Four Small to Medium Business Insurance Types, Explained

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By The Boost Team on Mar 10, 2023

10 min read

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From accidents to theft to lawsuits, there are plenty of scenarios that could result in unexpected costs for a small to medium business (SMB). Insurance is a vital tool for SMBs to protect themselves and their employees from potentially serious financial losses.

However, with so many kinds of SMB insurance products on the market, it’s not always clear which types a certain business may need. In this blog, we will outline four useful insurance products and explain which kinds of companies would most benefit from having them.

1. Cyber Insurance

With 98% of businesses having an online presence, and many businesses storing sensitive customer and company data in internet-accessible databases, cyber insurance has never been more relevant or necessary. As the world becomes even more digital, the volume, sophistication, and frequency of cybercrime are rising, and the need for cyber protection is growing in equal measure.

When a company experiences an attack on its digital property, the cost can be devastating. In 2021, the average cost of a data breach hit $4.24M, and on average, it takes a minimum of two years for SMBs to pay off the cost of a data breach.

What is cyber insurance?

Commercial cyber insurance is a product that helps businesses financially protect themselves from the risk of cybercrime. Similar to any other insurance product, companies can save themselves from exorbitant expenses in the event of a cyber attack by making regular premium payments. A cyber insurance policy typically covers expenses such as:

Breach Response Expenses: This can cover the forensic expenses to discover exactly what happened in a breach situation, as well as the cost of notifying individuals affected, monitoring customer credit, overtime salaries for employees handling the breach, call center expenses, public relations expenses, and more.
Cyber Extortion: In the event of cyber extortion where certain information or capabilities on the business’s website are being held for ransom, this coverage includes the forensics, interest, and negotiation expenses in an extortion event. This can include a certain amount for ransom demands.
Replacement or Restoration of Electronic Data: If electronic data or programs are damaged or lost due to a cyber attack, a cyber insurance policy can cover the cost to replace or recover those directly impacted by the incident.
Business Interruption and Restoration: The loss of revenue due to disruption of the business, impaired customer retention and acquisition, and damaged reputation can cause ongoing financial hardship. This coverage includes the cost of getting a business up and running again after a cyber incident. If a business is interrupted for longer than a certain period of time, this kind of coverage may also pay for revenue lost during that time.
Defense, Fines, and Penalties: There are often various fines and penalties associated with cyber attacks. Insurance can cover the cost of defending a company if the breach results in a regulatory proceeding, and also the cost of potential resulting fines or penalties.

Even more comprehensive policies might reimburse a business if its money is stolen in a fraudulent transaction. One example would be if a company’s email is hacked, and the scammer uses it to initiate a fraudulent bank transfer. Other policies can include coverage for hardware replacement if computers were permanently damaged, higher ransom payments to regain control of systems or data after a ransomware attack, or reimbursement if a scammer tricks the business into sending money.

What companies should have cyber insurance?

Any company with an online presence can and should have some form of cyber insurance. If a company has a website where it conducts business—making transactions, storing information, or communicating with customers—or if it uses a cloud storage system to house critical information, that company would benefit from cyber insurance.

Large corporations tend to be more appealing targets for cybercriminals because criminals can make more money per hack. However, SMBs are also frequently attacked, which can be far more detrimental for those companies. Because SMBs don’t have as much expendable income as larger corporations, the loss can have deeper, longer-lasting financial repercussions.

What cyber insurance products are available?

Traditional insurers tend to create products that only cater to large corporations both in coverage options and pricing, which has historically left the SMB market significantly underserved and overcharged.

However, the landscape for SMB cyber insurance is changing, and more digital, customizable cyber insurance products are becoming available for a wider variety of businesses.

2. Business Owner's Policy (BOP)

Running a small business comes with a lot of risk. For example, if a customer were to slip and fall on the floor of a hair salon, they might bring a personal injury lawsuit against the business. If a coffee shop’s espresso machine breaks down, the cost to replace it might be substantial (not to mention lost revenue while the shop couldn’t serve espresso). For an SMB, these kinds of costs can endanger the entire company. It’s far better for companies to err on the side of caution and protect against these risks, and for that, BOP insurance is essential.

