How to Manage MSP Risk

Manage MSP risk with internal practices, legal agreements, insurance, and regular audits. Charles Weaver, Co-Founder of MSPAlliance explains.

Risk used to be a remote idea in the minds of MSP business owners. Until recently, the vast majority of MSPs were focused on other areas of their business such as revenue growth, profitability, scalability, customer satisfaction, etc. While these business metrics are incredibly important, the modern MSP cannot ignore risk. In fact, MSP risk has become one of the primary concerns for a lot of MSPs.

MSP risk is important, but it need not become so all-consuming that you lose sight of running your business. In fact, there are some remarkably simple risk mitigation techniques you can integrate into your MSP practice, so you are minimizing your risk while doing the everyday things necessary to operate your business.

This blog will explore strategies for managing MSP risk, concentrating on internal practices, legal agreements, insurance, and regular audits.

Internal Practices

All MSP risk mitigation should start internally with how the business operates. For an MSP, this means your everything from your procedures and policies, down to specific controls, all operating in a manner designed to make your MSP scalable and risk averse. Interestingly, scalability and security are not inversely correlated. That is, you do not become more secure by becoming more manual.

MSPs achieve lower risk by automation. Automation, like any process, needs to have effective monitoring and management controls in place to ensure it works properly. This is how a modern MSP can achieve scalability which is also secure.

1. Employee Training and Awareness

Ensuring that all employees are well-trained in cybersecurity best practices is paramount. Regular training sessions should focus on recognizing phishing attempts, maintaining strong passwords, and following company protocols. Employees should also be updated on the latest threats and how to mitigate them. Consider implementing a mandatory training program that includes simulated phishing emails to test and improve employee awareness.

2. Access Control

Implement fine-grained access control measures. Only authorized personnel should have access to sensitive information and systems. Employing multi-factor authentication (MFA) can add an additional layer of security. Regularly review and update access permissions to ensure that they reflect the current roles and responsibilities of employees. Additionally, consider employing the principle of least privilege, where users are given the minimum levels of access necessary to perform their job functions.

3. Data Encryption

All sensitive data, both in transit and at rest, should be encrypted. This minimizes the risk of data breaches and ensures that even if data is intercepted, it remains inaccessible to unauthorized parties. Use strong encryption standards and regularly update encryption keys. Also, implement secure data disposal practices to ensure sensitive data is destroyed when it is no longer needed.

4. Incident Response Plan

Develop and regularly update an incident response plan. This ensures that in the event of a security breach or other incident, there is a clear and structured approach to mitigate damage and recover swiftly. The plan should include procedures for identifying, containing, eradicating, and recovering from incidents. Conduct regular drills and simulations to test the effectiveness of the incident response plan and make improvements based on the results.

5. Regular Security Audits

Conduct regular security audits to identify and address vulnerabilities in your systems and processes. Audits should be performed by both internal and external parties to provide an unbiased assessment of your security posture. Use the findings from these audits to continuously improve your security measures and help ensure compliance with relevant regulations and standards.

6. Comprehensive Documentation

Maintain comprehensive documentation of all security policies, procedures, and controls. This documentation should be easily accessible to all employees and regularly updated to reflect changes in the security landscape. Clear documentation helps ensure consistency in the implementation of security measures and provides a valuable resource for training and incident response.

7. Vendor Management

Implement a vendor management program to assess and manage the risks associated with third-party vendors. Ensure that vendors comply with your security requirements and regularly review their security practices. Consider incorporating security requirements into vendor contracts and conducting regular security assessments of critical vendors.

8. Continuous Improvement

Risk management is an ongoing process that requires continuous improvement. Regularly review and update your risk management strategies to address new and evolving threats. Foster a culture of security within your organization by encouraging employees to stay informed about the latest security trends and best practices.

By implementing these internal practices, MSPs can significantly reduce their risk while maintaining scalability and efficiency. These measures not only protect the MSP itself but also build trust with clients by demonstrating a commitment to security and risk management.

Legal Agreements

Legal agreements form the backbone of an MSP’s relationship with its clients. These agreements should clearly delineate responsibilities, expectations, and protections for both parties. Properly drafted agreements help prevent misunderstandings and provide a clear course of action in a dispute.

1. Service Level Agreements (SLAs)

SLAs should clearly define the scope of services, performance metrics, response times, and responsibilities. They should also outline remedies or penalties for service failures. An SLA must include specific performance indicators such as uptime guarantees, response and resolution times, and service availability. Additionally, it can specify user and system support levels, maintenance schedules, and detailed reporting mechanisms. Ensuring that these parameters are explicit and measurable helps in evaluating the service performance against agreed standards.

2. Data Protection Agreements

Include comprehensive data protection agreements that comply with relevant laws and regulations such as GDPR or CCPA. These agreements should detail data handling practices, data breach notification procedures, and data subject rights. They must specify how data is collected, used, stored, and shared, ensuring that privacy and security measures align with legal requirements. Furthermore, the agreements should cover data retention and deletion policies, encryption standards, and incident response protocols to safeguard sensitive information.

