IT service providers: How the Corona crisis affects the order situation of freelancers

 Sending employees to the home office, laptops for all employees or setting up VPN connections - IT managers were confronted with these tasks during the Corona crisis. External IT service providers were often contracted to handle these tasks.

 According to a survey by Hiscox, more than half of the smaller IT service providers and freelancers surveyed are currently experiencing a drop in sales.

However, two-thirds expect orders to remain steady or increase in the future.

Nearly half of respondents now see a higher relevance for financial loss liability insurance.

Surprisingly, IT service providers' overall order volumes have declined since the Covid 19 pandemic - presumably due to clients cutting back on other contracts as a result of the crisis. A recent survey by Hiscox, an insurer specializing in the IT industry, shows that small IT service providers' revenues have dropped as a result of the Corona crisis. However, the affected IT freelancers and small businesses are currently mostly optimistic about the future.

 

IT service providers: majority registers drop in orders

On the situation since the start of the Corona crisis, Hiscox surveyed freelancers and small businesses in the IT sector across Germany online about their current situation, their expectations for the coming months and how they are covered by pecuniary loss liability insurance. The majority of IT service providers surveyed reported a decline in orders.

 

Despite the increased need for IT solutions and support due to the Corona crisis, only 15 percent of respondents experienced increased order volumes since the onset of the restrictions. Fifty-six percent of companies had to contend with declines in orders, while for 29 percent the order situation remained about the same. Where service providers did experience sales losses, these were substantial for more than half (also 56 percent) and amounted to over 30 percent. This is also in line with current figures from the digital association Bitkom, according to which the IT industry expects lower revenue in 2020 as a whole than in the previous year.

 

Ambivalent outlook for the coming months

Looking ahead to the next twelve months, the industry is divided. About one-third of the companies surveyed expect more orders (32 percent), one-third expect less orders (34 percent) and one-third expect orders to remain the same (34 percent). While 73 percent of the optimists expect their orders and sales to increase by at least ten percent, the outlook for companies with a negative outlook is even bleaker. There, 36 percent expect revenue losses of more than 30 percent. One of the biggest concerns of IT service providers in this country is that the general economic situation will have a major impact on them. 40 percent of respondents fear that clients will not commission projects in the future because of their own economic situation.

 

IT service provider sees drop in orders

"As an insurer, we directly experience the concerns and challenges of our customers. Right now, there is a great deal of uncertainty among IT service providers, especially among freelancers and small companies, about their own future and risk protection. A pre-crisis survey shows that this is not a new phenomenon: according to the 2019 Hiscox Insurance Index, only 34 percent of German IT service providers know whether their existing insurance cover automatically includes new IT services," explains Marc Thamm, Underwriting Manager Technology, Media & Communications at Hiscox.

 

"In order to avoid existence-threatening financial losses after financial losses caused at the customer, a special liability insurance adapts to the individual activity of the companies or freelancers. In the current volatile times, small companies in particular can regain a measure of security, which is more important than ever at the moment," Thamm continues.

 

Financial loss liability cases can be existentially threatening

The current survey shows that the last few months in the Corona crisis have sensitized the IT industry and made it aware of its own risk potential, including in the coverage of pecuniary losses. These are financial losses incurred by a third party as a result of one's own mistakes. In the IT services sector, they occur, for example, when a freelancer assists a customer in integrating a new IT concept and important customer data is accidentally deleted, or when a new application does not fit into the customer's existing infrastructure due to an error. The reimplementation can result in high compensation costs, which can threaten the existence of small service providers. A pecuniary loss liability insurance will cover these damages.

 

IT service providers: Sensitivity to pecuniary loss cases is increasing

For 47 percent of respondents, the relevance of pecuniary loss liability insurance has increased in the wake of the Corona crisis, according to their own statements. 58 percent of respondents who are thinking about buying pecuniary loss liability insurance are convinced that insurance is part of good risk management. The current situation will not lead to a flight from self-employment: Only 20 percent of those surveyed said they would give it up if the order situation deteriorated, but 63 percent of those surveyed wanted to remain active as entrepreneurs.