Getting Business Insurance for Startups
Written by: YOURS INSURANCE AGENCY, August 20, 2019
Buying insurance can be a daunting task, particularly for venture-backed startups.
The market for relevant insurance products tends to be fragmented and finding an agent or broker that understands tech can be tough. Sometimes, just getting the ball rolling can be confusing!
With that in mind, here are to Dos & Don't of purchasing the first business insurance for your company.
What to do:
Vet Your Agent/Broker
While there are some generalists out there, most insurance agencies or brokers earn their success by mastering an industry. Make sure that your broker fully understands your business model and where the inherent risks to your company lie. A good broker will look at your company from all angles and leave no stone unturned. How do you make this choice? Same as any business partner, vendor, or service provider.
Ask your investors and fellow founders for their opinions and recommendations. Do your research on potential agents-partners and get a feel for their philosophy and approach. Engage in a dialogue with your broker to verify what your research. Check in with current clients (if possible) to see how their experience has been with their brokerage. Make sure you understand the application process and you’re on board with the agency's methods.
Make sure you feel good about this partnership because having to explain and re-explain your business to every broker and agencies you work with just causes more headaches as the company grows. You want your agent to have your back and be excited about your business and its roadmap.
Once you’ve found your insurance broker, don’t hesitate to dig into the coverage and ask questions. Insurance should be viewed as an investment rather than just another cost and your agent should know this. Make sure that you’re making the right investment. You want the proper coverage for your risk profile, flexibility to modify coverage as your company changes, and scalability to layer on coverage as your company grows.
What not to do:
Going to Multiple Brokers
The usual “shopping around” method doesn’t really work in your favor when buying your business insurance. Here’s why:
- When an agent or a broker approaches an insurance company on your behalf, they become the exclusive “agent of record” that can work with carrier. Only one agent can talk to any one carrier at any given time. This gives the broker the best chance to make his/her case on your behalf without any distractions.
- When you approach multiple agencies and brokers at the same time, they’ll almost certainly go to the same markets (those that are best for your specific company) if they’re doing it right. Depending on the order in which you approached each broker, each will be blocked at certain markets because another has already approached them. The process is now jammed up and you’re pushed into choosing the preferred broker as you should have done in the first place.
Underwriters require quite a bit of information to create a coverage proposal. They’re essentially extending you a multi-million dollar line of credit for when things go wrong. This is particularly true for policies vital to venture-backed companies, such as technology errors or omissions insurance, cyber liability insurance, or directors and officers insurance.
You’ll need to submit things like financial statements, sample customer contracts, written HR practices, and investor decks. Information is king; you want to give your broker as much ammunition as possible to argue in your favor with the underwriters regarding your risk profile and annual premiums. Proceeding with weak/incomplete information will lead to additional underwriter requests anyway.
To avoid headaches, the goal is to try to answer all underwriter questions in one shot to cut down the overall time it takes to get a formal proposal.
Hopefully these pointers will help make your insurance purchasing process as stress-free as possible!