While getting insurance can be a nuisance and unwanted expense, the alternatives - having no insurance, or getting the wrong coverage - can cripple your company. Of course, each company will have its own specific risks, but there is a pattern of typical coverages that most companies will require at each stage that can be assess.
Stage 1 – Research & Development
Conceptually formulated, partnerships are established, and funding is sought, usually few employees in a small office, needs are somewhat minimal, and typically driven by lease requirements or by law.
- General Liability for office space (possibly an Umbrella depending on lease requirements)
- Property Coverage for Physical Assets
- Business Interruption coverage including loss of R&D materials
- Workers Compensation & Disability as required by law
Stage 2 – Growth Phase
Typically outside funding is received, products are launched to market, employees are hired, possible international expansion, issues take on a bit more complexity. Client contracts often trigger the placement of these coverages.
- Errors & Omissions for intellectual property, privacy, and Internet services negligence which causes financial or other no-tangible loss to a third party
- Directors and Officers liability to protect the management team and Board of Directors from shareholder and employment related suits
- Crime coverage for employee theft, forgery, computer fraud, ERISA requirements
- Global Companion Policy to expand all coverages to a worldwide basis
- Employee Benefits including medical, dental, life and disability coverages
- Key Person Life insurance for founders or other key employees, often a VC requirement
Stage 3 – IPO
The biggest change in a company’s insurance program at this stage is the enhanced protection required to fend off shareholder/class action suits. This takes the form of a restructured D&O policy, and negotiating the correct coverage is a very specialized practice, most liability coverages should be increased, since the higher profile of the company might mean it's more susceptible to lawsuits.
- Restructured Directors and Officers Liability insurance, which may include several carriers to achieve an appropriate coverage amount
- Separate Employment Practices Liability coverage
- Employed Lawyers coverage for in-house counsel
- First Party “loss of revenue” protection for denial of service, loss of data, breach notification costs, and other web specific losses
- Loss Control services such as website assessments and monitoring, employee ergonomic evaluation
- Patent infringement coverage
Stage 4 – Mature Company
A solid risk management foundation should be in place, and monitoring the company’s growth and diversification becomes the biggest concern. Acquisitions can cause material changes to the company’s business risks. As the company now has more cash, it also has the ability to sustain smaller losses without a devastating result. This allows for some new ways to set up the insurance which will help contain costs.
- Increased Deductibles and Self Funding considerations
- Merger and Acquisition policies to protect against acquired and assumed liabilities
- Participating Workers Compensation Policies which can return a high percentage of the premium to you if you have no or few claims
- Local policies placed in foreign countries for subsidiaries and owned locations
- Loss Mitigation policies. Most companies will have claims/suits at some point. With this type of policy, you work with the insurer to "buy out" your claim at the amount that you choose, and anything above that is the insurer's responsibility.