Is this the end of the traditional end-user licensing agreement?
Issues involving privacy, antitrust and the ownership and treatment of digital content are all being hashed out in courts, regulatory agencies and legislatures. Regulators across the globe have their sights set on technology giants, and that’s creating a great deal of uncertainty in C-Suites. It’s very tough to gauge exactly what this heightened regulatory scrutiny will ultimately mean from a risk management perspective, because the risks involved are unquantifiable right now. What is clear is that regulators are getting more aggressive and companies will start fighting back, seeking legal precedent.
Bear in mind that regulatory actions come after the fact. Most social media platform users and the like pay zero dollars for their services. What they do pay is in offering up their data for reuse and resale in the end user licensing agreement (EULA).
With lawyers and regulators looking more closely at headline-grabbing, global privacy court cases, the future of end user licensing agreement may be compromised. So far, the tech companies have quelled concerns by adding opt-in features, and people continue to use the services. Regulators do not seem to be satisfied with this approach and the larger fines suggest they will impose new rules in the future.
With more regulation, the legal terms people sign off on in EULAs will have to be renegotiated—and there will be legal expenses associated with that. It is unclear if the negotiators should be the government. You can argue that people have already decided when they opt into the EULA.
What we know for sure is that this evolving uncertainty has very clear insurance implications.
From a risk management perspective, Gallagher clients need to be vigilant in understanding their E&O and D&O coverages. The fact that a company is based in the United States doesn’t mean it’s immune from any impact from regulatory and legal actions overseas.
Key questions to consider when dealing with third party vendors:
- Do they have limits enough to withstand a breach that would bring regulatory scrutiny and fines?
- Can they withstand the defense costs, forensics, monitoring and reporting?
- Does a company advertise on or buy data from social media?
- If it does, is that company prepared for any financial blowbacks from these actions?
These can be tricky questions because we are in the early stages of a very dynamic process that is driving innovation. Everyone wants to monetize data, and all innovations seem to be driven around that monetization. It seems to be the Wild West for coders and programmers, and regulators will continue to raise concerns.
Management liability policy limits are getting stretched to the max in this environment. That’s causing some carriers to exit the market and bring in alternative insurers to fill the void. The implications could mean higher premiums for insureds. It could also mean more stringent contracts between insureds and their vendors. We’re currently seeing a hardening in the market for MLP policies, and these are some of the forces driving it.
This is a dynamic marketplace. Under these circumstances, it’s difficult for the C-Suite to budget out liabilities and protect themselves. Regulators aren’t clear on how large the fines should be, and for huge technology companies, even multibillion-dollar penalties aren’t much more than a slap on the financial wrist. Despite that, with fines hitting the billions, regulatory changes are certain to follow. The issue is, what are the clear-cut laws governing the tech companies’ behavior? As risk managers and brokers, we’re following developments very closely. We are constantly assessing the risk.
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