John Salvucci is the Principal at Fortside Insurance Group, insurance solutions for technology companies and consulting firms. John was interviewed by Andrew Daniels, Founder and Managing Director at InsurTech Ohio.
John, what are some of the biggest issues insurtech startups face as they grow that they aren't prepared for?
“Insurtechs are fantastic at building new channels that link insureds to capacity and improving customer journeys along the way. Yet, ironically, our own customer journey toward insurance coverage is difficult. I learned this through my own experience as an insurtech co-founder and from speaking to other founders in our space. Insurtechs do not fit well in an underwriting box and, therefore, require bespoke coverage for their specific needs. I often meet insurtech founders scratching their heads after spending weeks looking for proper insurance coverage. At Fortside, we help them get through that process quickly and efficiently, so they can get back to focusing on their core business while knowing they have the protection they require to both operate and partner with others.”
How does rapid scaling bring more risk to a startup's business?
“There are two major impacts that have to do with the need to move quickly; speed to market and product pivots. As an insurtech, once you get funding, the ethos becomes, build, build, build, scale, scale, scale. Whenever we do difficult things quickly, our chances of making a mistake increases. A natural tension builds between your product readiness and its release date. You will have team members and investors who say, ‘Release it. Let's get it out there and get some feedback on the product.’ There will be others that say, ‘Hey, we need more time to iterate before we put this in users’ hands.’ We protect customers against this inherent risk through Professional Liability insurance.
Additionally, insurtechs often need to either pivot or develop ancillary products to support the main product. That, too, brings risk. All professional liability policies have a professional services definition embedded within. If the insured pivots their product or provides additional services to customers, there’s potential for a gap in coverage. Make sure the insurance coverage you're paying for and relying on properly addresses your current operations and services.
Then there's the exposure of hiring quickly. Once an insurtech secures funding, founders must quickly hire a team to execute. A young insurtech might onboard a dozen employees in a matter of months, but the reality is, not all hires will work out. There’s inherent Employment Practices Liability (EPL) exposure that insurtechs should be aware of as they grow quickly. An EPL claim can paralyze a founder in paperwork and create a huge unexpected hole in their budget. We always make sure to talk through the need and timing of EPL coverage with our clients.”
What are some of the ways an insurtech startup can ensure they're prepared to work with a large carrier?
“Let me start with security compliance. Carriers are going to insist on high operational security thresholds with all of their vendors. If your core platform holds customer data, you need to be working toward SOC2 compliance. Not only do you need to think about your own compliance when working with carriers, but you need to think about your vendors’ compliance. Be sure to have a documented process by which you evaluate the vendors and technology that you incorporate into your core product.
The other thing we see clients dealing with are large insurance requirements built into their contracts. Big carriers require big limits of insurance, so when the time comes, founders will need to quickly extend the breadth and limits of their coverage in order to comply with the vendor contract. You're going to need an insurance program in place that you're in control of and can scale quickly. Typically, that means having a broker that understands what you're going to need before you need it.”
As this industry grows, what are some of the things that startups need to be aware of in order to ensure compliance?
“Our industry is now big enough to have professional service firms that specialize in insurtech. My advice to insurtech founders is to take a couple minutes to pick up the phone or shoot out a quick email to other founders or investors to ask, ‘Who should I use for X? Who's good at Y?’ As a founder, you don't have time to figure this all out from scratch. Lean on others in the community for assistance and become part of the larger insurtech ecosystem. Tracking down the right partners quickly will result in a more resilient business and allow you to focus on your core objectives.”