Double search for higher D&O coverage limits after SVB collapse | Insurance Business America
Exclusive: Under increasing pressure, startups are looking for more protection
By Gia Snape
The collapse of the Silicon Valley Bank (SVB) in March wreaked havoc in the US banking sector and tech industry. New data shows that amid the fallout, startups are seeking stronger protections, particularly for corporate executives.
According to commercial insurance platform Embroker, the volume of searches for directors and officers (D&O) cover bid limits with a limit of $3 million more than doubled in the week after the banking turmoil began.
The $3 million limit is considered the traditional midpoint for protecting corporate executives’ personal assets.
According to Ben Jennings, Chief Revenue Officer at Embroker, the results show that venture-backed startups are bracing themselves in the face of heightened uncertainty.
“Founders feel the pressure,” Jennings said. “Not only are they concerned about capital insecurity, they also need to consider how the decisions and actions of others may affect their business.”
“Those fortunate enough not to be directly affected by the SVB collapse are seeing what is happening to their peers and are seeking higher courses in the hope that this will prepare them for a similar situation.”
How has the Silicon Valley Bank (SVB) collapse impacted startup insurance demand?
Embroker, an insurance company headquartered in San Francisco, tracks the buying habits of insurance startups on a quarterly basis to uncover trends in the industry. It offers D&O, public liability, cyber and professional liability insurance on its platform.
According to Emboker’s Q1 2023 survey, quote searches for higher coverage limits for D&O surged 62% in the week of March 12, 10 days after SVB closed.
But as the initial shock wore off, buyers’ frugality returned, prompting a sharp increase in bids for $1 million limits.
“Era of the Frugal Startup Founder”
Purchasing trends show that startup founders are very aware of the volatility in the economy. However, higher search volume does not necessarily lead to purchases; Inflation has also made insurance customers more price conscious.
“There’s usually a cooling off period between getting a quote and actually making a purchase,” Jennings said.
“Using this data, we found that many shoppers became more price conscious as economic conditions tightened. Towards the end of last year, larger companies also opted for lower limits.
“But when risks become tangible, as with the SVB collapse, founders suddenly look at their risk transfer strategy and look for more coverage.”
Additionally, in the wake of the February layoffs in Silicon Valley and as economists cast a grim forecast for 2023, there has been significantly more searches for lower coverage limits.
The high concentration of lower-value listings in the first quarter hints at capital uncertainty and ushering in what Embroker calls “the frugal founder’s era.”
“Overall, the data shows that fear-driven insurance buying and social or economic volatility go hand in hand,” Jennings said.
“Founders understand they can’t control much more than what they can, and that’s why they turn to insurance to protect themselves.”
With the overall tightening funding environment, this will increase pressure on many tech startups to cut costs, with various credit lines for unproven high-cash-burn tech startups receiving more of a spotlight following the SVB collapse. Ripple impact in Valley/Tech will be key going forward
— Dan Ives (@DivesTech) March 13, 2023
How can brokers lead startups through uncertainty?
Amid bank closures, mass layoffs and a possible recession, businesses are feeling the pressure. Jennings advised brokers to be ready to adjust their strategies and work with clients to identify risks.
“By staying attuned to the surrounding business environment, brokers can guide startup founders to adjust their insurance policies based on what may or may not happen next in the market,” he told Insurance Business.
“Insurance is not static – founders’ needs and vulnerabilities are constantly changing, whether due to shifting internal or external risk. They need insurance policies that they can “right size” for their business over time, and it is the broker’s responsibility to provide founders with this new coverage.”
Do you agree with Embroker’s assessment of the mood in the startup industry? Share your thoughts with us.
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