Setting start-ups on course for the right insurance

It’s a big decision to set up a company or organisation, often fuelled by a passion or talent for something which the founder(s) believes can meet a demand within the market. They may talk to legal experts or even engage with other specialist areas such as HR or accounting to fill gaps within their own expertise. These could even be outsourced at an expense. But from my experience, arranging insurance is usually left to the last minute.

Aside from insurance, my passion is playing golf and I’ve just recently returned from playing some of the finest links in Scotland. I know what I want to do on each of the courses, taking my ball from the tee to the hole, but these courses are unchartered territory for me. I can play golf but I don’t know the layout of the holes so can easily find myself in a hazard unwittingly. Which is not dissimilar to how someone must feel when considering the complexities if insurance when launching a start-up.

Back on the green, many golf courses recognise the issue with unfamiliarity and will look to provide assistance for golfers, inclusive of the green fee, via a yardage book or information pictorial leaflet which shows things for golfers to be aware of. Or the starter will look to provide guidance on the first tee of things to be aware of when playing your game. The club appreciates that most people will be playing their course for leisure and enjoyment, and they don’t want your best drive of the day to be caught by a bunker lurking in the middle of the fairway that you cannot see from the tee box.

So how do we apply this golfing analogy apply to insurance for a new business? The founder knows they need insurance and it’s possible to purchase insurance directly from insurers (especially at the micro/SME level) but the insurer will only provide you what you have asked for. There is no advice or guidance. So, you may be hitting the right shots but are they going in the right direction, or allowing for the risks that you cannot see.

By using a specialist broker rather than chancing a tricky shot by going directly to an insurer, the experience is the polar opposite.  A broker will look to use their experience to ensure you consider the risk that could be insured which are most applicable to your business. They’ll also help to reduce the potential for you to make a misrepresentation which can be disastrous for your insurance programme. (More information can be found on this topic on our podcast).

The best part – and probably least appreciated by founder of the business – is that the advice from the broker is free until such point the insurance is placed.

That’s free advice on something which could be fundamental to the survival of your business following an event which could cause it to fail or at least faulter unless insured correctly. Which sounds like a pretty good proposition to me.

The broker can also offer advice with regards to budgeting which is vital in the early days of a company. A general rule of thumb is any company will spend 1-2 percent of its turnover on insurance (assuming standard market conditions). but this doesn’t allow for certain insurance areas that may have significant minimum premiums – which for the larger company do not come into play.

For example, someone is looking to set up their own professional services business.  This is for the same sector they’ve come from, but that was a large firm that has total fees of GBP25m. This means the big business has a total insurance spend using the above metric of GBP250k to GBP500k.  This new business founder is a market leading expert in their field, so insurers have no issue with your risk. But there’s just one issue minimum premium levels for their Professional Indemnity which they must have in order to trade. These across the market are set at GBP10k, and their turnover is GBP250k, so you are expecting GBP2.5-5k. By engaging with a broker early the start-up founder can get this information, allowing them to budget accurately.

This is vital for the business to grow from a seed into a thriving plant.

Whether you’re ready to tee off with your own start-up, you’re perhaps thinking of setting up your own business, or have already and want your insurance cover reviewed (without cost) please get in touch.