Introduction to Insurance Needs for Tech Startups

Welcome to entrepreneurship. If you’ve been here before you know the highs and the lows as well as the risks and rewards.

In this guide, we’ll navigate the intricate world of insurance for tech startups, and be available for consultation to be assured that your journey is safeguarded properly from day one.

2. Understanding the Risks Unique to Tech Startups

Tech startups by their very nature are innovative. Many seek to solve a problem or issue in the marketplace that’s not addressed sufficiently, but with that innovation comes risk. Risk that a programming glitch could cause damage to a client’s system or user’s data. Or the risk that a cyber attack breaches your network and private data is stolen, compromised, or leaked to the public.

Intellectual property disputes, worker injuries, disgruntled shareholders, the untimely death of a key person are all different risks that tech startups face which need to be addressed properly.

3. Types of Insurance Policies for Tech Startups

As you begin your startup journey there are several key coverages you’ll want to consider. Many of the policies on this list are typically put in place on day one, but there are some situations where they are deployed in stages. Speak to us about your circumstances so we can advise you accordingly.

• Tech Errors & Omissions (E&O) Insurance: This is the foundation of most startup insurance programs and this policy is designed to cover claims related to glitches, errors, mistakes, omissions, and negligence in the delivery of your tech product or services. It is typically put in place before the product or service is released.
• Cyber Insurance: In our digital age, this policy is a must-have, safeguarding against cyber threats and data breaches. Often it’s blended with the Tech E&O policy to coordinate with tech risks.
• Directors & Officers (D&O) Insurance: As a leader, you and your board and other leaders make crucial decisions daily. D&O insurance protects your personal assets from claims that may arise from these decisions. Startups that are funded typically purchase D&O early in their lifecycle. D&O becomes critical when recruiting members to your board as most board members will not take a seat until D&O protection is in place.
• General Liability Insurance: This policy covers a broad spectrum of risks, from bodily injury to property damage claims and is needed even in virtual companies. Usually it’s part of a business owner’s or BOP Policy that includes property insurance and other essential business coverages.
• Workers Compensation: When you hire your first employee you’ll need workers compensation insurance to be in compliance with state laws and to protect employees from on the job injuries.
• EPLI or Employment Practice Liability Insurance – Often this is made part of your D&O policy and protects you and your company from claims arising from employees alleging wrongful acts such as discrimination, harassment, wrongful termination, etc.
• Fiduciary Liability – If your firm has an employee benefit plan or a 401K plan the “trustees” of those plans (usually the founders) face liability from potential ERISA risks. This policy can also be made part of your D&O Program.
• Crime Insurance – This policy form is not used as often as many of the above, but there are situations where protection from commercial crime exposures needs to be broadened beyond a standard business owners policy.
• Key person Insurance – Key Person coverage is a form of life insurance that protects the frim from the untimely death or disability of a leader or other key person in the organization. It provides an immediate funding source to find and recruit a “replacement person”. While we do not sell life and disability insurance we have excellent referral sources to provide out clients to life insurance advisors.

Understanding and choosing the right mix of these policies can be the difference between a secure future and a precarious one for tech startups.

4. Costs, Providers, and Comparison of Startup Business Insurance

Now, let’s talk numbers.

The cost of insurance can vary widely based on your tech startup specific needs, risk profile, and the coverage limits you choose. We’ll dive into the factors that influence insurance costs and guide you through comparing providers to ensure you receive the best value for your investment.

The bottom line is that you want to balance costs, coverages, and services so that you have an optimal insurance relationship. And that brings us to the next two sections on customizing your protection and who to purchase that protection from.

5. Custom-Built Coverage for Tech Startups

Your tech startup is unique, and off-the-shelf insurance solutions probably doesn’t fit the bill.

This is where custom-built coverage comes into play and that customization is usually orchestrated by a skilled broker who can deploy different insurers, different policies and solutions to round out a protection plan that’s tailored to your startup’s specific needs.

And when we talk about custom-built, we’re not talking about making a choice between “Good – Better – Best” as you’ll see on some websites. That’s not custom-built, that’s a cop-out. Do you really want just “good” coverage? Or do you want the best that will fit your budget?

6. Working with a Skilled Insurance Broker

When we say “Skilled Insurance Broker” we’re talking about a firm that is experienced in working with tech firms, they represent multiple insurers that focus on technology accounts, and they have the team to support their clients after the sale.

You can certainly go online and do a search for tech startups insurance and be faced with dozens (if not millions) of options. Several of the top search results will be insurtech companies that offer fast and easy quoting and the ability to bind a policy in like 10 minutes.

That’s great, but often those options put you in the decision making hot seat to make the right selections, options and decisions around what policies to purchase and at what limits. Is that what you want to do? Or would you rather work with an expert to guide you along this path?