What is BOP insurance?

BOP insurance exists to protect a company’s assets and operations. By paying a monthly premium, businesses can protect themselves from larger expenses if a covered incident occurs, such as:

Bodily injury that occurs on the business’s premises
Property damage
Personal injuries (such as defamation or infringement)
Damages caused by the business’s products

BOP insurance policies often have options for additional endorsements such as cyber, that provides basic protection against cyberattacks, or crime in the event of robbery, theft, counterfeit money orders, forgery, or unauthorized credit card use.

Depending on what industry the business is in, it could also have industry-specific coverage. For example, a restaurant might add endorsements that would cover losses related to food contamination. A retail store might add an endorsement to cover related costs if one of their products is recalled and must be withdrawn.

What companies should have BOP insurance?

Every SMB should have BOP insurance, but what varies is the level of complexity depending on the size of the business. For example, a self-employed freelancer would have different coverage from a medium-sized startup with a hundred employees. The needs of SMBs will be different as well, and the products available to them are unique.

What BOP insurance products are available?

Digital insurtech providers of BOP insurance typically build easier-to-understand products that are made for freelancers and gig economy workers, and can be configured online. These products often aren’t enough for SMBs' needs—they only offer a limited amount of coverage, and often exclude risks that SMBs frequently encounter.

On the other hand, legacy insurance providers of BOP typically build complex products that are too expensive and too complicated to understand without the help and recommendations of a traditional insurance agent. In many cases, the coverages and limits they offer are overkill for SMBs.

Options are more limited for single-location small businesses, but as the insurtech industry expands, more digital-first BOP insurance products are entering the market that cater specifically to the SMB market.

3. Management Liability Insurance

Allegations of employment discrimination, wage disputes, and sexual harassment are only a few of the issues that can spark a lawsuit, and all are expensive to defend against.

In 2022 alone, workplace settlements cost companies nearly $2 billion combined. From big corporations to start-ups, a workplace lawsuit can be a major financial liability. Even if a company has done nothing wrong, the cost of legal defense can endanger the entire business, and cost thousands, if not millions, of dollars.

What is Management Liability?

Management liability insurance is a collection of coverages designed to mitigate the cost of lawsuits against the company—specifically related to upper management. That means that if the company is sued, the insurance may cover legal fees, settlements, and other related costs. The three most common coverages included in management liability insurance all cover a different type of lawsuit:

Directors and Officers (D&O) insurance: This is a type of liability insurance for a business’s senior management in case they are sued for something related to their duties managing the company. This coverage frequently applies to both personal lawsuits against the directors and officers and lawsuits against the company related to their actions.
Employment Practices Liability (EPL) insurance: This protects the company from the cost of being sued for things related to hiring or personnel practices. This can include lawsuits alleging things like wrongful termination, discrimination, harassment, and other employment-related issues.
Fiduciary Insurance: This protects the company from the cost of lawsuits related to mismanagement of the company benefits plan. This can include anything from bad 401(k) investments to wrongful denial of benefits.

Some management liability packages may also include non-lawsuit-related coverages, such as a type of crime insurance that covers kidnapping for ransom and other specific crimes against a company’s senior management.

What companies should have management liability insurance?

Any business with a management or leadership team should have management liability insurance. Companies with a C-suite, board of directors, or strategic investor partners could benefit from the protection that management liability offers. What SMB management liability insurance products are available?

The small to medium businesses that are most likely to need management liability insurance are startups. However, this market often has a difficult time finding a suitable policy.

Because most available management liability insurance products were created for larger companies, these products evaluate the level of risk associated with the business based on things like how long the company has been in business, how many employees they have, and their revenue numbers. Since startups often have little or no revenue and relatively limited business history, these kinds of underwriting factors often lead to startups being flagged as very high risk. When a company is flagged as high-risk, they will either be denied coverage altogether or, if they do get approved, the policy they are offered may be extremely expensive. Many startups simply can’t afford it.

