Premiums can skyrocket for growth-stage startups
Increases could be as high as 200% for startups, which are estimated to collectively pay $739 million or more in premiums every year.
Whether it is D&O, E&O or employment-related coverages, when startups move into growth stages, their insurance costs can see triple-digit increases, according to research from business insurance platform provider Embroker.
For example, when startup funding surpasses $25 million, D&O premiums increase an average of 141%. Based on the funding stage, the average annual D&O premium can range anywhere from $4,782 up to $16,445, Embroker found.
Similarly, technology E&O premiums average $5,285 per year for startups with revenue under $1 million. Once revenue hits or exceeds $5 million, rates can increase as much as 215%.
The business insurance platform provider noted E&O is essential because of the nature of startups, as the efficacy of their products along with the safety and security of the digital information they handle represents substantial risk and exposure.
Employment practice liability premiums don’t increase as drastically as the other lines as businesses grow, but they do get bigger. On average, when a startup goes from fewer than 10 employees to more than 30, a premium increase of 65% is typical, Embroker reported.
Transparency needed
“For many startups, the process of getting business insurance can be relatively opaque. Founders don’t necessarily have the expertise or insight to know what type of policy they should or shouldn’t be getting, and what’s the right price to pay,” Matt Miller, Embroker CEO, said in a release.
Just as new startups need more transparency and guidance, so do young business owners, according to research from Semsee. For example, slightly more than 80% of younger (millennials and Gen Z) business owners want agents to present new pricing and coverage options before recommencing coverage each year. Just 63% of baby boomers said the same.
Further impacting growing startups, specialized segments like venture-backed startups have been historically under-serviced by the larger insurance companies, according to Miller, who explained this is because they have very specific risks that can’t be addressed by more general business insurance lines.
“Because of this unique risk, business insurance cannot be a checkbox item for growth-oriented startups — an uninformed approach to coverage will leave companies with costly exposure during critical growth stages,” he explained.
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