If you’re looking for guidance than consider working with a skilled broker, like The Coyle Group who can help you with your buying decisions, but more importantly offer you options that many insuretechs can’t.

7. Conclusion FAQs: Answering Common Insurance Questions for Tech Startups

What are the best insurers for tech startups?

In our opinion, the best insurance companies that write technology startups will depend on the type of tech, the type of policy, and a variety of underwriting factors, including the state of the insurance marketplace. Yes, there are a handful of perennial favorite insurers when it comes to tech: Chubb, Travelers, Hanover, Embroker, Coalition, but that doesn’t mean all of our tech clients are insured with these insurers. In fact, that’s the beauty of working with a skilled broker that focuses on Tech, we have a very broad access to the insurance marketplace and will bring your account out to multiple underwriters in our process to find the right customized coverage for you.

Why do you need so much information?

I get it, we ask for a lot of information in our application process, but we do try and make it more efficient by deploying technology that reduces redundant questions and overlaps. But, by asking a lot of questions and getting a comprehensive view of your operations gives us a better opportunity in the marketplace to customize a coverage program for you.

Now, a second question to this “so much information” point may be

“why do some online platforms ask so few questions by comparison?”

And that’s a fair question. Insurtechs are deploying certain levels of AI and machine learning algorithms to produce quotes and proposals with a minimal amount of data gather, which is great. But is the resulting insurance policy going to be right? We’ve seen too many instances where the lack of human interaction returns less than stellar results and we believe that in the not too distant future we’ll be able to mix real life human intelligence and knowledge with machine learning to create a more efficient and friction less process.

Does it cost more to use a broker?

Insurance brokers like The Coyle Group are paid a commission directly by the insurance companies we sell policies through. There is no additional fees or costs to use a broker, and the thought of cutting out the middle man is just a myth. It doesn’t cost you more to use an expert.

How long does it take to get a quote?

After we’ve collected the application data, we usually produce a proposal for all the representative lines of coverage within 5 days. In a rush and need it faster, no problem. We’ve turned proposals around as fast as same day, you just need to tell us your urgency level.

What is service after the sale like?

This is an area that I think isn’t focused on in the tech insurance space as much as it should be. It may be great to get a quote in 10 minutes, but if you need to ask a question or get a billing issue resolved and it takes days for an answer, where’s the efficiency in that?

As an entrepreneurial company we’re proud of the service we provide to our clients and the testimonials we get from clients. We recognize that the initial sale is the easy part – maintaining that relationship for years after the sale is where the rubber meets the road. Our account management team has deep expertise and a desire to help and be responsive. We think the service after the sale is what separates us from the competition.

What is a non-admitted insurer?

A lot of insurance proposals in the tech space come from insurance companies that are non-admitted. A non-admitted insurer is an insurance company that is not licensed by your state’s insurance regulatory body. It is not necessarily a good or bad thing, but by operating outside the prevue of a regulatory agency gives a non-admitted insurer greater freedom in their rates and their rules. We frequently will deploy non-admitted insurers on Cyber, Tech E&O, and D&O lines of business. What you do want to be focused on is the financial stability of the insurers you purchase coverage from which can be found at AM Best, or by asking your broker or provider.

We have found that some online direct providers of tech insurance, including some insurtechs, are selling policies from insurers which are either small – in terms of the AM Best Size Ratings (less than a size X or 10) which can be problematic for your customer contracts down the road, or they are rated by AM Best as NR, which means Not Rated. This can also be a problem because an independent rating agency cannot give you guidance on the claims paying ability of an insurer and we do not deploy NR rated companies with our clients.

Do I need all the policies you’ve identified above at the beginning of my launch?

Good question and the short answer is no.

Many startups scale up their coverage program as they scale their companies. Each situation needs to be evaluated individually, but that’s what we’re here for, to give you a sense of what we’ve learned from other tech engagements.

8. Conclusion: The Importance of Being Proactively Insured

As we wrap up this long article, the big take away I hope you get from it is understanding that business insurance for a tech startups can be complex, and who you decide to engage in this process should be the first question you answer.

The advantage of working with a skilled broker like The Coyle Group is that we’re guiding you on this purchasing journey and then supporting that journey as you grow your company. There’s no need to go it alone and make decisions unsupported.

If you’re looking for business insurance on your startup, give us a call and let’s see if we’re a good fit for your situation. The one thing we can promise is that you’re not going to feel any high pressure sales tactics during that call, it’s just a conversation to talk about many of the issues raised in this article and how we can help. It’s your opportunity to make a more informed decision on how you want to purchase insurance. If you come away from your conversation that we know what we’re talking about and you think we’re “nice” people to deal with then great!

Thanks!