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Insurance Applications Done Correctly: Practical Tips
As a growing tech company, locking in the right commercial liability insurance coverage is essential to protecting your business from potential lawsuits and financial losses and instilling trust in customers and investors. That is where business insurance comes into play. However, the process of filling out business applications can be complex, especially for tech companies with unique risks and exposures. In this blog post, we'll provide practical tips for filling out commercial liability insurance applications correctly to ensure your tech company gets the coverage it needs.
What is Commercial Liability Insurance?
Commercial liability insurance consists of several lines of insurance. Typically, commercial liability is synonymous with General Liability (GL) insurance. However, there are other forms of liability, such as professional liability and cyber liability, that have become prevalent risks for businesses.
For example, if a client alleges that your software caused a data breach resulting in financial losses, your hardware product malfunctioned and caused damage, or even if a visitor slips and falls at your lab or facility, liability insurance would cover legal defense costs and any resulting settlements or judgments against your company.
According to a report by Hiscox, the average cost of a cyber liability claim for small businesses is $188,400. These figures highlight the importance of having comprehensive liability coverage tailored to the unique risks faced by tech companies.
Why is Commercial Liability Insurance Important?
Tech companies face a range of unique risks, from cyber threats and data breaches to intellectual property disputes and professional liability claims. A single lawsuit or claim could be financially devastating for a growing venture. Commercial liability insurance acts as a safety net, making sure your business can continue operating even if faced with a costly claim.
Here are a few real-world examples that illustrate the importance of liability coverage:
- A software company faces a $500,000 lawsuit alleging that their product infringed on a competitor's patent. The company's intellectual property liability insurance covers the cost of the legal defense and settlement.
- A data breach at a SaaS provider exposes sensitive customer information, resulting in a $2 million class-action lawsuit. The provider's cyber liability insurance pays for legal fees, customer notification costs, and credit monitoring services.
- A client sues a web development agency for $150,000, alleging that the agency's work was subpar and caused lost revenue. The agency's professional liability (E&O) insurance covers the cost of the legal defense and settlement.
Without insurance, the tech companies in these examples would have had to pay out of pocket, putting a major strain on their finances and potentially hindering their growth.
What Information is Required on a Business Insurance Application?
When filling out a business insurance application, you'll need to provide detailed information about your products, services, and operations (also known as "exposure gathering"). Be prepared to provide the following to your broker and underwriters:
- Basic company details like your business name, address, industry, and years in operation
- Contact information for founders, executives, and key personnel
- Projected and historical revenue figures
- Detailed description of your products, services, and target markets
- Information on your company's IT infrastructure and security measures
- List of key clients and vendors along with contractual requirements and sales templates
- Number of employees and contractors
- Details on any past claims or lawsuits against your company
The application will also include questions to assess the specific risks your tech company faces. For example, a company that handles sensitive customer data would need to provide more details about its cybersecurity measures than a company that develops mobile games.
Common Mistakes on Business Insurance Applications
One of the biggest mistakes companies make is not being transparent about their exposures. Underreporting revenue, downplaying risks, or failing to disclose past claims can lead to coverage gaps or denied claims when you need insurance the most. This can hurt the most when the first claim happens: don't forget that an insurance company reserves the right not to pay a claim if the investigation shows that a company misrepresented the risk!
Another issue is not carrying the right types of coverage. Many companies assume that general liability insurance is enough, but it doesn't cover professional mistakes, cyber incidents, or intellectual property disputes. Working with an experienced insurance broker can help ensure you have the right mix of policies for your company's unique risks.
Choosing low coverage limits to save money is another common mistake. But if a claim exceeds your policy limit, you'll be responsible for paying the difference out of pocket. It's important to choose appropriate coverage amounts based on your company's risk profile and growth plans. Additionally, if you have low coverage limits, you might not satisfy contractual insurance requirements, which have grown in recent years.
5 Tips for Filling Out a Great Application
1. Be transparent and detailed. Provide as much information as possible about your company's operations, products, and exposures. The more the underwriter understands your business, the better they can assess your risks and provide appropriate coverage.
2. Highlight your risk management practices. Describe the measures your company takes to mitigate risks, such as employee training, security protocols, and compliance with industry standards. This can help you secure better coverage terms and pricing.
3. Work with a specialist and tech-enabled broker. Partner with an insurance broker who has deep expertise in your industry, can help you navigate the application process, and equip your company with the right insurance tools.
4. Start early and review carefully. Begin the application process early to avoid rushing and to leave time for follow-up questions from the underwriter. Review your application carefully for accuracy and completeness before submitting.
5. Don't skimp on coverage. While it may be tempting to choose lower coverage limits to save on premiums, this can leave your company exposed to financial risk. Work with your broker to determine appropriate coverage amounts based on your company's risk profile and growth plans.