A secondary challenge is how coverages are sold. It can be difficult for startups to understand what coverages they need because most distributors sell D&O, EPL, and Fiduciary coverages as separate products without a clear explanation of how they work together. This can be a barrier for these businesses getting the protection they actually need.

However, there are management liability insurance products on the market that cater specifically to startups. These products package the three coverages as a unit so they are easier to understand, and they use alternative datasets to better evaluate startup risks. That being said, it’s important for startups—and companies that cater to startups—to do their research and find a product that fits their business.

4. Parental Leave Insurance

Parental leave is the third most requested benefit for US workers, but according to the Bureau of Labor Statistics, only 23% of privately employed U.S. workers had access to paid parental leave benefits in 2021.

In the absence of a national parental leave solution, it’s up to the private sector to find ways to support new parents in the workforce. Some companies offer self-funded paid leave to employees, but for many SMBs, this can be prohibitively expensive.

What is Parental Leave Insurance?

Parental leave insurance is a business insurance innovation designed to make parental leave affordable specifically for SMBs. The company chooses a package that covers the kind of leave they want to offer their employees, including factors such as what percentage of their employee’s salary to pay during leave, and how long employees can take leave.

Once the policy is customized and purchased, the SMB simply pays the insurance provider a recurring premium based on their selected benefits and employee demographics. When a covered employee takes parental leave, the company files a claim through their insurance provider’s claims process. Then the company will be reimbursed for the cost of paying the employee during the covered leave period, up to the contracted amount.

What companies should have parental leave insurance?

Every SMB can and should offer parental leave insurance. It is an important benefit for employee acquisition, retention, and overall satisfaction. It’s a solution that mitigates the large, unexpected leave costs that often prevent SMBs from being able to offer this benefit. With a parental leave insurance product, the employer can avoid unexpected costs by paying a regular premium, and they can rest easy knowing their insurance policy will protect them.

What parental leave insurance products are available?

Boost’s parental leave insurance is a first-of-its-kind product and is currently the only parental leave product on the market. It is specifically designed for SMBs and fills an important gap in the market.

Seeing as there is no national parental leave program or solution, the other options for parental leave include short-term disability, a combination of state-funded parental leave and PTO, and the Family and Medical Leave Act, which legally gives 12 weeks of protected, unpaid parental leave wherein the parent cannot lose their job during that time. However, most people cannot afford to go 12 weeks without pay. In short, parental leave insurance is a great option for SMBs who are looking to provide an equitable solution to their employees.

All businesses need protection against unexpected financial loss, and SMBs are no exception. When something does go wrong, the right insurance products can be a crucial support for SMBs getting back to business as usual.

If you cater to small to medium businesses and want to learn more about how you can grow your revenue by offering insurance—including but not limited to cyber, BOP, management liability, and parental leave— contact us, or dive into building your insurance program with Boost Launchpad.

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Ready for Liftoff: BHMS Backs Boost