3. Non-Disclosure Agreements (NDAs)

Ensure that NDAs are in place to protect sensitive information shared between the MSP and its clients. NDAs should cover the duration of the confidentiality obligation, the scope of the information protected, and the consequences of a breach. An NDA must be clear about what constitutes confidential information, including trade secrets, business strategies, and personal data. It should also specify the obligations of the receiving party to protect the information and the permissible uses of that information. Consequences for breach of an NDA can include financial penalties and other legal remedies.

4. Contractual Liability Clauses

MSPs should include clauses that limit the MSP’s liability in the event of unforeseen circumstances. These clauses should be carefully drafted to balance protection for the MSP with reasonable recourse options for the client. Liability clauses can cover areas such as limitation of liability, indemnification, and force majeure. Limitation of liability clauses restrict the amount or type of damages that a client can claim, while indemnification clauses help ensure that the MSP is protected against certain types of claims. Force majeure clauses can excuse the MSP from liability if unforeseeable events prevent them from fulfilling their contractual obligations.

Insurance

Insurance is a critical component of risk management for MSPs. It can provide a financial safety net in the event of unexpected incidents.

1. Cyber Liability Insurance

Cyber liability insurance can cover costs associated with data breaches, including notification costs, legal fees, and fines. This type of insurance is essential for MSPs given the sensitive nature of the data they handle. In addition to covering the immediate costs of a data breach, such policies can also cover the costs of crisis management, public relations efforts to restore a firm’s reputation, and credit monitoring services for affected individuals. By having cyber liability insurance, MSPs can mitigate the financial impact of cyber incidents and continue to operate effectively while addressing the breach.

2. Errors and Omissions Insurance

Errors and omissions (E&O) insurance protects against claims of inadequate work or negligent actions by the MSP. It help ensure that the MSP is covered if a client alleges that their services caused financial harm. This coverage can include legal defense costs and settlements or judgments. E&O insurance is particularly important in the IT industry, where even minor oversights or mistakes can lead to significant financial losses for clients. By carrying E&O insurance, MSPs demonstrate their commitment to accountability and client satisfaction.

3. General Liability Insurance

General liability insurance can cover claims of bodily injury, property damage, and advertising injuries. While not specific to IT services, it provides broad protection against common risks that any business might face. This can include incidents such as a client slipping and falling on the MSP’s premises or accidental damage to a client’s property during work. General liability insurance help ensure that MSPs are protected from these everyday risks, allowing them to focus on delivering high-quality services without the constant worry of potential lawsuits.

4. Business Interruption Insurance

Business interruption insurance covers the loss of income that a business suffers after a disaster. It can be crucial in help to ensure that the MSP can continue operations and meet client needs even in the face of significant disruptions. This type of insurance can typically cover the revenue the business would have earned during the period of disruption, as well as operating expenses such as rent and utilities that continue to accrue even when business activities are halted. Business interruption insurance provides a safety net that helps MSPs recover more quickly from unforeseen events, maintaining their financial stability and client trust.

Regular Certification & Audits

Regular audits or certifications are essential for ensuring that risk management practices are effective and up-to-date.

1. Internal Audits

Conduct frequent internal audits to assess the effectiveness of internal controls, compliance with policies, and overall security posture. Internal audits should be conducted by a dedicated team or an external consultant.

2. External Audits

Engage third-party auditors to provide an unbiased evaluation of the MSP’s practices. External audits can identify gaps that internal audits might miss and provide credibility to the MSP’s risk management efforts.

3. Compliance Audits & Certifications

Ensure that your MSP is compliant with all relevant laws and regulations. Compliance audits should any applicable standards, which may include GDPR, CCPA, and HIPAA.

4. Penetration Testing

Regularly conduct penetration testing to identify and address vulnerabilities in the MSP’s systems. Pen testing helps in understanding how an attacker might exploit weaknesses and allows for proactive mitigation.

Conclusion

Managing MSP risk requires a multifaceted approach encompassing internal practices, legal agreements, insurance, and regular audits. This approach can work for MSPs of all sizes and should be something even the smallest of MSPs implements. By developing comprehensive strategies in each of these areas, MSPs can not only protect themselves and their clients from potential threats, but also boost the efficiency of their service delivery.

Charles Weaver is Co-Founder of MSPAlliance.

MSPAlliance is part of N‑able’s Technology Alliance Program (TAP). MSPAlliance has created the Cyber Verify program to specifically help MSPs navigate the complex, confusing and ever-changing world of compliance. The Program consists of Compliance as a Service, Compliance and Continuous Audit, Business Maturity Accelerator and Benchmarking; all under ONE easy to deploy, manage and use platform. To find out more about Cyber Verify, go to: mspalliance.com/cyber-verify/

You can find out more about TAP by visiting www.n-able.com/partnerships/technology-alliance-program.

Disclaimer: This document is provided for informational purposes only and should not be relied upon as legal advice. Information and views expressed in this document may change and/or may not be applicable to you. N‑able makes no warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information contained herein. If you have any questions in regard to the applicability of any law or regulation discussed herein to you or your organization, we encourage you to work with a legally qualified professional.