Five Reasons Why Business Insurance is Critical for Start-ups

The pandemic brought significant challenges to business eco-systems, and many are yet to recover from the financial losses caused. It shook many of the previously held notions like adversity cannot come to all, big or small. As we start thinking afresh, the road ahead is bound to carry risks. High inflation is creating new challenges, with many successful companiesbacking out of proposed IPOs. Yes, the challenge is to carefully navigate business environments that can get into choppy waters any time.

Today’s situation offers an opportunity to rethink our business security to make it more sustainable. At times productivity and growth can deliver even more challenges. Companies need to consider a framework that integrates fiscal sustainability, and have room for growth and scaling up. Implementing a sustainable framework requires companies to adopt certain securities and create setback-proof businesses. Here are five compelling reasons to buy a business insurance product:

To Protect Financial Interests of the Organization

Most startups usually do insure employee’s health and accidental risksbut ignore the risks pertaining to their assets and liabilities. Not doing so can impact the balance sheet and if that happens even the employee benefit programs can fall flat as the business’ P&L will be impacted. An insurance coverage will compensate you for the dent caused to the business in unforeseen situations, and thus helps businesses to restart faster after the crisis blows over.

To Safeguard Investors’ Interests

All businesses need to be in sync with what investors want, and they certainly want to protect their finances. When the business is doing well there is still no guarantee that it will not suffer setbacks. Insuring these risks is a positive business action taken well in advance to protect financial health. Most venture capital and private firms require businesses to secure directors and officers (D&O) insurance before they will approve any funding.

Regulatory Requirements

All businesses run the risk of being fined by governmental regulatory bodies if they do not conduct their activities in a lawful manner.
Apart from internal cost challenges, there are continual regulatory changes that make insurance mandatory. In India, Workmen’s Compensation Act, 1923, makes it mandatory for manufacturing companies, mining companies, construction companies, transport undertakings, factories, plantations, etc. having more than 20 workers, to protect the rights of employees. Public Liability Insurance Act 1991 makes it mandatory for the business dealing in a hazardous environment to take suitable insurance. The new Data Protection bill might also make business insurance against cyber frauds mandatory for different types of businesses.

To Support Growth and Change

The general rule of thumb is that when you feel safe, your risk appetite increases and businesses can venture into newer areas, scale up and hire more people. While you scale up, you are likely to make more mistakes as there are multiple stakeholders, and therefore business insurance helps to safeguard finances, to support growth and change. An insurance advisor will deep dive into the business performance, and discoverunusual claim patterns or unexpected risks, to help the organization take informed business decisions. Such forward-looking business planning helps businesses to remain resilient.

To be Safe from Risks and Create a Strong Business Case

As a business, we feel that we will not face any untoward circumstances, however, that is not the correct position to take. No matter what the size of the business, you may lose assets at any time or be subjected to legal lawsuits. Even for bank loans, it is important to say that your assets are protected and insured against loss. While bidding for finances, you should be able to say that you have insurance and that is how it will strengthen your case, and you can be up there a couple of notches. Many times, retention or hiring of senior employees is dependent upon insurance. A senior director/employee joining your company may ask you to set up Directors and Officers (D&O) Insurance to cover various personal and business risks.

Conclusion

We assume that we will not face lawsuits; that is not correct. Any FIR or complaint can make even the employees unsure of their turf, and that affects performance. You need to create cushioning. It is all about right-sizing and building a true value proposition.
For companies to recover from the fiscal stress of the pandemic, they need to move towards full potential for growth and development. We need to create an enabling environment that is strengthened with insurance policies. This helps to strike a good balance between growth, flexibility, and credibility.