Jul 31, 2024

Friends of Boost, Today Boost is thrilled to announce that we have secured a significant equity investment from BHMS Investments, setting the stage for an incredibly exciting next phase for this company and the amazing team that has built it brick-by-brick over the past seven years. With a rock-solid foundation firmly in place, this partnership is going to supercharge our growth, fuel more innovation, and cement Boost’s position as the go-to infrastructure platform in insurance. We are on a mission to empower MGAs, insurtechs, independent brokers and agents, wholesalers, embedded insurance providers, and really any company that just wants to build, transact, and operate more efficiently in this technology-enabled world of ours. While capital is great, today is about hard-earned validation for our team doing that the right way since Day 1. BHMS is the perfect capital partner for Boost in terms of their insurance expertise and unquestionable track record in the space, but more importantly, they are fantastic people that share both our views on the industry and our principles of company building. The market is dangerously fixed for early and growth stage companies right now (and I say “fixed” intentionally). It’s incredibly easy to get picked off in an environment like that, so it takes a rare mix of both intellect and character to do the right thing when you’re on the capital side of that equation - and even more to be truly value-add to your portfolio companies. BHMS has that mix in spades and appreciated Boost for what it is, what it has accomplished, and what remains an incredibly high ceiling for this company vs. playing short-term charades with the herd. That’s our kind of investor. This investment isn’t just about the money—it's a resounding endorsement of Boost’s strength, credibility, and potential to make a truly meaningful impact on the insurance industry at scale. With BHMS now on board, alongside an incredible group of long-time strategic backers like Markel, RenaissanceRe, and Canopius, we’re ready to take our game to the next level. Our mission has always been to disrupt the insurance space with cutting-edge tech and unparalleled service, and this backing proves that disrupting responsibly is the only approach that works in our industry. Anyone can grow fast if they don’t care about quality or long-term credibility. At Boost, we underwrite profitably, we respect compliance, and we always - always - take a collaborative approach with our stakeholders across the entire value chain. As someone with literally zero patience, I can personally attest to that being incredibly difficult to do at times - but it scales. Even with the market’s ups and downs, Boost has been a powerhouse of innovation in the insurtech landscape with equal commitment to disruption and reliability. Doing things the right way does not mean you cannot innovate - or even disrupt - and leveraging best-in-class technology is not a right reserved for #insurtechs. Our platform has always been a one-stop shop for insurtechs and embedded insurance providers and MGAs, independent agents and brokers, and wholesalers alike - offering everything from product development to underwriting and program management to claims administration and reinsurance capacity. With our proprietary tech and a dream team of industry pros, we’re delivering smarter, more efficient solutions than ever before. Since our first program launched in 2019, we’ve underwritten over $200 billion in coverage, which is a somewhat staggering figure in hindsight. Today we’re proud to support programs for giants like Amwins along with trailblazers like Cowbell, Newfront, and Wagmo, and we’re grateful for all of the companies that chose to build with Boost even when Boost itself was just getting started. Our steady, disciplined approach has kept our portfolio profitable and we like to think that has kept our partners in front of us very happy as well. All of Boost’s success is thanks to what is hands down the best team in the industry. Hard stop. Their grit, dedication, and willingness to tackle tough challenges head-on has been crucial. Boost’s commitment to quality starts with our team and is reflected in them every single day. We keep things lean at Boost because that quality always outperforms quantity. Even if that approach always requires more from each individual and makes the stakes a bit higher, working with the right people makes the returns on each long hour invested that much more gratifying. Few people exemplify those principles or have demonstrated such an unwavering commitment to Boost more than Jeremy Deitch, so I am also thrilled to announce that Jeremy has been promoted to President at Boost and will join me on our Board of Directors. Jeremy’s leadership has been critical since the day he started at Boost almost 6 years ago, following probably the most grueling interview process in our company’s history - one he is always happy to dramatize even more if you ever ask him. ;) I couldn’t be more grateful to have a partner like him as Boost soars to new heights. With this new investment, we’re geared up to boost (pun intended) our growth and expand our tech offerings. We’re planning to scale our MGA programs, roll out new products, and snap up some strategic acquisitions. Our goal? To make building a business in insurance easier, faster, and more efficient for everyone so they can better serve their customers. We’re more fired up than ever about our mission to empower insurance providers with the tech and infrastructure they need to thrive. This partnership with BHMS is just the beginning. The future is bright, and we’re ready to lead the charge. Thank you to everyone who has been part of our journey thus far. Let's all keep pushing boundaries together - because the best is yet to come. Special thanks to the team at Howden Capital Markets & Advisory for helping Boost always say what it’ll do and do what it says. You can find our full press release here and, more importantly, can start joining our platform here. All my best, Alex Maffeo CEO & Founder Boost Insurance

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What is a Cell Captive?

