This is going to be a work in progress. But what I have below is my latest iteration of how to meet “Startup Insurance” needs. The most illuminating thing to me lately has been the fact that startups are starting digitally first. This may sound obvious, but when you’ve quoted hundreds of brick and mortar small businesses, switching over to “digital first” risk management approach took a moment register.
The other thing for an agent to keep in mind about startups is they often don’t want coverage until they’re required to have it for a contract, etc. This can put an agent in a tough spot. Some coverages can be harder to place than others, you can often get away with a 3-week quote and placement window, but if it’s an out of the box need, I’d at least plan on having at least that much lead time.
Some coverages are super straight forward, but tech e&o, anything where employees are being contracted out, etc., can get clunky to quote. Clients should be aware most quotes are good for 3 months too, so quoting early doesn’t necessarily mean you have to bind right away.
We are getting there but most agents aren’t totally tech enabled yet. You’re probably going to have to deal with some PDFs, and maybe multiple DocuSigns. In some cases, you might have to cut a check. There are more stripped-down approaches some platforms take, but you may unknowingly be paying a premium for the ease. There are always plusses and minus, and at the end of the day I believe selecting insurance should come down to the following three things:
1) Right coverage - There’s a lot that goes into this, but the client needs to be aware of what is and what is not intended to be covered.
2) Most competitive price - I did not say the cheapest. Just like you can probably find a $5 football helmet, people will sell you cheap insurance, but neither will protect you that well.
Go for the “gear” that’s reasonable for your level of risk and the occasion. Pewee football players don’t need NFL helmets, but they need more than a bucket with a chin-strap.
3) Ease of delivery - This is last for a reason. If the top two boxes look good, judge on this one, but price and coverage are the two most important things. You may end up with an antiquated looking carrier that does things by mail, but has great financials and coverage, that’s ok. It’s about the best policy for your price and need.
Substance over flash, and if there is substance, why not have a little flash. It is all about the meat of the policy, and working with the right agent can help you see what you need through the noise. Please reach out if I can help with any startup insurance needs, nationwide. And I hope you enjoy my second pass at breaking down startup insurance needs below:
STARTUP INSURANCE
So you have taken the plunge! Congrats. It’s going to be a wild ride, but we want to help make sure insurance isn’t something you worry too much about, we want to help you focus on the mission at hand! Changing the world and bringing your vision to life.
When it comes to startups and insurance, every startup is unique, but we do think there are some general best practices when it comes to startup tech companies. We’d want to make sure to talk through your specific needs, but please take the time to review a few thoughts below on what types of insurance may make sense for tech startups at different phases of their development.
Discovery (Pre-SEED) stage
Your company is self funded or have some friends and family money. You have no employees, you are searching for product market fit, and are in other companies systems and earning contracts. Tech startups are going to want to have the following policies in place.
1) Cyber Liability - Cyber-insurance is an insurance product used to protect businesses and individual users from Internet-based risks, and more generally from risks relating to information technology infrastructure and activities.
2) Errors and Omissions (E&O) - E&O is a type of professional liability insurance that protects companies, their workers, and other professionals against claims of inadequate work or negligent actions.
Small SEED round - You’re taken on some Professional money
You haven’t hired anyone yet, but you have Professional Money coming into your startup
3) Key Person Insurance - Key person insurance is simply life insurance on the key person in a business. In a small business, this is usually the owner, the founders or perhaps a key employee or two. These are the people who are crucial to a business--the ones whose absence would sink the company.
4) Directors and Officers Insurance (Maybe Employee Practices and Liabilities as well, it’s covered later too)
-Directors and officers liability Insurance (often called "D&O") is liability insurance payable to the directors and officers of a company, or to the organization(s) itself, as indemnification (reimbursement) for losses or advancement of defense costs in the event an insured suffers such a loss as a result of a legal action brought for alleged wrongful acts in their capacity as directors and officers.
SEED round - You’re starting to hire and build a company
You have employees, you’re accumulating assets, maybe getting office space, and starting to build a company.
5) General Liability (GL) and Business Personal Property (BPP) - BPP Covers your assets, GL covers liabilities like slip and fall accidents, you’ll also want to include, hired and unowned auto, water back-up and some BPP off-premise.(Maybe Workers Comp, depending upon if you have made hires yet.)
6) Workers Comp - Workers' compensation is a form of insurance providing wage replacement and medical benefits to employees injured in the course of employment in exchange for mandatory relinquishment of the employee's right to sue his or her employer for the tort of negligence.
Scaling Is On (Series A + Rounds Are Happening) and You’re Building a Company
Scaling is on, you have an HR department, you’re making a ton of hires, and have several rounds of funding on the horizon you’re going to want to add the following coverage:
(GL, BPP, E&O, Cyber, D&O, Key Man) +
7) Employment Practices and Liabilities (EPLI) - Employment practices liability is an area of United States labor law that deals with wrongful termination, sexual harassment, discrimination, invasion of privacy, false imprisonment, breach of contract, emotional distress, and wage and hour law violations. It may be categorized as a form of professional liability.
8) Excess liability insurance and Commercial umbrella insurance - Excess Liability Coverage will extend the underlying policies, whereas Commercial Umbrella Insurance will do the same, and have some broader coverage in place for your business.
Bonus Section - Employee Benefits - Regulations change state to state. And a lot of small startups have joining without Benefits as a badge of honor, but they shouldn’t scare your company as much as they probably do. Offering Benefits can be great for retention. Not everyone will ask to be covered, you can choose how you want dependents coverage to work, and you get to use pretax business monies that will save about 30% of the cost if employees are buying Benefits on their own. You get access to better networks through buying Benefits as a company too.
Miscellanies insurance needs that may come up
Business Auto - If your company owns any vehicles, Commercial Auto insurance is rated and covered differently than Personal Auto. All drivers will have to be named on the policy.
Inland Marine - If you have high-value assists beyond your business Personal Property, say a collection of Wine that’s going up in value, it wouldn’t be covered property under traditional business replacement cost coverage. It could cover fine art or Medical Equipment for instance as well.
Event Insurance - If you’re hosting company events that provide alcohol and have outsiders, you’re going to want to have Event Insurance in-place. It is relatively inexpensive, and can save you from a non-work event derailing all that your company’s worked for.
Thank you for taking the time to review these recommendations. Again, these are general recommendations for tech companies. If you’re building a product you’d want to have Product Liability for instance, example of other additional policies are Business Auto, Umbrella, IP, Fiduciary, Crime, or International Policies.
Please reach-out below to discuss your unique needs and situation:
All the best,
-Broker Brett
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Brett Fulmer
Newport Beach Insurance Center
Office: (949) 358-7990
CA LAH + P&C Ins LIC. # 0I83384
Licensed in all 50 states
