Insurance for Startups: Cost or Investment?

The Question

The biggest question we deal with on a daily basis: how much does insurance for startups cost?  All of our clients want to know exactly what they’ll have to spend and how long it will take.  They all expect an immediate answer, and can you blame them? The startup world moves at a blistering pace.  But the honest answer to both questions is  “it depends.”  And an even more complete answer would be “it depends how you look at it.”

The Caveats

That’s probably not the answer you were hoping for when you clicked on this post. But a little background on the underwriting process will help clarify why this is true. Most underwriters work very hard to carve out distinct “boxes” into which they try to fit all of their policies. Fitting policies into certain risk profiles makes their life easier, which underwriters really like. And while we’re on the subject, underwriters do NOT work at the same level of intensity as the startup world. It’s much more of a 9:00-4:30 scene in those offices, as they focus on how to control the risk associated with each policy.

The problem with this approach is that it simply doesn’t work with startups.  Of course it works with “small businesses,” but nobody at WeWork or GA is opening an ice cream shop or hair salon.  Startups are disruptive.  Disruptive things don’t fit in boxes.  Square peg, round hole…you understand what I’m getting at.

This is why getting insurance for startups can be a somewhat lengthy/interactive process and why policies might cost a bit more than your average ice cream shop.  In fact, if the underwriting analysis takes longer than expected, take it as a compliment.  You’re breaking their neat little boxes!

The Answer

So getting back to the original point and the title of this post, is insurance just another cost or a valuable investment? It depends how you look at it.  The truth is almost any broker can get you a basic policy very quickly.  But it’ll likely be so riddled with exclusions and limited in scope, it’s basically worthless.  THAT right there is insurance as a “cost.” Just a quick “box-checking” exercise.

However, getting real coverage takes a little more time and will cost a little more.  This is because your broker has to engage the underwriters and really help them understand why they shouldn’t freak out if your company doesn’t fit into a particular box.  If it’s done right though, you’ll get actual coverage that extends to protect your workspace, all of your operational activities, and even events that are totally unforeseen or out of your control.  And clearly this goes well beyond simply checking the box.  This is a real asset beyond just having great coverage.

As a startup, one of the biggest challenges from a marketing perspective can be establishing authority in your space and credibility with your target market.  Being able to advertise that you’re completely insured makes that job way easier.  You may even be able to leverage your insurance policies into money-back guarantees for your customers, driving up conversions and increasing your top line!

Insurance can be just another cost of doing business, or it can be an investment you can use in your favor.  It can be quick, cheap and ineffective, or just like your company, it can take a little time to create, but add massive value in the end.  The choice is up to you!