The 5 Most Important Insurance Policies Startups Need to be Aware Of

02.07.2019
Maya Lissitzky, Adv. Vice President General Insurance at Amnon Gur Insurance Group | Reading Time: 4 min.
Start-up entrepreneurs have enough drive and passion to make all of their dreams come true, but most of them forget to take into consideration other problems they might encounter, which do not involve technology or investors. This leaves certain areas of operations in the Company uninsured due to lack of knowledge. We looked into it for you and picked the five must-haves insurance policies you need, so you can focus on what you actually like to do.

Starting a new company is a very exciting step, but sometimes the action, the innovative ideas and the fast pace distract you from factors that might have an effect on your partners, employees and the company itself in the future. It is often believed that if the idea is great and there are hard-working people involved, then the company is sure to be a success. However, reality is more similar to the story about the gold fish: when leaving the shore and reaching the ocean, one starts to see sharks, and gold fish are the first to be eaten. But the goldfish that are adaptive enough and develop defense mechanisms, such as camouflage, before reaching the open sea are the ones that will survive living in the ocean.

We can learn from the goldfish how important it is to engage in correct risk management, especially when you have a big idea and before you start raising funds. No one will care that you are made of gold if you are inside the belly of a shark, and statistically, nine out of ten start-up companies fail within three years.

How can you prep yourself for the "open sea"? In order to maintain strength and stability in your company, especially as a newly founded one, you should pick professionals who can estimate the risks properly and in accordance with the company’s field of expertise and its financial situation. More often than not, having a small budget causes managers to hold back on insurance for the founders of the company, the employees and the technology, which is the one thing that can save the companies and their founders from collapsing in case of unexpected incidents. To help you spend your fortune on what’s necessary when your company is taking its first crucial steps and get you to focus on fulfilling your business goals, we have prepared the following list of insurance policies you absolutely must have.

1.     Directors & Officer's Insurance

Anyone in a managerial or supervisory position in any form of a legitimate corporation is exposed to personal lawsuits, which is why the most basic insurance is directors and officer's insurance. Israel's Companies Law 5759-1999 allows anyone to file personal lawsuits against directors or officers for certain harmful managerial decisions they take on the job. The purpose was to prevent exploitation of or hiding behind corporations, and that is why it has been decided that every CEO or manager will be held personally responsible for decisions they made and that can cause financial damage to a third party. That way, directors and officer's insurance had become a necessity throughout the years, from its initial stages of registering as a company. It allows managers to run the company freely, honestly and without fear.

A mistake often made by young entrepreneurs is thinking that this type of insurance is only necessary in public companies that hold bonds and are traded in the stock market, and that private companies are safe when actually the companies that are at most risk are those for which entrepreneurs raised money from family and friends and lost it all due to failure of managing  their budget correctly.

Private companies suffer hundreds of lawsuits against their founders, managers and members of the board. Many of the suits are filed for false presentations and business plans that sidetracked and shareholders who invested in the company tend to turn their backs on the company and sue for financial loss. In addition, directors and officers are also exposed to certain lawsuits from employees and various law enforcers.

 

2.     Tech Professional Liability and Product Liability Insurance 

In this type of insurance, it is important to distinguish between companies that are limited to software (selling online applications or problem-detecting algorithms), companies that provide guidance and consulting services, companies that provide some sort of feasible product (robots, chips, servers, etc.), or companies which provide a product that combines both software and hardware.

So, what are the differences? When a company focuses on software alone, the necessary insurance is usually TECH professional liability. It can help when there are problems with the software or when an employee has been negligent, causing financial damage to a third party. But when the software is used for medical purposes or when it is installed in a product with hardware, technological damage could also cause bodily or property damage, so it is important to have a combined professional and product liability policy.

Young companies tend to think that this type of insurance can be delayed until business customers start paying the company for its professional services or the products it provides. However, the company is liable from the early stages of alpha / beta / proto - type, even if the company isn’t earning money yet.         

 

3.     Cyber Insurance

In start-up or technology companies there is a serious threat of data breaches. This should be taken seriously as it can severely harm the strength of the company. Loss of data, hack-ins, or viruses can destroy all the hard work that was put in and damage the company’s reputation and financial situation, not to mention that the breach of customers' private confidential information is an exposure that can lead to serious lawsuits. In recent years, cyber insurance policies have made their way into the market. It can cover damages caused to third parties and also first party damages, loss of the company’s income while it was shut down, costs of ransom if needed, payments for the team of experts that were required to solve the problem, and even the payments for the PR firm that were hired to minimize the damage to the company’s reputation.

 

4.     Medical Travel Insurance – "bank of days"

Most hi-tech companies meet many investors abroad as part of their efforts to raise funds, negotiate with potential clients in other countries, or attend professional conferences around the world. Instead of acquiring travel insurance for every employee every time they travel abroad, a company can acquire a pre-set amount of days and report on the days spent abroad retroactively. This type of insurance applies for Israelis and for non-Israeli employees of the company, all of whom travel internationally for the company's subsidiaries, as well as meetings and events worldwide. The coverage given to the company is for medical bills which might arise due to unexpected medical situation or injury of an employee or other representative of the company abroad. This way a company can also minimize corporate liability that may arise due to a lack of insurance (for example, if an employee is injured while abroad on business and an insurance has not been issued for him by mistake, their employer is liable). There are alsoother available endorsements and coverages – for example for lost baggage or damages for flight cancellations .

 

5.     Property Insurance, Third Party, and Employer's Liability

It only takes one fire, earthquake or other natural disaster to wipeout all your hard work and leave you with a destroyed company. If you think this is rare, think again of situations when a third party comes to a meeting in the company's premises and unfortunately gets hurt, or when one of your employees falls during work and gets severely injured. In these situations, your company will face a lawsuit and the results can be catastrophic. The insurance company will pay its clients the cost of rebuilding the office, the cost of the furniture, computers, and goods inside your premises and loss of profit covers any third party or employee that was unexpectedly harmed.   



 

Managing companies in general and Startups specifically is not an  easy task. Mistakes can and will happen along the way. Insurance is the best way to manage your risks and to make sure mistakes, failures and damages will not hold back company's growth.



Amnon Gur Insurance Group is the largest privately owned insurance group in Israel.
The group includes several unique departments that provide solutions to technology companies, start-ups, hardware, software, products and more. The group has more than 35 years of experience and more than 80,000 satisfied customers. Amnon Gur is licensed by the Lloyd's International Underwriters Organization in London and work with selected brokers in the US to find solutions for complex insurance requirements.