While companies like Google and Facebook are ubiquitous now, they began life as technology start-ups before reaching their current place in the market. Because of that, the thought of creating the next big start-up is undeniably appealing. But before you establish one of these businesses, it’s important to remember that they face many different risks.

‍

If you’re in charge of a newly-founded start-up, you’ll need to contend with possibilities such as property theft, cybersecurity breaches, employee injuries, and other risks. Here, we’ll explain these risks in greater detail—and help you find insurance policies that can offset them.

‍

‍

^{What is a technology start-up?}

It’s easy to assume that the term “start-up” describes any newly established business, but this definition doesn’t tell the whole story on its own. Instead, these operations aim to create entirely new business models based on unique ideas, which separates them from “normal” small businesses working within existing markets.

‍

Not every start-up focuses on technology, but the emphasis on innovation in this space means tech and software start-ups are extremely common. As of 2022, artificial intelligence and big data was the start-up industry most heavily funded by VC, to the point where 28.9% of global start-up deals fell into that category.

‍

‍

^{What risks do technology start-ups have?}

By their very nature, technology start-ups are familiar with risk—but some of these risks are more controllable than others. Your start-up needs to prepare for dangers such as:

‍

^Cyberattacks

Almost any company can become the target of cybercriminals these days, but that’s especially true for businesses focusing on technology. A serious data breach could affect both your start-up and its customers.

‍

^{Third-party accidents}

Does your start-up ever have outside visitors? Whether you frequently welcome members of the public or only interact with delivery people, potential third-party injuries should always be on your radar.

‍

^{Stolen or damaged property}

If your business has any form of property, there’s a chance that it will get stolen. Along with that, fire, flooding, or vandalism could damage your building, fixtures, supplies, and inventory.

‍

^{Worker injuries}

Any business with employees could end up dealing with worker injuries. If your employees get injured while working, you might have to pay for their short-term and long-term medical expenses.

‍

^Lawsuits

Your business might face lawsuits due to errors affecting clients, aggrieved employees, or advertising injuries—just to name a few possibilities. No matter what type of lawsuit you’re dealing with, you could be on the hook for a massive amount of money if you don’t have the right type of insurance in place.

‍

^{Auto accidents}

Many start-ups rely on vehicles in their work—but if your business owns a vehicle, it could get involved in an automotive accident. If that happens, you’ll need insurance to avoid serious financial consequences.

‍

^{What insurance do they need?}

Because of these risks, technology start-ups must ensure they have several insurance policies. Some forms of coverage your start-up needs to have include:

‍

^{Business owner’s policy}

If you’re running a technology start-up, you’ll need both general liability and commercial property insurance. However, you may be able to save money on this coverage with a business owner’s policy (BOP), which bundles both policies at a discounted rate.

‍

A BOP will provide protection if your company finds itself dealing with:

‍

• Stolen or damaged business property
• Lawsuits resulting from injured customers, faulty products, or property damage
• Legal action related to advertising injuries
• Temporary closures

‍

Not all start-ups are eligible for a BOP. If you’re unable to secure this form of insurance for your tech start-up, you’ll have to purchase general liability and commercial property insurance separately.

‍

^{Cyber insurance}

By their very nature, technology start-ups face a heightened risk of data breaches and other cyberattacks. And while the third-party cyber insurance included in technology E&O insurance can help you deal with cybercrime, this coverage can only go so far by itself. 

‍

Luckily, first-party cyber insurance can help your business pay for:

‍

• Notifications to people and organizations affected by cybercrime
• Asset/data recovery
• Cybercrime investigation
• Ransom payments
• Lost revenues due to a cyberattack
• Stakeholder protection
• PR management

‍

^{Technology errors and omissions insurance}

When your start-up is accused of making a mistake or being negligent in any other way, an errors and omissions (E&O) policy can help. Technology E&O insurance provides additional benefits by combining this form of coverage with third-party cyber insurance.

‍

If your start-up has access to technology E&O insurance, you’ll get financial help in the event of:

‍

• Contract breaches
• Mistakes and oversights
• Failure to deliver promised services
• IP/media liability (in certain professions)
• Client lawsuits after a cyberattack

‍

^{Workers’ compensation insurance}

Even if your start-up has just one employee other than yourself, you’ll need to prepare for the risk of potential worker injuries. And if an employee gets hurt in your workplace, your company will have to juggle several expenses in the aftermath.

‍

That’s where workers’ compensation insurance comes in—these insurance policies help businesses pay for the costs resulting from unexpected incidents involving worker injuries. By purchasing a workers’ compensation insurance policy, you’ll get support when you need to pay for:

‍

• Upfront medical expenses, such as ER costs
• Longer-lasting medical expenses (for example, medications)
• Partial lost wages while an employee recovers

‍

^{Employment practices liability insurance}

If one or more employees at your start-up file a lawsuit related to employment issues, you could stand to lose a great deal of money. That’s true whether or not you’ve actually done anything wrong—even a baseless lawsuit could cost your business big-time.

‍

To deal with this situation, you’ll need employment practices liability insurance (EPLI). EPLI can help you cover these legal costs when an employee sues over issues in the workplace:

‍

• Court costs
• Attorney’s fees
• Court-ordered judgments
• Witness fees
• Settlements
• Punitive damages

‍

^{Directors and officers insurance}

Your start-up’s board of directors has a vital role to play in your company, but the people on this board are only human—and that means they can make mistakes along the way. Because of that, they could get sued in response to decisions they made in a professional capacity, potentially forcing your business to cover significant legal expenses.

‍

Directors and officers (D&O) insurance is designed to help businesses deal with situations like these. If you have a D&O policy in place, you’ll get protection from lawsuits resulting from:

‍

• Mismanaged funds
• Claims related to copyright infringement, slander, and libel
• Grievances from employees
• Failure to comply with regulations
• Failure to follow bylaws

‍

^{Commercial auto insurance}

Does your technology start-up use at least one professional vehicle? If so, you’ll always have to be ready for the possibility of auto accidents—a situation that could lead to damaged property, medical expenses, and even lawsuits.

‍

Commercial auto insurance makes it much easier for companies to afford expenses resulting from a crash (as well as costs tied to weather/vandalism damage or auto theft). Depending on how often your business actually uses its vehicle, you can adjust this coverage to meet your start-up’s needs.

‍

‍

^{How much does it cost?}

To enjoy the benefits of comprehensive technology start-up insurance, you’ll need to pay for each of the policies described above. On average, here’s how much small start-ups spend on these insurance policies:

‍

• Business owner’s policy: $57/month
• Errors and omissions insurance: $61/month
• Workers’ compensation insurance: $45/month
• Cyber insurance: $145/month
• Employment practices liability insurance: $222/month
• Directors and officers insurance: $138/month
• Commercial auto insurance: $147/month

‍

^Conclusion

It’s impossible to eliminate the various risks technology start-ups deal with. That said, you can take steps to mitigate these dangers—and investing in the right insurance policies is an excellent way to pursue this goal.

‍

If your start-up has employment practices liability insurance, workers’ compensation insurance, a business owner’s policy, and some other types of insurance in place, you won’t usually need to worry about the risks covered in this article. Because of that, you’ll be able to focus on building a technology start-up that will go on to change the world.

‍

Speak to a Technology Insurance Advisor today and learn more about costs, coverage, and more.