Insurance plays a huge role in the success of any business. But more often than not, most entrepreneurs only see it as an additional cost and impractical obligation. Until they hit the first critical moments of operations, they only view insurance as a mandatory requirement rather than a productive asset.
For those who wish to land a client, they need General Liability insurance. If you need to sign an office lease, you’ll be required to present Commercial Property insurance. And if you want to scale the growth of your company, you need to have at least Workers Compensation, Employment Practices Liability, as well as Commercial Auto insurance depending on the industry.
But did you know that you can actually turn insurance policies into a revenue-generating tool? When done correctly, it can supercharge your company’s margin and accelerate the growth of your business. While insurance serves as a strong shield against unfortunate claims and losses, it can also generate startup capital funding.
Have the Basics in Place
There’s a science behind turning insurance policies into an income engine. For this to work, you need to place each policy at the right stage and at the right time. As with any startup business or company, everything starts from scratch. This is the phase where you need to raise funds, increase networking events, hire a couple of employees, hack sales to conserve capital, and find the right market to introduce your niche.
The first phase is all about creating a strong baseline shield – in the form of insurance, that will safeguard your company as it ascends towards success. You need to secure General Liability, Commercial Property, Workers Compensation, Cyber Liability, and other policies to protect the growth of your business. The main goal here is to set up the right insurance program to land your first contracts, hire employees, and lease office space all without ruining your progress later on.
- Keep in mind the retroactive date of most insurance policies.
- Check your coverage starting from the date of inception.
- Start early by adding value to your company’s insurance program.
At this point in time, your company should have grown and raised at least a good amount of money to fund products and operations. Likewise, you should have developed a stable marketing equation that will minimize acquisition costs while maximizing customer value. Also, you should have a growing number of employees from ten to dozens.
This is the phase where you need to get creative and use insurance as a sword rather than a shield. Take Intellectual Property and Directors & Officers insurance for example. D&O insurance protects the company’s director and other executive officers against alleged wrongful acts, breach of fiduciary duties, and misconducts while serving on the board. Intellectual property, on the other hand, makes sure that your business is covered against copyright and trademark infringement issues.
- D&O lessens risk mitigation, which is what investors want.
- Intellectual property is also considered abatement insurance.
- It will cover all costs pertaining to protecting and defending any infringement cases.
- You can also use it as a collateral to apply for loans.
Fine Tune Your Policies
Now that you have a shield and sword to look after your business, it’s time to rule an empire. During this phase, your company should target boosting revenues up to millions while considering an IPO or Initial Public Offering to increase growth. Or, you should be expanding to new areas and opening offices all around the globe. Along with conquering new markets and seeding growth, you must fine-tune your policies to minimize risks and accelerate revenue streams.
End-user insurance policies are a constant challenge for big and small businesses, but customers always feel the need to be protected whenever they are using your products and services. This is where Customer-facing Products insurance comes in handy because it offers cheap client acquisition and strong adaptation leading to increased brand loyalty. And since you are now aggressive in dominating the market, more liabilities might come along the way. It’s smart to obtain Representations and Warranties insurance since it protects your company from financial losses resulting from unknown or unintentional breaches.
- Look for specialty providers that will offer what you need and what you want.
- Scrutinize policies and check for buyer indemnity as a contingent motivator.
Set Up a Captive
Another way to use insurance policies as an income generating tool is to set up a captive to facilitate financial growth. A captive is an insurance company that is owned by your very own company. If your business has foolproof loss control procedures and well-identified risks, captives will surely work to your advantage. Although it’s a risk/reward type of venture since funds are always at stake for paying losses, setting it up is a clear source of profit via unclaimed losses.
Building an insurance company might seem hard but the process behind a captive is simple. First, your company creates an entity to act as a captive. Then you need to allocate financial resources to run the captive and pay for claims. All claims are paid out using these funds as long as they are covered by the policy. The fewer the losses, the more earnings you have in the company.
- Profits are usually distributed to the company and to its shareholders.
- Keep in mind that there should be an allocated capital reserve to cover future claims.
- People working for your captive should be well-adept and highly efficient.
Insurance Doesn’t Have to be a Chore
Most will think that they need insurance policies right from the start to keep business operations running smoothly. But aside from the basic protection, it gives in times of troubles and unwanted challenges, there’s more to it than safeguarding your business.
A carefully designed insurance program can offset potential losses that you might incur due to rapid growth. The secret here is to work with a broker that knows the ins and outs of the industry. He/she should assist your business on the road to hypergrowth.