Embroker Insurance Index
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Risk Reactivity: Directors & Officers Insurance
This chart shows the shopping patterns of startups for Directors & Officers insurance beginning in October of 2022. The data reveals the importance of founders to protect their investors and leadership from potential litigation, errors, and fiduciary concerns.
Risk Reactivity: Tech Errors & Omissions Insurance
This chart shows the shopping patterns of startups for Technology Errors & Omissions insurance beginning in October 2023. The shopping data reveals whether or not founders are concerned or confident in their technology, and in their staff’s ability to employ that technology.
Risk Reactivity: Employment Practices Liability Insurance
This chart shows the shopping patterns of startups for Employment Practice Liability insurance beginning in October of 2022. The data reveals the interest in founders’ to protect themselves from potential litigation and claims made by current and former employees.
Risk Reactivity: Q3 2023 Outlook
Directors & Officers: $5M Limits Up to 12% of Shopped D&O Policies
Technology Errors & Omissions: 51% Increase for All Policies to End July
Employment Practices Liability: $1M Limits Up To 79% of Shopped EPL Policies
July surprised us in a few ways, and was predictable in others. While it didn’t meet the boom that June started Summer with, we did see some promise near the end of the month.
- Tech E&O policies with $5M limits have taken a slight dip, with $1-$3M policies being preferred. With more staff back in the office since the start of COVID and the continued comfort with those that work remotely, companies may be less concerned about their staff as liabilities for errors & omissions. However, we have seen a 51% increase in shopped Tech E&O policies compared to June. So, while the coverage may be lower, it seems that more organizations are using the summer months to experiment with Tech E&O coverage.
- D&O policies with $5M limits took a huge leap to 12% of all shopped policies. This is the first time that we have seen double digits for that high of a limit on D&O insurance in 2023. On July 23, the SEC announced a rule that added additional responsibility to executives in the event of a cyber breach. The rule makes organizational leaders much more liable for financial damages that result. As tech founders look to schedule bouts in the boxing ring, Bob Iger letting Hollywood writers bake in the California heat, and all the other strikes and union work around the country, startups may be more sensitive to the risk executives post to their organizations resulting from this rule, as well as the social climate.
- Founders are opting to shop for lower limits ($1M policies). These policies represent 79% of shopped EPL policies in July, up from 63% in June. While this seems small, we may be seeing a continued lack of concern around layoffs & summer break. May be a signal that employment volatility is easing. However, as union strikes and workers’ rights campaigns increase, we may see interest in these policies peak in the next few months.
Policy shopping dipped to begin the month, a predictable reaction after June’s boom. While we predicted a bit of a Summer slowdown, numbers rebounded majorly to close out the month, a surprising turn for what is known to be a down season in the insurance industry. We will continue to monitor search interest as we move into August, and look to close out Q3.
Directors & Officers: 3% Increase for $3M Limits
Technology Errors & Omissions: 5% Increase for $3M and $5M Limits
Employment Practices Liability: Negligible Movement
As we approach the scorching Summer months, June hasn’t slowed the momentum built up from May’s turnaround, at least when it comes to startup insurance. But, nearing the first day of the new season, founders’ attention turned to the sea.
- The first week of June started off with a bang for companies looking for Tech E&O Cyber quotes with a 13% increase over the two previous record setting weeks (incidentally the week SVB collapsed and the week First Republic collapsed).
- June was on par for overall quotes in comparison with May, though there was also an uptick overall in the number of D&O quotes throughout the month (a 20% increase over April, but just a 3% increase over May).
- Higher limits were the name of the game, with D&O shoppers favoring $3M quotes (21% of shoppers picked $3M as compared to 18% in May and just 12% in April), and Tech E&O shoppers picking both $3M and $5M quotes more often than in previous months (20% chose $3M in June as compared to 15% in May, and 16% chose $5M as compared to 12% in May).
- The week of June 18th saw a 12% decrease in overall quotes, as the world waited to find out the fate of the Titan submersible. What’s notable, however, is that the week of June 19th in 2022 saw a 24% drop from the previous week as well. So perhaps people just aren’t thinking about business risks that week, or the first day of Summer is on everyone’s mind.
The momentum built by May’s comeback is ongoing. While Summer generally means an insurance shopping slowdown, 2023 continues to surprise. The influence of yet another catastrophic bank failure can’t be overlooked, however, and the seasonality of the last weeks of this month are an interesting anecdote to keep in mind. Overall, as we move into Q3, we may see these numbers flatten as vacations start and minds are elsewhere.