May 23, 2024

A captive is an insurance entity that a business creates, rents, or owns in order to self-insure risks. A cell captive, sometimes also called a protected cell captive or segregated cell captive, is a specific insurance captive structure that allows an entity to segment or separate business in one cell from that in another cell, so that a particular cell’s assets and liabilities are insulated from anything that happens in another cell (even if both cells are part of the same overall captive facility). Using captives to self-insure risk offers businesses a number of benefits: they can participate in some or all of their program’s underwriting profitability, maintain end-to-end control over risk (including pricing and claims handling), and avoid paying significant overhead fees to a “middleman” insurer. Companies have several options for structuring and utilizing an insurance captive. They might build a single-parent captive, pool risk in a group captive, or make use of a cell captive. In this blog, we’ll take a look at each. In a single-parent captive, a company will often partner with a fronting carrier to reinsure at least part of their own risk. These are most commonly used by very large companies with exposure to multiple lines of business, which they can insure through the same captive entity. Example: A national food-delivery business wants to provide insurance to its restaurant partners, to protect against the risk of lawsuits related to food safety for meals delivered through the service. It discusses partnerships with several major insurance carriers, but none are willing to provide the level of coverage that the business is looking for at a reasonable price. To get what it needs, the food-delivery business sets up a captive to reinsure a fronting carrier partner, enabling the business to insure its own risk and provide the coverage it needs to its restaurant partners. Setting up a single-parent captive is a considerable undertaking with high capital requirements and a complex setup, with significant ongoing operational requirements going forward. In order to make sense financially, it usually requires a high volume of premium. For that reason, this option is usually only viable for very large businesses. For businesses that can’t afford (either in time or in money) to set up their own captive, a second option is to partner with other businesses in a related industry to set up a group captive. In this scenario, a single captive maintains portfolio capacity that can be shared by a group of entities. The entities can then pool risk together in the single captive. Example: Several real estate companies form a partnership to share a group captive to pool their similar risks. Each company contributes a certain amount of capital to fund the captive, and the capacity is shared among the partners. The participating real estate firms are then able to leverage the captive’s capacity to exercise greater control over their risk, and avoid paying high fees to middlemen. This can allow the partner businesses to share risk (and benefits) between them, and works well for trade associations and other groups of companies in related industries, that share similar risks. However, since the fund is shared between partners as well, one partner’s negative returns can impact the other partners involved. In a cell captive, the business first sets up an entity called a core, which is a similar process to setting up a single-parent captive. Once the core entity is complete, however, the business can much more easily spin up additional cells within the captive structure. The financials for those individual cells are separate from each other, rather than the combined funding of a single-parent or group captive. For many companies, however, using a cell captive doesn’t mean building one themselves. While there are use cases for single-parent cell captives, most businesses that create them then rent out cells to other businesses. Using a cell in another company’s captive entity (also called captive-as-a-service) allows a business to reap the benefits of an insurance captive at a much lower cost. We’ll look at some examples in the next section. The first step in creating a cell captive is to create the “Core” entity. This process is similar to building a single-parent captive: Once the core captive entity has been created and adequately funded, the owner can spin up individual cells within the captive’s structure to support different lines of business, segments, or partners. The Department of Insurance will still need to approve all new cells, but the process is much more streamlined than in prior cases. New cells can often be set up in weeks instead of the months or years typically needed for entirely new captive entities. Captive cells’ assets and liabilities are then statutorily protected from each other (which is where the ‘protected cell captive’ name comes from). This means that if one cell has a difficult year and experiences significant underwriting loss, the assets of the neighboring cells can’t be used to fund that loss. There are multiple ways that cell captives are used, including offering captive-as-a-service (also called rent-a-captive) to other partners or businesses, and separating different parts of the parent company’s business for performance tracking. In a captive-as-a-service or rent-a-captive scenario, the company that owns the captive core would allow other businesses to use cells in its captive. For a fee, the owner can set up a new cell specifically for the partner business, and manage it on their behalf. This lets the partner business leverage the owner’s infrastructure to achieve many of the same benefits of a single-parent captive, without the cost and complexity of creating one. Example: An insurtech specializing in commercial insurance has built a very strong customer base, and wants to further grow its business by participating in some of its own risk. However, building a full captive is too resource-intensive for the insurtech to take on. Instead, the insurtech partners with a CaaS provider and rents a captive cell. The insurtech then uses the cell to self-insure some of its risks, enabling it to participate in the underwriting returns and further scale towards a full-stack insurance business. While the most common reason for building a cell captive is to rent out cells to other businesses, there are a few reasons a company might build one for its own use. Because the cells’ financials are statutorily separated from each other, a cell captive allows a large enterprise to delineate between different lines of business or geographic regions, and monitor their performance separately. Example: A nationwide property management company offers several insurance products to its customers to help protect their personal property and finances. For planning and budgeting purposes, each line is supported by an individual cell in the management company’s cell captive. Over the course of the fiscal year, several lines perform over their targets, while one line significantly underperforms. The other LOBs’ budgets are unaffected by the low-performing LOB’s losses, and the company has clear visibility into which of its products are doing well and which may need a course correction. Cell captives provide a number of benefits to both their owners and the end users: Cell captives are popular for a reason: they offer significant value to both the companies with the resources to build them, and the companies that would rather rent a cell than build a single-parent entity from scratch. To learn more about Captive-as-a-Service with Boost, contact us.

