network or System Failure may help with first party financial losses."

Bottom line

If you're breathing a sigh of relief after the CrowdStrike outage, use this time to protect your small business from future problems. Getting the right small business insurance policy, with adequate coverage for professional liability, business income loss, and other risks, can keep your business running through even the biggest moments of crisis -- and keep your business bank account from running out of money.

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