Directors & Officers: 16% Increase in General Quotes
Technology Errors & Omissions: 7% Increase in General Quotes
Employment Practices Liability: Negligible Movement
Following the flurry of quotes resulting from the SVB collapse in March, May followed April’s settling period with an overall 3% increase in quotes for startup insurance across the board.
- Increases can be seen across several product lines, with a 7% increase in Tech E&O quotes and a 16% increase in D&O quotes being highlights.
- While April saw an increase in founders looking at the top end of coverage for Tech E&O quotes, that interest has moved back to lower limits with 12% of founders shopping for $5M coverage in May versus 17% in April.
- EPLI seems to have settled more than any other policy this month. While it doesn’t tell the entire story, the technology sector has begun to ease its layoff frenzy that began in January 2023 when over 84,000 employees were laid off. May saw nearly 15,000 layoffs, down from 18,000 in April.
Takeaway: While a 3% increase is far from a bounce back, startups are clearly easing up after a shaky March and April when it comes to risk transfer and insurance shopping. Seemingly taking the month of April to cool off, May shows some opening-up in the market, despite the follow-on affects of the SVB collapse, including the closure of First Republic Bank. Meanwhile, as more employees get used to hybrid of back-to-office work and layoffs ease, it seems that companies are settling in for a late Spring of new starts and brighter days for their team members.
Directors & Officers: 89% Increase for $2M Limits
Technology Errors & Omissions: 30% Increase for $5M Limits
Employment Practices Liability: 32% Increase in $2M Limits
Startups seem to have settled in the month of April after the frenzy of March around the collapse of SVB.
- High limits for Tech E&O, Cyber are still preferred with a 30% increase in quotes for the $5M limit. This was a result of drops in both the $1M and $2M limit quotes.
- D&O quotes have also settled since the collapse, with the lower limits being more popular again. There was an 89% increase in $2M quotes from March to April for D&O.
- EPLI quotes remained largely unchanged from March, until a big spike from $1M to $2M policies that worked out to about a 32% increase in $2M limits.
Takeaway: While things seems to have settled for startups, they still appear acutely aware of the risks and are taking steps to transfer those risks via insurance. We can see founders/ short-term memory at play with the decrease in D&O limits, while the sudden limit increases around Tech E&O, Cyber and EPLI speak to concerns around employment practices. The tech industry, among others, have experienced another round of layoffs, highlighted by LinkedIn, near the end of April. This may be on the minds of founders as they head into the Summer months.
Risk Reactivity: Q1 2023 Summary
Directors & Officers Insurance
In this quarter, we saw some interesting moves in this insurance type. Namely as a result of the collapse of Silicon Valley Bank (SVB). The forced closure of SVB on March 5, 2023, had an immediate impact on how founders were shopping for insurance. Searches for $3 million limit D&O quotes more than doubled from 7% on March 5 to 15% only four days later. In the week of March 12, just 10 days after the closure, quote searches skyrocketed 62%. Initially, these searches were for high-coverage amounts, causing the performance of $1 million quotes to decline; D&O quotes dropped by 37%.
Tech Errors & Omissions Insurance
On March 2, The White House released a momentous cybersecurity strategy. This triggered a trend among startups; searches for Tech E&O policies jumped 33% following the announcement. This set the first record in 2023, beaten only by the rush of shoppers after the SVB closure. More shoppers elected for higher rates, however, rather than hedging their bets with the lowest level of coverage. It seems that shoppers sought comfort in liability transfer, leading to a record number of quotes across all policies available through Embroker: EPL, Tech E&O, D&O and Fiduciary.
Employment Practices Liability Insurance
Similar to D&O and Tech E&O, there was some volatility around EPLI as a result of the SVB closure. It seems that founders (and possibly their boards), were concerned with the potential legal ramifications of lost payroll, unpaid vendors, and more. These kinds of financial conditions put businesses at risk of suits that these insurance policies may cover.
Around this time, the number of $1M limit EPLI policies dropped by over 25% immediately following the SVB news, as startups opted for more coverage. However, nearing the end of the quarter, we saw the number of $1M limit policies resurge as frugality seemingly returned: $1M EPLI policies jumped 42% in this time.
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