Buying startup company insurance can be a daunting task. The insurance market is fragmented and there is no shortage of products out there. The industry is not exactly tech savvy either, and many brokers still employ tools as archaic as fax machines in their practices. Just finding where to start can be a hassle!
Here are some basic dos and don’ts of buying insurance for your startup company.
a. Vet Your Broker
When you purchase insurance, you have to hire a broker to approach the right insurance companies on your behalf. You should make sure that your broker fully understands your business model and where the inherent risks to your company lie. Sometimes these risks may even be more nuanced than originally expected, and finding the right broker to flush out those risks and make sure they’re mitigated is key.
So how do you do this? The same way you would with any vendor or service provider. Ask your investors and fellow entrepreneurs for their opinions and recommendations. Read up on the potential partners to understand their philosophy and approach. Talk to your broker to verify what you’ve read and check in with current clients if possible to see how their experience has been. Make sure you understand the application process and you’re on board with their methods.
It’s important to make sure you feel good with this partnership because having to explain and re-explain your business to every broker you work with just causes more headaches down the road. You want your broker to be in your corner and excited about your business and the roadmap moving forward.
b. Ask Questions
Once you’ve found your 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 broker should know this. Make sure that you’re making the right investment. You want the right coverage for your risk profile, flexibility to modify coverage as your company changes, and scalability to add coverage as your company grows.
a. Go to Multiple Brokers (at first…)
The usual method of shopping around doesn’t really work in your favor when buying insurance for your startup company. Here’s why:
When a broker approaches an insurance carrier on your behalf, they become the exclusive “broker of record” that’s allowed to talk to that carrier. Only one broker can talk to any one carrier at any given time. This ensures your broker has the chance to make his/her case on your behalf without any background noise.
When you approach multiple brokers at the same time, they’ll almost certainly go to the same markets (those that are best for your specific startup) assuming they know what they’re doing. Depending on the order in which you approached each broker, each will be blocked at certain markets because another has already approached them. The pipeline gets clogged and your time/energy gets wasted.
Again, this is why vetting your broker and sticking with him/her is key. You want to make sure that you go with a broker that has strong underwriter relationships with the carriers most relevant to your startup company. The application can be annoying and you don’t want to do it more than once. The right broker will leverage the right underwriters at the right carriers the first time, saving you valuable time and effort.
If your broker strikes out on finding the right policy, now it’s time to approach another broker. Here’s a pro tip for this situation: make sure you ask the previous broker for all the applications that were submitted on your behalf as well as a list of declining carriers. This will expedite the process moving forward.
b. Withhold Information
This seems to come as a surprise to many but underwriters require quite a bit of information to create a coverage proposal. This is particularly true for policies that are extremely important for most startups, such as technology errors or omissions insurance, cyber liability insurance, or directors and officers insurance. Don’t be surprised if you’ll need to submit things like financial statements, sample customer contracts, written HR practices, and investor decks.
Generally speaking, the more information your broker has, the better his/her ammunition is to argue in your favor with the underwriters regarding your risk profile and annual premiums. If you withhold this information and insist on proceeding, your broker will submit your information and the underwriter will inevitably request it anyway. Don’t cause yourself more pain than required! The goal is to try to answer all underwriter questions in one fell swoop to cut down the overall time it takes to get a formal proposal.
So those are some basic pointers related to buying startup company insurance. Hopefully these help make your insurance purchasing process as smooth and seamless as possible!
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