If you’re thinking about starting a business, talk to an insurance professional before you’re ready to buy insurance.
Better yet, start thinking about risk before you’re ready to buy insurance.
Insurance is often treated as one of the last items on the startup checklist. Find a location, buy equipment, line up suppliers, develop the product, sign contracts, and then, shortly before opening, figure out what insurance is required.
That’s backward. Insurance and risk should be considered while the business plan is still being developed and decisions can still be changed.
I’m currently working with a startup that developed a consumer product and arranged to have it manufactured overseas and imported directly into the U.S. By the time we started discussing insurance, most of those decisions had already been made.
Those decisions matter. What you sell, where it’s made, who imports it, how it’s sold and who uses it can affect the liability exposure, which insurance companies will consider the business, what coverage may be available and what it may cost.
Property can present the same problem.
That’s particularly true in Florida, especially near the coast. Whether you’re insuring a building you own or lease, or business personal property such as equipment, furnishings or inventory, factors such as location, construction, age, roof characteristics, flood exposure and susceptibility to wind can affect the availability, cost and terms of coverage. That’s something worth investigating before you commit to a location, sign a lease, purchase a building or make a substantial investment in property.
Years ago, I had a prospective business owner approach me while she was still developing her business plan. She wasn’t looking for an insurance quote. She wanted to understand what insurance she was likely to need and get a premium indication so she could build a reasonable insurance expense into her projections.
She had contacted six insurance agents before me. None would help her. Some apparently didn’t understand the new and somewhat unusual business concept. Others simply told her to come back when she was closer to opening.
But waiting until you’re close to opening defeats much of the purpose of seeking insurance advice in the first place. The time to learn that part of your business plan creates a difficult exposure, limits your insurance options or costs considerably more to insure than you expected is while you’re still developing the plan and have the ability to change it.
There’s a difference between selling someone an insurance policy and helping someone understand risk. If an agent isn’t interested until there’s a policy ready to be sold, the business owner is missing much of the value a good insurance professional can provide.
And this shouldn’t be limited to risks that can be insured.
Early in the planning process, ask what could go wrong. Which risks can be avoided? Which can be reduced? Which can you afford to retain? Which should be transferred through insurance or contracts?
An experienced insurance professional can help with that process. Today, AI can help too. Used thoughtfully, it can be a useful tool for identifying exposures you haven’t considered and, perhaps more importantly, helping you figure out which questions you should be asking. It isn’t a substitute for professional advice, but it can be a very good starting point.
Understanding risk might affect where you locate your business, how you structure the operation, where you source products, what contracts you sign, what you lease or buy, and whether the numbers in your business plan actually work.
You may not be ready for an insurance quote. That’s fine. What you need at the planning stage is information: what risks you may face, how they might be addressed, what insurance may be appropriate, and a reasonable indication of what that insurance might cost.
If you’re not sure what risks you should be thinking about, that’s one reason I created the Business Risk Self-Assessment Series. The assessments are designed to help business owners identify exposures and ask better questions about them. They’re informational, not a sales pitch, and you can work through them on your own.
The important thing is to start asking those questions while you still have choices.