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Partnerships and Focus: Big Trends at Money20/20

Nov 3, 2021

It was a busy October for the team at Boost Insurance, wrapping up with one of our favorite industry events: Money20/20. The conference was a super interesting contrast to ITC which was laser-focused on insurance, while Money 20/20 was more about fintech in general and much, much bigger! With fintech about ten years ahead of insurtech in terms of maturity, it’s interesting to see the level of innovation and diversity of companies in our big brother industry. Here are some of the big trends we noticed. One of the really interesting trends that kept being repeated at Money20/20 was a shift in mindset among both fintechs and banks. In the past, they have tended to see each other as competition for consumers’ business and attention but now everyone is moving towards viewing each other as complementary vs. competitive. We saw multiple collaborative efforts between the upstarts and the established, working together to create a better customer experience. This works because they each have a specialization (fintechs excel at meeting modern consumer expectations and banks are experts in profitably navigating a very regulated, very complex business), and partnership lets them bring both those strengths to the table. This was extra interesting to us at Boost because it reflects what we see in insurance, with insurtechs and carriers working together and bringing their own strengths together to meet modern consumer needs and expectations. For example - Boost has built a modern tech platform making various insurance products available via API but partners with established reinsurance companies to facilitate risk transfer. There will still be winners and losers between the incumbents and the upstarts, but as collaboration and competition continue consumers will be the clear winners. A trend I’ve written about before, and one that we continue to see play out, is tech companies’ focus on affinity groups. Fintechs are springing up all over with explicit goals of serving a relatively narrow group of people and serving them well. Companies like Paceline for people focused on health and wellness, Daylight for the LGBTQ+ community, and First Boulevard for African-Americans are just some of the fintechs concentrating on being the best option for a specific set of consumers. This is pretty much the opposite of traditional one-size-fits-all programs - instead of creating something broad that can be good enough for the biggest slice of people, creating something very targeted that can be great for a specific niche. This trend is great news for consumers who traditionally have not been served well by financial services in general. At Boost we’re starting to work with more affinity-focused companies because our modular, customizable product structure allows partners to tailor insurance for their customer needs. It’s exciting to be part of making insurance more accessible to all groups of people! Finally, it was really exciting and validating to see so much interest in new approaches to traditional industries. Finance and insurance have historically had a reputation for being very slow to change, sometimes for good reason (highly regulated, handling people’s money is a big responsibility, etc). This year though there’s a ton of interest in potential innovations, look no further than the enormous presence of blockchain and crypto-focused companies at Money20/20! Boost met with a TON of different companies during the show, and we cannot talk about anything yet but be on the lookout for some very interesting things coming in the near future! Money2020 was a heck of a conference and while my conference year is wrapped, the Boost team will be out and about at shows the rest of the year. We are looking forward to more opportunities to meet people in 2022, so if you did not get a chance to connect with us at Money2020, just drop us a line.