Embroker’s 3rd Annual Vertical Insurance Index: Startup Edition

Our 3rd Annual Vertical Insurance Index: Startup Snapshot is here. This report, as in previous years, is a deep dive into the insurance buying patterns of founders, the fluctuation in the market of startup policies, and the factors influencing coverage decisions.

The Startup Insurance Benchmarking Report is part of a series of reports from Embroker. They are designed to provide an insightful, comparative look at business insurance coverage and costs for startups.

The Startup Snapshot analyzes the costs and benefits of business insurance at various stages of startup growth. This, along with several other takeaways, will help them make smarter, more confident buying decisions when it comes to protecting their business.

But beyond cost, the Benchmarking Report also gives entrepreneurs insight into insurance trends that reach beyond their wallets. Our data snapshots are derived from over 5,000 Embroker individual policyholders, and look at real-world purchasing data (not off-the-shelf pricing information).

In our startup insurance benchmarking report we offer insights into startup trends that don’t make it into the headlines.

This year, hardening markets and economic downturns have revealed their effect on investment in risk mitigation and transfer. 

Embroker’s 2023 Vertical Insurance Index Takeaways

Here are the takeaways from our three core policies in the Embroker Startup Package:

Employment Practices Liability Insurance (EPLI)

As companies grow in size and revenue, so too does their risk. EPLI had the highest year-over-year premium change from 2021 to 2022, with a 31% increase in average premiums. This contrasts with the prior year’s results, when EPLI had the lowest change compared to 2020, at just 7%. This uptick could be due to inflationary pressures and internal realignments that triggered many tech companies to significantly reduce staff to free up capital, which then exposed them to greater potential for wrongful termination lawsuits and other claims. 

Directors and Officers (D&O)

Founders’ and leaders’ responsibilities grow with their companies. As startups hire more executives, board members, and directors, they must account for additional exposure. While nearly all startups are spending the most on D&O, many of those with $25M or more in funding opted to lower their D&O limits in 2022. Only 14% of these businesses selected the highest limit of $5M in 2022, compared to nearly a quarter (22%) in 2021. Given the rising D&O prices overall, this may be due to budgetary limitations. Mid-size startups (those with revenue of $1M-$5M) saw the greatest increase in D&O premiums with a 50% uptick year-over-year. This may indicate that the midmarket has taken a more substantial hit in this funding landscape, resulting in a greater sense of vulnerability for their executives. 

Technology Errors and Omissions (Tech E&O, includes Cyber)

As a startup brings on more customers and team members, the opportunities for project issues, product defects, breaches of contract, and cybersecurity vulnerabilities increase. E&O/Cyber premiums grew 111% for startups going from $5M-$25M in funding to over $25M in funding. However, E&O/Cyber policy limits showed signs of stabilizing compared to 2021 when policy limits increased across the board. Although external data suggests cyber threats are increasing daily, founders prioritized D&O and EPLI over the potential fallout from cyber threats and attacks as it pertains to limits. In 2022, 38% of companies with 30+ employees had a $5M limit policy, the highest available, compared to 50% the prior year. Additionally, 25% of companies with 30+ employees had a $1M limit policy, the lowest available, compared to 19% in 2021. These findings suggest that founders of larger startups in particular may have increased confidence in their technology and cybersecurity guardrails. It may also speak to businesses moving more of their remote workforce back into the physical office, which lessens cybersecurity exposure.

The startup risk environment is more unpredictable than ever. Using reports like these, founders can better understand the risk landscape they’re operating within, and what policies they need to transfer that risk.