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Purchasing Business Insurance for Startups

Buying insurance can be a daunting task, particularly for venture-backed startups. The market for relevant insurance products tends to be fragmented and a finding a broker that understands tech can be tough. Sometimes, just getting the ball rolling can be confusing!

With that in mind, here’s an introduction to purchasing insurance:

What to do:

1. Vet Your Broker
While there are some generalists out there, most brokers earn their success by mastering an industry. Make sure that your broker fully understands your business model and where the inherent risks to your company lie. A good broker will look at your company from all angles and leave no stone unturned. How do you make this choice? Same as any business partner, vendor, or service provider.

Ask your investors and fellow founders for their opinions and recommendations. Do your research on potential broker-partners and get a feel for their philosophy and approach. Engage in a dialogue with your broker to verify what your research. Check in with current clients (if possible) to see how their experience has been with the brokerage. Make sure you understand the application process and you’re on board with the broker’s methods.

2. Ask Questions
Make sure you feel good about this partnership because having to explain and re-explain your business to every broker you work with just causes more headaches as the company grows. You want your broker to have your back and be excited about your business and its roadmap.

Once you’ve found your insurance 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 proper coverage for your risk profile, flexibility to modify coverage as your company changes, and scalability to layer on coverage as your company grows.

What not to do:

1. Go to Multiple Brokers (at first…)
Vetting your broker and sticking with him/her makes life so much easier. You want to make sure that you go with a broker that has strong underwriter relationships with the insurance carriers most relevant to your company. The application can be annoying and you don’t want to do it more than once. The best broker for you 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.

Pro Tip: Make sure you ask the previous broker for all the applications that were submitted on your behalf as well as a list of carriers who declined to present a proposal. This will expedite the process moving forward.

2. Withhold Information
Underwriters require quite a bit of information to create a coverage proposal. They’re essentially extending you a multimillion dollar line of credit for when things go wrong. This is particularly true for policies vital to venture-backed companies, such as technology errors or omissions insurance, cyber liability insurance, or directors and officers insurance.

You’ll need to submit things like financial statements, sample customer contracts, written HR practices, and investor decks. Information is king; you want to give your broker as much ammunition as possible to argue in your favor with the underwriters regarding your risk profile and annual premiums. Proceeding with weak/incomplete information will lead to additional underwriter requests anyway.

To avoid headaches, the goal is to try to answer all underwriter questions in one shot to cut down the overall time it takes to get a formal proposal.

Hopefully these pointers will help make your insurance purchasing process as stress-free as possible!

About the author
Carl Niedbala is the COO of Founder Shield, a boutique commercial insurance brokerage that takes the stress out of getting insurance for venture-backed companies.