Most people do not consider insurance to be an exciting topic. Furthermore, insurance is a product you purchase and hope that you never have to use!
However, no sustainable business was built without proper risk management. And, insurance is a critical part of any risk management strategy. Imagine trying to set aside funds for all possible unforeseen incidents, and constantly worrying about potential accidents.
To help illustrate what could go wrong, we spoke with entrepreneurs that recently went through the business insurance claims process. We wanted to understand what happened, and how their business insurance policies helped them through the situation. The details of these examples have been slightly adjusted to preserve confidentiality.
1. “My employee inadvertently released a lot of sensitive customer information”
What happened
A company sent out marketing messages every week to all their customers, including special offers and advice. On one particular email, an employee inadvertently attached a spreadsheet of their customers with detailed billing information.
The company’s dilemma
The lawyers recommended that the company contact all their customers, advise them of the breach and offer support to manage their exposure. The cost of this support could be hundreds of thousands, not to mention potential lawsuits that could be filed as a result, and negative PR.
How insurance saved them
The company was able to offer credit monitoring services for all the impacted customers. They also hired a PR firm to manage their reputation. Finally, they also had coverage for legal costs associated with the ensuing lawsuits. In total, the costs exceeded $400,000. Without insurance, they would have either shut down, or be forced to raise additional money on unfavourable terms.
2. “A flood destroyed our office and kept us out for 4 months”
What happened
Over the weekend, the pipes in the office burst without warning. The entire office was flooded, and the damage was such that it would take months to repair.
The company’s dilemma
Beyond the obvious issue of the furnishings being damaged, the team didn’t have any place to work. Short-term offices are expensive, not to mention hard to find. Also, even though the operating costs were being incurred, the company lost a lot of sales given the distraction.
How insurance saved them
Luckily they had purchased property insurance as well as business interruption insurance. The insurance company covered the cost of relocating to a temporary office and installing all the necessary equipment to run the business. Their insurance policy even topped up their profits to make them whole. Even though it was a very stressful time, without insurance the business may have folded under the cost pressure.
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3. “My head of sales fell critically ill just as we were about to close our first sale”
What happened
The head of sales of an early stage startup was diagnosed with cancer, and had to immediately be hospitalized.
The company’s dilemma
The four other employees were already overloaded, so it would have been impossible to just take on more work. Furthermore, they needed a person with deep expertise in B2B sales.
How insurance saved them
The key person insurance policy they purchased allowed them to immediately hire and train a highly qualified sales leader, even though this came at a premium. Furthermore, they were also covered for the short-term fall in revenue during the transition period. This alleviated the fears of their investors and key customers, and allowed them to focus on running the business
4. “We were hit with frivolous lawsuit for libel because of something we wrote on a blog post”
What happened
A company posted blogs about their new business model, and how they were better than their more traditional competitors. They leveraged social media extensively to maximize the reach of their blog posts.
The company’s dilemma
Their competitors filed a suit, claiming defamation. Even though there was little chance of the lawsuit succeeding, the legal bills started piling up and no investor would even look at the company while this was happening.
How insurance saved them
Their insurance policy had coverage for legal expenses due to libel. After a few months of haggling, they settled the lawsuit: all funds courtesy of their insurance company!
