Start-up Insurance Coverage- Past the lean start-up phase

Lean start-up has a buzzword in the industry for the last couple of years.  Although it primarily relates to minimizing the cost to build-out the actual product until you confirm the market, the strategy can sometimes be used with other costs such as human resources and risk management.

Sometimes this strategy is appropriate.  Certainly you don’t need some coverages in the beginning and to have them would be a waste of resources.  So then the questions becomes after your product has proven its marketability and is being sold what are some of the coverages that need to be added to the basic coverages that you maintained (general liability and workers compensation depending on the state) during the initial phase.  

Cyberliability– whether your product lives online or is merely sold and marketed online a full first and third party cyber liability product is necessary.  First party coverage will not only provide coverage  for restoration of data but business income loss during the restoration period.  Third party insurance provides reputation management coverage and pays out any actual damages resulted to a third party.  At this second phase, internal data and reputation is a key component of how you will market the company further both to new targets but also for subsequent investment rounds.  As such, the investment in this product is crucial now that you are at the point where you have something to lose.

Employment Practices Liability Insurance- EPLI becomes important especially for those who are now adding employee in order to meet production concerns.  This booming increase in employees correlates to a booming since of risk.  Also, if you are new to management, your inexperience with management will also increase both the likely frequency and severity of an exposure.  In addition, to stay competitive, many EPLI products are coming with HR consulting hours or products (i.e. free ee handbooks creation).  These can be essential risk management tools that can not only decrease risk of loss but also your overall internal cost.

Many firms will be sufficient in the second phase with just adding these two product lines.   Start-ups that travel to trade shows during the initial stage should carry property coverage for the marketing items (signs and banners) and prototypes.  After the initial phase this coverage should be increased to reflect actual production inventory and equipment.  Also, directors and officers coverage can be not only a marketing tool to recruit new directors and officers but also a good protection now that you will have investors to satisfy when you are making crucial business decisions.  

A start-up can keep the insurance costs lean while obtaining robust coverage during their secondary phase of development.