Startup Risk Tips: Optimizing your Insurance Policies

Insurance should be seen as more of an investment than a cost, but given the busy and chaotic lives of Founders, it sometimes becomes a check-the-box activity.  When utilized properly, companies can get value from their policies well beyond that generated by a “set it and forget it” approach.  Here are a few tips to optimize your insurance policies and get the maximum bang for your buck.

1. Communicate

Your broker will usually engage in a dialogue throughout the year and well before renewals in order to keep track of any changes in your business. But when big changes happen, it’s important to be proactive and make sure your broker knows the deal. Here are some key changes of which to take mental note, especially if you have patent insurance:

• Location changes – moving offices, adding retail locations, new warehousing partnerships, etc.
• Purchases of new equipment / business personal property
• Change in the ownership of the company (usually anything greater than a 50% change)
• Pivot / change in operations
• Creation / acquisition of new subsidiaries
• Launch of new product lines

If your company goes through any of these changes, it is important to communicate with your broker so that they can make sure your policies are still effective in mitigating the new risk exposures.  They’ll want to make sure your policy limits are properly adjusted and any policies or policy enhancements that have now become crucial are put into place.

2. Avoid Gaps

Newer founders seem to quite commonly believe that insurance can simply be turned on and off when needed.  This is a misconception, and while technically possible, repeatedly canceling and re-purchasing policies can cause a lot of harm to the company in the long run.  This practice burns bridges with carriers as most will not want to create another policy for an insured when the previous one was canceled after a short time.   It also creates gaps in your coverage that do a lot more harm than you’d think.  A lapse will tamper with the retroactive dates on professional and management liability policies like D&O, EPLI, E&O, and Cyber Liability policies.

3. Keep a Pulse

Many startups excel in conducting competitive analyses and maintaining strong ties to their operating environment. Founders diligently examine the strategies of other companies within the same industry to distinguish their own models and secure a competitive edge. However, it’s equally crucial for companies to stay vigilant on the risk avoidance front within the competitive landscape. This involves monitoring whether any competitors have faced legal challenges from their customers, regulatory authorities, or investors, and if so, the nature of these challenges.

Monitoring the risks as well as the upside is becoming an increasingly important aspect of competitive analysis given the complex and rapidly evolving legislature in many areas (on-demand economy, fintech, and venture capital, for example).  Helping your broker stay on top of these changes from an insurance perspective will greatly benefit your company in the long run.  There are some more obscure insurance products (patent insurance or on-demand company insurance are prime examples here) that your broker can explore for you if the timing is right.  Don’t miss an opportunity to get a competitive edge on the insurance front!

As your company grows, it’s important to communicate with your broker to make sure you have the best and most consistent coverage possible, covering your liabilities.  An open dialogue will foster the best risk mitigation practices and policies, reduce stress, and help ensure the longevity of your company.