Business insurance renewals are usually uncharted territory for a young startup. Typically, venture-backed startups experience significantly more change/growth year over year compared to your standard new business venture. It’s important to understand how this affects your startup’s insurance coverage and how to ensure you’re properly protected. Here’s the “checklist” of items to be aware of as your policies renew.
1. The Process
The short version: update info, receive renewal quote, renew coverage.
For startups, it’s crucial to provide your broker with a full update. How has the company grown both the top line and the company headcount? Are there new product lines in the market or customer segments being served? Has the revenue or user acquisition model changed?
Due diligence is the lynchpin of the business insurance renewal process. This information will be crucial to understand how to adjust coverage. If a large pivot occurred, the policy will have to be updated to reflect this. Policy limits may also have to be raised to reflect substantial growth. All of this will become apparent once you provide updated info.
At Founder Shield, we’ve made this process easy. Founder Shield clients simply need to log in to their account and update their info when our team sends an email reminder a couple months prior to the renewal. When our renewals team gets notified on the back end, we evaluate, discuss, and move forward to quoting.
2. Effect on Premium
The short answer: it depends.
Premiums increase for many startups for a couple of reason. The first reason is that the company has grown: it’s generating more revenue, hiring aggressively, moving into a bigger office, raising another round, etc. These are all great things, but they also mean that your risk profile has grown in one way or another. Don’t be surprised if your insurance costs increase as your company grows.
The other reasons premiums may increase are a little less obvious and more technical. One is because a lot of policies are written on “claims-made” forms. These forms basically increase your overall coverage period each year which usually causes the slight annual increase in premium. More on that here. Additionally, market factors play a role in pricing. When it comes down to it, insurance is a financial product and responds to forces like market demand, overall losses sustained by insurers, and even general economic conditions.
The short answer: usually not a good move.
There’s one situation in which it makes total sense to non-renew your insurance policy, and that’s an acquisition. Even in this situation you won’t be completely non-renewing. Rather, you’ll typically be purchasing something called “tail” coverage that gives you the ability to make a claim on the policy for several years after you’ve discontinued coverage.
If you’re simply non-renewing your insurance policies to save a few bucks, that’s not a good move for several reasons. Obvious risk exposure aside, it can make it tougher and more expensive to purchase new insurance down the road.
That’s the basic business insurance renewal checklist. As you grow, it’s important that we have the right coverage in place, increase limits as appropriate, and ensure continuity of coverage. As always reach out to our team if you have any questions.