Innovation and invention is what drives the economy and drives business. Imagine you are an inventor and you have a new product you would like to bring to market. It is often last on the list, but insurance is going to be a necessity to bringing the product to market. It is often difficult for new businesses and especially new manufacturers to secure coverage.
There are many reasons why coverage will be difficult to obtain. Understanding these reasons can help in overcoming hurdles to securing coverage.
- No History- Underwriters base coverage coverage on risk. When there is no history, for example when a business is new or a product is unique, underwriters have no basis upon which to base a premium. It is easier for the underwriter to say no than to insure an unknown risk.
- No Broker- A good insurance professional on your side can be invaluable to securing appropriate coverage for your new venture. Unfortunately, broker fees are based on premiums and most small businesses cannot attract the interest of large brokers who possess the expertise to secure business insurance for new products.
- No Market- Sometimes the product or business exists in a limited or non-existent market or in a market that insurers have not recognized.
Finding insurance coverage for a new business or product can involve conducting detailed research into different insurers and their products. It may involve "selling" your idea to a broker or to the insurer. If necessary, it may involve some level of self-insurance or specific policy limitations. Here are some tips to securing insurance for the new business or product.
- Start With Trade Groups and Other Professionals in Your Field- I was once contacted by a wedding planner who could not find insurance. His local insurance agent had told him that he did not think anyone insured wedding planners and questioned whether such insurance was necessary. We suggested trade group research and the planner came across the International Special Events Society. This led to the planner securing insurance through a package of insurers willing to garner the business of a large coordinated trade group. Trade groups often can secure insurance you cannot secure on your own. Start with trade group research.
- Find a Specialty Broker- Insurance brokerages develop specialties. There are brokers that specialize in professional liability insurance. Some may specialize in transportation. There are specialty brokerages that focus on new businesses and product development. Often these specialty brokerages work directly with professional or trade organizations. This is another reason to start by looking at professional and trade groups.
- Research High Risk or Specialty Insurers- Maybe your new product is one that has a very high risk or is inherently dangerous. To use an extreme example, perhaps you have created a new hand gun. For whatever reason, the risk will not be insured by the traditional market. There are specialty insurers that will "script" a policy fit to a specific risk.
- Create a History and a Safety Plan- Perhaps your idea is similar to some other business. Maybe your planned manufacturing system is similar to another established company's manufacturing system. You intend to be standards compliant and use specific safety mechanisms. This plan needs to be in writing and submitted to insurers along with your application. You establish a "history" by drawing parallels to established industries. The underwriters can then extrapolate a risk and establish a premium.
Establishing a long-term relationship with a competent insurance professional is very helpful in finding insurance for risky or new endeavors. Such a professional can perform most market research for you or has an established expertise in the market such that they can guide you to one or more insurers.