New Report Details Business Insurance Costs and Decisions During Unprecedented Growth Period for Startups
Embroker, the digital platform making it radically simple to get business insurance, today released an analysis showing that as startups raise more venture capital funding, coverage costs can increase by over 150%.
The new report, titled 2nd Annual Embroker Vertical Insurance Index: Startup Snapshot, documents the corresponding fluctuations in average premiums, limits and retentions for different lines of business insurance as VC-backed startups grow in revenue, headcount and funding. The Startup Snapshot encompasses two years (2020-2021) of insurance purchasing data generated by almost 5,000 Embroker individual policyholders, which include early-stage pre-revenue companies to companies with over $25M in funding or over $5M in revenue. The data included in the report represent actual purchase decisions made by startups, providing a valuable, historical snapshot of business insurance trends from 2020 to 2021; not just mitigating risk, but guiding business decisions.
Key findings from the report reveal the premium impact for different stages of a startup, demonstrating how milestones in business growth trigger risk:
- Employment Practices Liability Insurance (EPLI): As companies grow and hire more employees, risk within the workplace has the potential to increase. With employees returning to the office, many for the first time in two years, issues for both in-person and remote employees can resurface. Embroker data shows that EPLI premiums increased by 76% on average when the company headcount went from 10-30 employees to 30+ employees. EPLI had the lowest year-over-year premium change from 2020 to 2021 with a 7% increase in average premiums.
- Directors and Officers (D&O): More funding equals more responsibility. As startups hire more executives and add more board members or directors, they need to account for that additional exposure. 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. This sort of exposure means a company needs to expand protection from errors and omissions. E&O premiums raise 242% when startups go from $0M – $1M in revenue to $5M+ in revenue. On average, all startups regardless of growth stage paid $8,061 in annual premiums in 2021, which is a 9% increase from 2020.
- Estimated total insurance spend 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. On the other hand, startups, as well as companies of all sizes, had to contend with other risks in the past year, from cyber attacks to supply chain issues to workplace discrimination and equity concerns. The intersection of this unprecedented growth in funding and increase in business risk heightens the level of responsibility for startups to protect their business, investors, employees and intellectual property.
“The last couple of years have been very favorable for startups due to a positive fundraising environment and market tailwinds. To continue this growth, they now have to navigate both opportunities and new threats. 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,” continued Miller. “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.