New Data Reveals Shifting Insurance Priorities, Pressures as Startups Extend Financial Runway During Fiscally Tumultuous 2022

3rd Annual Embroker Vertical Insurance Index: Startup Snapshot Uncovers FY2022 Business Insurance Costs and Priorities As VC Funding Slowed to a Crawl

Embroker, the digital platform making it radically simple to get business insurance, today released insights on startups’ financial and risk behavior in 2022 — amidst surging inflation, geopolitical conflicts, rising interest rates, and a depressed funding market. The 3rd Annual Embroker Vertical Insurance Index: Startup Snapshot¹ reveals that many founders maintained only the most critical insurance coverage in an effort to stretch their fiscal runways while mitigating their risk exposure.

In 2022, the largest startups were most impacted by these challenging external factors, showing that as companies grow, so too does their risk, and their need to mitigate it. Those making the jump from mid-size (those with 10-30 employees; $5-25M in funding, or $1-$5M in revenue) to large (30+ employees, $25M+ in funding, or $5M+ in revenue) encountered the most striking premium upticks across the board: Employment Practices Liability Insurance (EPLI) premiums rose by 182%, Directors & Officers (D&O) premiums rose by 147%, and Errors & Omissions (E&O)/Cyber rose by 116%.

D&O and EPLI saw the greatest increase in premiums in 2022 as the risk environment worsened due to factors like increased layoffs and executive turnover — which resulted in more claims being paid out. While E&O/Cyber premiums grew as well, overall investments in these policies stabilized compared to the frenzied uptick in cyber policy protections in 2021. With inflation making operations historically expensive, many startups reduced their limits — the maximum amount of money an insurer will pay toward a covered claim — and their number of policies went down compared to prior years as well.

“Last year challenged startups in unique ways, forcing them to recalibrate their risk tolerance to extend their runway,” said Ben Jennings, Chief Revenue Officer (CRO) of Embroker. “In 2022, strong economic headwinds led founders to be more selective and conservative in their insurance protections. This left startups to grapple with ever-changing, unforeseen market conditions. Our Benchmarking Report uncovers how startups distributed their more limited capital to protect their most vital business assets.”

Other key findings include:

• 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.

“Risk is an inherent part of starting a company. It’s critical to drive growth and innovation,” continued Ben Jennings, CRO. “Particularly in an environment with limited access to capital and resources, best practice is to employ a smart, vertically-tailored risk management plan so they can better mitigate the unavoidable turbulence that awaits them, including by transferring these risks through insurance.”

To learn more about the specific needs and costs of insurance for technology startups, check out our 3rd annual digital report and visit http://www.Embroker.com.

About the Report/Methodology¹:

The new digital report, titled 3rd Annual Embroker Vertical Insurance Index: Startup Snapshot, documents the corresponding fluctuations in average premiums, limits, and retentions for different lines of business insurance as VC-backed startups grow in revenue, headcount, and funding. It highlights full-year 2022 insurance purchasing data generated by close to 2,500 Embroker Startup Program (ESP) customers, from early-stage pre-revenue companies to companies with over $25M in funding or over $5M in revenue. The report documents the types of coverage founders purchased in 2022, and how much they paid based on their stage. It also includes select year-over-year comparisons with 2021 and 2020 — providing historical context of business insurance trends that speak to broader business and societal shifts.

About Embroker

Embroker is transforming commercial insurance by making it radically simple for businesses to get the right insurance at the best price. Embroker focuses on industry-specific coverage for the most complex and inefficient lines of insurance, such as Directors and Officers, Employment Practices Liability, Cyber, and Professional Liability. Embroker uses predictive modeling powered by proprietary technology to fully automate underwriting and make the buying process simple, fast, and more affordable. Through Embroker Access, Embroker provides partner agencies and wholesalers with the capability to offer all of Embroker’s industry-leading insurance products to their customers. Founded in 2015, Embroker is headquartered in San Francisco and has raised more than $140M in funding from leading Fintech and Insurtech investors.

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