New Report – Business Insurance Costs and Decisions

Embroker, a digital platform that makes it easy to obtain business insurance, released an analysis showing how coverage costs can rise by more than 150% as startups raise more capital.

The report is titled 2nd Annual Embroker Vertical Insurance Index: Startup Snapshot, the Startup Snapshot documents the corresponding changes in average premiums. Limits, retentions, and limits for different lines. This is as VC-backed startups grow in funding, revenue, and headcount. The Startup Snapshot covers two years (2021-2021) of insurance purchasing data from nearly 5,000 Embroker individual policyholders. This includes companies in the early stages of their development and companies with more than $25M in funding, or companies with over $5M in annual revenue. This report contains actual startup purchase decisions. It provides a historical snapshot of trends in business insurance from 2020 to 2021, which can be used to guide business decisions.

The report’s key findings show the impact of milestones in business development on risk.

  • Employment Practices Liability Insurance – EPLICompanies that grow and employ more workers can be at greater risk. Employees returning to work, many of them for the first time since two years ago, can lead to issues for remote and in-person employees. Embroker data showed that EPLI premiums rose by 76% when the company’s headcount increased from 10-30 to 30+ employees. EPLI experienced the lowest year-over-year premium changes between 2020 and 2021, with an average premium increase of 7%.
  • Directors and Officers (D&O): More funding equals more responsibility. Startups have to take into account the additional exposure they get when they hire more executives or board members. D&O premiums increased over 155.5% on average when startups go from $5M – $25M in funding to $25M+ in funding. Across the board, D&O premiums increased 9.5% year-over-year compared to the analysis in March 2021.
  • Technology Errors and Omissions (Tech E&O, includes Cyber): As a startup brings on more customers and increases its revenue, the opportunities for project issues, product defects and breaches of contract rise. These types of exposure require a company to improve its protection against errors or omissions. E&O premiums raise 242% when startups go from $0M – $1M in revenue to $5M+ in revenue. All startups, regardless of their growth stage, paid an average $8,061 annually in premiums in 2021. This is a 9% increase over 2020.
  • The estimated total insurance spending by startups Based on the average annual premium paid for core startup business insurance (D&O, EPLI, E&O and Fiduciary Liability), U.S.-based venture-backed startups are estimated to be collectively paying almost $1.5 billion in premiums every year.1

Over the past year, venture-backed technology startups have enjoyed a record fundraising environment – U.S. VC-backed companies raised $329.9 billion in 2021 – and many have grown in both revenue and headcount. Startups, like all businesses, have faced other risks in recent years, including cyber-attacks and supply chain issues as well as workplace discrimination. Startups are now more responsible for protecting their investors, employees, intellectual property, and business from unprecedented funding growth.

“The last couple of years have been very favorable for startups due to a positive fundraising environment and market tailwinds. They must now navigate both new opportunities and threats to continue their growth. The data in our new benchmarking report shows how startups are being calculated in dealing with the issues that can threaten not only continued growth but the company’s very existence,” said Matt Miller, Embroker CEO.

“Running a startup in today’s market is filled with risk – good risk and bad risk,” Miller continues. “Ask many successful founders and they will likely say that they very much embrace risk. That’s because the act of taking risks, intelligently and without fear of truly devastating consequences, is the very basis for progress and innovation.”

“Our focus at Embroker is working with founders to approach risk in an intelligent and calculated fashion so they can take the risks needed to thrive while managing the potential downsides of these and other risks. This means making business insurance not just about mitigating risk, but making better business decisions as companies grow, and enabling founders to focus on how their business can truly make an impact on the world.”

To provide more transparency to the business insurance process, Embroker offers a Startup Package Calculator, that takes data from the report and allows founders to see insurance data that is customized to their specific startup based on their revenue and funding.

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