How Startups are Shopping for Insurance Post SVB Collapse

Purchasing patterns shift in response to the SVB collapse, cyber security concerns and tech’s ‘Spring Freeze.’

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The current economy is filled with challenges and ever-changing unknowns. Startup founders are fortifying their positions following a massive bank failure and anticipated recession capitalized on by a looming cyber security threat. The data examines the real-time coverage shopping habits of founders, correlating external risks with how founders protect themselves.

SVB Shocks Founders into High Coverage Limits

On March 10, 2023, Silicon Valley Bank collapsed, a closure the likes of which have not been felt since the Great Depression. This was unforeseen by the general public, causing a sense of uneasiness many had not seen since the pandemic. This uneasiness resulted in founders looking to double or even triple their coverage. Searches for the highest Directors and Officers (D&O) insurance limits more than doubled week after week—going from 7 percent the week of the closure to 15 percent the following week.

This shocking event raised further questions in the startup community: if this massive failure can crumble an organization, perceived to be an investment bedrock, what else is possible? This new paranoia sets up founders to prepare for the worst, especially when shopping for coverage. Just days after the SVB closure, quote searches increased overall to 62 percent. Once the dust settled though, many seemingly calmed down and more strategically considered their budgets. This led to a sharp increase in quotes for $1 million limits: 78 percent increase in D&O, 42 percent increase in EPLI, and 8 percent increase in Tech E&O.

Not only are founders worried about capital insecurity, but they also must consider how the decisions and actions of others can immediately impact their business. While this has always been the case, it seems ever more frequent as our unprecedented world becomes increasingly more precedented.

In this circumstance specifically though, those lucky enough to not be directly impacted by the SVB collapse see what’s happening to their peers, and they’re shopping for higher quotes to prepare them for a similar situation.

Cyber Security Starts at the Top

When Russia launched its invasion of Ukraine, news coverage took a heavy focus on what this meant for cybersecurity across the world. Often, criminals will take advantage of opportunities like this, capitalizing on the confusion and pain associated with shocking international outrage. This led to an enormous focus on cybersecurity protections at all levels. However, as focus on the war began to wane, so too did worries around cyber crime—leading to a false sense of security rooted in recency bias.

On March 2, The White House released a momentous cybersecurity strategy, reminding Americans that the threat of cyber crime is never neutralized. This release shook founders out of a false sense of security, triggering another shopping trend among startups. Following the announcement searches for Tech E&O policies increased 33 percent, setting the first search-spike record for 2023.

Founders were looking for comprehensive coverage, too—searching for higher rates and broader terms of coverage in the event of a breach. Quotes for the lowest level of coverage dropped significantly as founders favored higher rates, seeking comfort in liability transfer, causing a record number of quote searches across all available policies: EPL, Tech E&O, D&O and Fiduciary.

Cautious and Frugal, but Overall Prepared

Prior to the SVB closure, startups seemed largely confident in themselves and their teams, despite looming economic woes. D&O limits were consistent at the close of 2022, with more than half of founders looking for a $1 million limit, a traditionally low level of coverage. This trend continued into early Q1, showing that founders were remaining frugal after a series of mass layoffs in the tech industry. Quotes remained low, continuing through March with 81 percent of searched D&O quotes being for $1 million limits.

This continuity broke in mid-February, when economists expressed an even more grim prognosis for 2023, launching low-quote averages higher: in the week of Feb. 16, 2023, 75 percent of shopped quotes were for $1 million limits. Changes like this often show founders preparing for low capital, ushering in an era of frugal founders. As signs of a recession pique, startup founders everywhere reallocate funds and decrease payroll.

Founders are worried, and the insurance shopping habits prove it. External risks abound, validated by the federal government’s reaction. While risk is an unavoidable aspect of business, how founders react to it can act as an oracle for their success. Founders leveraging liability transfer methods like insurance is showing that while you can’t avoid all risk, you can certainly plan to address it.

The Rise and Pivot of InsurTechs

Ben Jennings // Ben Jennings is Chief Revenue Officer of Embroker, a provider of tailored insurance coverage for businesses. A seasoned global technology executive, Ben brings more than 25 years experience in sales, marketing, business development, customer success and alliances to the role. Ben is responsible for driving new client acquisition, installed base retention, customer success and overall go to market for the company.

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