I typically start talking to my clients about EPLI when they cross the 10 employee threshold. Once a startup gets to that point it is typically beyond the founding team and first couple of hires that the founders probably knew well or had targeted. When you get past 10 you are starting to bring in people outside of that tight circle. You are also going to begin to have some churn as it relates to employees coming and going.
As a startup, if you have this many employees it usually means you are going up from there as well. Most of the time the founding team and build out staff is going to be small. Once some funding comes in this triggers expansion. If you are expanding fast you are going to need to protect yourself against claims that EPLI protects you from.
If you have D&O already (most funded startups will), EPLI is a fairly inexpensive add on. Usually it’s less than $2k/annual at 10 odd employees. It’s going to come down to when management feels it is important enough to pull the trigger on. Given the rise in EPLI claims in recent years, it’s becoming more and more important. The earlier you get it the better.
A funding round that will trigger expansion is a pretty good trigger if you wanted to look to a particular event. I would think series A versus a seed round but that will depend on the size.
This is an issue I talk to clients about quite a bit so here comes the shameless plug. If this is something you feel warrants some discussion feel free to reach out with a call or an e-mail. I will be happy to act as a resource for you.
Business Insurance & Investment Services of MA
What are the recommended types of insurance my tech startup will need?
What are the vital/recommended types of insurance my tech startup will need?
- Workers Compensation: Fairly straight forward here. This is mandated by the state if you have employees. Get it or get fined. Workers Comp provides disability payments to employees that are hurt on the job. Some states (NY and CA are a couple) will also mandate that your company purchase State Mandated Short Term Disability Insurance as well. Like Workers Comp, if you don’t get it you can be fined, so get that too if you are in an applicable state.
- General Liability/Property/BOP: Comprehensive General Liability is foundational coverage for your business. It covers aspects such as ‘slip and fall’ incidences, product liability, damage to rented premises and advertising and personal injury. A company can tie in both General Liability and Business Property into the same policy by getting a Business Owners Policy or BOP. For startups, a BOP will cover more ground at a lower price by tying together multiple coverages on one policy. It covers a lot of ground and the basic risks for your business.
- Technology Errors and Omissions: This is the one that is really going to count. Tech E&O is the coverage that is going to cover your company in the event that your services fail. E&O covers risks that stem from the services provided by your company. If that service is technology related, most of the risk associated with your company is going to be covered by this component.
- Cyber/Privacy: This used to get overlooked as not worth the money some years back, not anymore. Cyber/Privacy’s major purpose is to cover a security breach in your company’s systems that results in the loss/theft of sensitive client data. This is especially important if you work in the financial or medical space where the information you have custody of is personally identifiable data such as medical records, SSN’s or financial data such as banking account or credit card info. Cyber/Privacy will typically be tied to a Tech E&O policy. You will need this, make sure you have it.
Next Level Stuff:
- Directors and Officers: This goes a little next level for a startup but it should be on your radar screen. D&O covers your management team against risks that stem from leadership decisions and the management of the company. For a tech startup, a couple of the more common triggers is a VC round or a prerequisite by a potential board member. Claims that stem from these types of risks have been on the rise and without it your company leadership (including founders) are potentially exposed to litigation with no coverage to back you up.
- Employer Practices Liability Insurance (EPLI): EPLI Insurance (Employer Practices Liability Insurance), provides coverage against claims stemming from employees and former employees allegations of Discrimination, Harassment, Retaliation, Wrongful Termination and Improper Workplace Conduct. This is an area where there is a lot of claims action. You read about a new high profile case every day. While startups may think this doesn’t apply, make no mistake, it does.
These are issues I talk to clients about quite a bit so here comes the shameless plug. If this is something you feel warrants some discussion feel free to reach out with a call or an e-mail. I will be happy to act as a resource for you.
Business Insurance & Investment Services of MA