A start-up is essentially just a business, but it often stands out due to new technologies, an innovative approach, and—most importantly—different needs compared to a regular accounting office, for example.
What type of insurance is best?
A well-chosen business policy with appropriate coverage!
What is a start-up?
Let’s start with a brief definition of a start-up. It’s a newly established company focused on testing or finding a business model that will yield the highest profits. Start-ups are most commonly associated with information and communication technologies (IT/ICT) and high-tech sectors. This could be a modern IT solution, a physical product, or a process that can be implemented in external companies.
Common features of start-ups usually include:
- A relatively short history of operations,
- High risk, which can bring greater returns in case of success,
- Innovative solutions or creativity.
In the context of insurance, the first and second points can cause problems. Not all insurance companies will fully cover newly established companies or guarantee high coverage amounts. Of course, as with anything, this depends on the individual situation—one company may decline, while another may welcome you with open arms. For companies, insurers offer coverage tailored very individually, so much depends on the start-up's needs and the insurer's offer.
Risks in Running a Start-up
Start-ups are exposed to many risks that can lead to bankruptcy or significant disruptions in operations. Therefore, it’s crucial for them to manage risk effectively, as this contributes to building competitiveness. There are six methods of managing risk, including risk transfer, which involves transferring it to another entity, such as through insurance.
Analyzing the results of a study, differences were noted in the level of expectations regarding the risk management process, particularly in terms of transferring risk to customers/suppliers and avoiding risk.
An insurance company can help start-ups mitigate risk by offering life insurance, health insurance, accident or injury insurance, liability insurance, as well as property and business insurance. This allows start-ups to focus on their business while protecting themselves from unexpected situations that could harm their operations.
Risk management methods in the context of financing start-ups using insurance can be organized as follows:
- Risk Identification – precisely determining potential threats to the start-up’s operations and their impact on business development.
- Risk Assessment – estimating the likelihood of specific risks occurring and their financial impact on the company.
- Strategy Selection – choosing the best risk management strategy, depending on the type of threat and the start-up's industry specifics.
- Implementation of Actions – taking specific actions to reduce risk and minimize the effects of risk occurrence.
- Risk Monitoring – regularly analyzing risks and their consequences to detect potential threats early and adjust the risk management strategy.
(Source: Ryszard Pukała, “Financing Start-up Risk with Insurance,” State Higher School of Technical and Economic Studies in Jarosław)
What can a start-up be insured against?
As I mentioned in the first paragraph, a start-up is simply another name for a business, so it can be insured against practically everything. This ranges from fire and other random events insurance to mandatory insurance (e.g., carrier liability if the start-up is in that industry) or civil liability insurance. However, it's worth focusing on a few key areas due to the characteristics and most common problems and requirements of start-ups.
Business Liability Insurance
Liability
insurance is essentially a "lifeline" for a business. Start-ups, in particular, are at risk, especially those offering high-quality software that has not yet been fully tested in the market. What happens if an inadequately developed program causes losses to a third party? In such cases, business liability insurance comes to the rescue. Depending on the scope and additional clauses (e.g., employer liability, product liability, IT liability, etc.—the possibilities are practically endless), it will protect the company against claims from third parties.
Start-ups, due to their innovative and often untested solutions, are especially vulnerable to such issues, making liability insurance an ABSOLUTE ESSENTIAL.
Business Property Insurance
A company’s assets include all the resources necessary for conducting its operations. In the case of start-ups, this often includes expensive computers, software, and equipment needed to create products.
You can insure them in two ways:
- Against fire and other random events,
- Against theft with burglary and robbery.
The insurance sums depend on the value of the equipment. Insuring 50 MacBooks will cost more than a few basic laptops, which is entirely logical.
When it comes to property insurance, it's essential not to skimp and save a few pennies by choosing inferior coverage. If you're investing significant money in your start-up and taking on substantial risk, why add the risk of losing the ability to continue working due to damaged equipment?
Business Assistance
Business assistance is additional insurance that guarantees you and your employees the organization and coverage of various specialist services.
This can relate to any emergency situation, for example:
- An important wire in the office burns out, paralyzing the team’s work. With assistance, you can quickly organize an electrician.
- Your employee goes on a business trip and, due to unforeseen events, cannot return to the company. Assistance organizes the employee’s return.
- Someone on your team falls ill at work. Assistance can quickly arrange a doctor’s visit, transport to the hospital, or delivery of medications.
There are countless examples. For a start-up owner, this means one less worry about breakdowns, and for employees, it provides assurance that they won’t be left stranded in the office.
Legal Protection
As the name suggests, legal protection guarantees access to legal opinions, lawyers, etc. It ensures reimbursement of costs incurred by the insured in legal disputes and provides expert support through qualified advisors via a legal hotline.
This insurance can be particularly useful in the early stages of a start-up’s journey when various problems and threats may arise as the business develops.
In summary, having appropriate insurance is crucial for protecting your start-up against the unique risks it faces, allowing you to focus on growth and innovation without undue concern for potential setbacks.
