When you’re just starting out in a garage or a kitchen or a single laptop on your couch, you might think you’re too small to bother with something like insurance. Maybe you’ll get it when you need it, right?
Too often, ‘when you need it’ is yesterday.
The truth is that you need to protect yourself against risk right now, from day one. But as a start-up, you don’t often have the funds to buy the level of insurance cover you need… yet the specialised nature of start-ups usually means that you’re offering something new and interesting in the market. There’s lots of room for mistakes.
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Correspondingly, there’s lots of different types of insurance to protect you from the unforeseen outcomes of those missteps and failures. A start-up’s insurance needs to:
- Be cost effective and competitively priced.
- Be modular, so it can grow as the business does.
- Cover a little bit of everything.
Recently Imalia has worked with a Lloyd’s syndicate to develop an insurance product tailored specifically to the specialised needs of start-ups, so I’ve had the chance to dig in and really understand what start-ups need when it comes to insurance.
What do you mean, ‘cover a little bit of everything’?
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Know and manage your everyday expenses
All businesses need to evaluate their risks. Start-ups are no exception. It’s vital to analyse which risks you face in your business and how you can minimise them, and thereby mitigate the fallout if something goes wrong. For every new avenue a start-up invests in, there is a corresponding form of insurance, and often start-ups are so focused on getting a product to market that they’re too close to the situation to know what kind of insurance they need.
For example:
- If you hope to obtain a Financial Services License or a Credit License for your fintech, ASIC will require you to have a Professional Indemnity policy before your license is granted, to cover the risks from the advice you seek to deliver to customers.
- If you are selling goods, such as through an ecommerce store, you may need to look at a Products Liability insurance, as you may be sued if your product causes an injury to a customer.
- If you’re looking for funding, often investors will want to see that you have your business protected before they advance funds. They may insist on Public Liability, Cyber Insurance, some form of Privacy cover, or Professional Indemnity or Products Liability as mentioned above – or more.
We’ve really looked at how start-ups operate and it makes sense to design one policy that covers as much of a start-up’s wide range of risks as possible. Imalia’s policy provides a combined wording that has Public and Products Liability, Professional Indemnity, Cyber Insurance, Commercial Property Cover, Privacy, Reputation and Brand Protection Cover, Loss Mitigation Cover, Multimedia and Advertising Cover, and more.
Whatever kind of risk you might be facing, you need the right kind of insurance to cover it, and as your company develops, you may need to access different kinds of cover.
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What do you mean, ‘modular’?
Start-ups can start up anywhere, from a garage or kitchen to a co-working space or a hotdesk to a single laptop on a couch. When you need to protect yourself against risk from day one, you need to have an insurance policy that allows for all of these beginnings, as well as for the start-ups who have progressed to offices and VC rounds and sub-contractors, and all the stages in between and beyond.
Basic policies tend to cover things you didn’t need or else overcompensate for risks that aren’t accurately assessed. It takes time and patience for insurance brokers and underwriters to sit down and learn what your particular start-up is capable of and where you’re exposing yourself to risk. Trying to teach a non-tech person about the potential abilities and failures of a new piece of technology can lead to misunderstandings on both sides, costing you both a lot of time and money. If there’s something start-ups and insurance underwriters can agree on, it’s that neither has enough time or money to spare!
We're developing our start-up policy to provide low levels of cover as you start out, beginning with a basic micro-cover, all the way through to an expansive Gold level of cover. We want to work with start-ups to assist them and grow this insurance with them, helping them to understand what they need and mitigate the risks they face as they scale their business.
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What’s the process look like for a start-up right now?
Let’s take the financial services industry as an example.
Because of the innovative nature of the tech space, constantly pushing boundaries, there are so many new technologies and new ways of offering traditional financial services like banking, investing and broking. This is the fintech industry.
We’ve spent a lot of time working with other experts in the industry to go through the fintech ecosystem and work with insurers on a risk rating for each category of fintech activity. Often, a fintech company’s products are complex to an outsider, like an insurance broker, and their offerings can be hard to understand without a proper briefing. A standard insurance proposal form can also feel quite invasive to the client who is unused to the procedure.
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The proposal form then may not elicit the responses an insurance broker needs to get a good handle on the real activities – and thus the real risk exposure – of the fintech company.
There’s no guarantee that after the fintech client completes their proposal form that the broker will understand what the fintech does.
If the broker doesn’t understand the risk exposure of the client, then they’re unable to sell the risk to the underwriter and get the right quote.
In my experience, it’s easier for the underwriter to just say no to a fintech proposal because they don’t understand the risk or have a pre-conception that the risk is greater than it really is, just because the company is a start-up or a fintech or is utilising a technology that is new and apparently mysterious. It’s just not worth the risk, so to speak.
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Cost effective, comprehensive, and scalable – what start-ups really want
Some insurance brokers do understand what start-ups want and are trying to develop expertise in this area. It requires a great deal of knowledge and understanding. Good insurers want to work with their clients. Great insurers want to grow with you as start-ups.
Insurance is meant to be a partnership. Remember, start-ups: you’re never too small to take advantage of the protection insurance offers.
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