Declined, Out of Appetite? Strategies to Land Coverage for Unconventional Startups

Picture this: One day, you are fielding emails and calls, sipping on your third cup of coffee, when your favorite CFO, Nneka Jones, calls to let you know that she is stepping away from her current position at Company A to start a new venture, Company B^2XYZ. She is calling because she wants you to write the startup’s insurance program. She has loved working with you in the past and trusts you will handle the account well. You really want to help her - but you are hesitant. The insurance industry thrives on the past: prior limits, prior loss runs, historical data, class codes. So how does one insure a startup with none of that information?

If you have any small business rating/quoting portals, you breathe a sigh of relief. This should be relatively easy. The online portals and raters typically spit out small business quotes with just a few questions. 

“Sure”, you tell her, “I’ll have some quotes over to you shortly!”

Badabing, badaboom! Full of promise and caffeine, you start plugging away at the portals, hoping to provide her with a plethora of options, limits, and coverage. 

The results come back:

Declined, out of appetite.

Declined, out of appetite.

Declined.

You quickly realize that her new venture does not fit the standard small business marketplace appetite.

This situation happens more often than you may think. Especially if the name or operations of the insured has scary buzzwords words, like “Cannabis” or “Crypto” that knock it out of the small business platforms faster than Usain Bolt. Another issue could be if the company intends to operate as a managed service provider, or there is no class code that really describes what the startup intends to do. 



You still want to pull through for your client, and you are flattered that she wants to work with you, so you start your internet search and 3 hours later, you are more confused than when you started. That brings you here, to my handy tutorial.

Ready? 

First, you take a deep breath and call Nneka back. Your goal is to talk to her about her new company’s vision, risk profile, and potential. Your questions will vary, based on the industry and why you got declined, but it should fall under two general buckets: opportunity and challenges. 

Bucket #1: What is the opportunity?

What type of risk profile/profit center does this fall under?

This varies by industry. For example, if the company is using Blockchain technology or a proprietary algorithm, the risk profile would be quite high, and your profit center will likely be in technology or digital risk.

How is this startup different than what is currently out there?

Hopefully they aren’t doing what everyone else is doing, or the struggle is going to be real. What is their niche? Who is the audience? How are they reinventing the wheel?

What is their projected revenue and payroll for year one?

This will give you a better idea of which underwriter to approach and will help with determining viable expectations.

What is the founder’s current or prior experience and how does that align with the new venture?

If they can provide a resume or a LinkedIn profile showing a proven track record in the industry, this can show the underwriter historical data in a more creative way. It helps to know, that although on average only 10% of startups ultimately succeed, founders of a previously successful business have a whopping 30% chance of success with their next venture.

Bucket #2: What are the challenges?

Are there contractual challenges?

Contracts play a huge role in indemnification and insurance requirements, but they can also present a hurdle. For example, it’s not uncommon to see a contract requiring exceeding high limits that don’t match current financial assets or benchmarking data. If a company only collected $1 million in Series A funding and their contract with Large Corporation is asking for $10 Million of cyber limits, that will be a significant challenge.

Are there financial challenges?

Within startup failures, 29% is due to running out of funding. Funding can be gained through a Private Equity or Venture Capital, private investors, or a traditional lender. The founders can also bring in funding through private or government grants, a subscription model, consulting base, etc. For a lot of new firms, business loans, credit cards, and lines of credit account for about 75% of their financing.

What is the company’s risk tolerance and risk culture? Do they want to self-insure some lines or transfer as much risk as possible over to insurance? Can they afford to set aside funds and have higher deductibles? What are their safety controls? For example, a new scented candle business may seem like a fun idea until you try to quote the fire insurance for the warehouse storing the candles, and you find out the building was built in the 1920s and not fully sprinklered! Whoopsies.

During this conversation, collect and jot down the information that highlights the opportunity and challenges. Request documentation that can help the underwriter understand and trust the narrative, such as written safety controls/manuals, proforma/financials, owner’s resume, cap table, signed or pending contracts, and the investor deck. Before you hang up, give Nneka a reasonable time frame for turning around a quote. Don’t promise it to her tomorrow unless you want the underwriter to hate you. Once you are done with goodbye pleasantries, start crafting the company’s narrative in your own voice. 

It’s all in the narrative. 

Now you are ready to create the marketing submission. Attach all pertinent documents to the email and draft up something along these lines:

Dear Underwriter X,
Here is the opportunity that we have:

• (insert information from Bucket 1)

Here are the challenges that come with this account:

• (insert information from Bucket 2)

Here are the policy coverages and limits needed:

• (insert information from benchmarking & contractual requirements)

Attached is the following:

• (list all the applications and documentation provided by the insured)
  Once reviewed, please feel free to give me a call on my direct line and I would be happy to discuss any questions or concerns you may have. 
  (obligatory sign off words),
  Your name here

Underwriters want profitable accounts, and a lot of new ventures can be profitable if the proper risk management measures are taken at inception. With startups, the more information you can get in front of underwriters, the more comfortable they will be with taking the plunge.

Your job isn’t over, but the difficult part is done. The good news is that you have a great relationship with your MGA brokers/wholesale brokers/underwriters and after a few days, you have multiple lines of coverage and maybe even multiple insurance limits to work with. You send Nneka a masterpiece of a proposal and walk her through her different options. She is satisfied and feels like she is in good hands. 
Policies bound. 

You are a Rockstar!