In the early days, it’s difficult for pre-seed companies to obtain the right business insurance policy without visibility to their revenue model, customer profiles, data security protocols, etc.
Company CEO will decide on the timing and coverage areas for business insurance. In general, events that will trigger business insurance policy include:
- Signing first enterprise contract (coverage like cybersecurity may become necessary)
- Fundraising (a due diligence item by new investors)
The recommended baseline policies for startups include general liability insurance, cyber liability insurance, and professional liability (E&O) insurance.
- General liability insurance policies protect against claims made relating to general liabilities associated with operating a business which result in damage to people or property.
- Recent quotes we've seen for this coverage are around $200 USD for $1M per occurrence and $2M aggregate.
- Cyber liability insurance policies protect against claims made as the result of a data breach or software attack.
- Recent quotes we've seen for this coverage are around $2,000 USD per year for $1M aggregate.
- Errors & Omissions insurance policies protect against claims made relating to unsatisfactory work performed by a business.
- Recent quotes we've seen for this coverage are around $3,000 USD for $1M in aggregate.
- Employment Practices Liability insurance policies protect against claims made between managers and employees.
- Recent quotes we've seen for this coverage are around $7,000 USD for $1M in aggregate.
- Directors & Officers insurance policies protect the personal assets of founders and the startup from lawsuits associated with their decisions.
- Recent quotes we've seen for this coverage are around $6,000 USD for $1M in aggregate.
Small businesses often benefit from a combination of the above policies, typically bundled with cyber insurance and subject to a limited cap. For companies ready to secure coverage, we recommend using either Vouch or Embroker's startup program. Coverage for all 5 areas above can be in the range of $17,000 per year. Coverage for 1-3 should be less than $10,000 per year.
After securing external funding and gaining significant customer traction, it becomes more appropriate to tailor risk management policies to specific business needs. Open Core Ventures can introduce companies to a professional insurance broker who will help find a more customized solution.