Posted by John Moccia on Mon, Jan 09, 2012
This is a re-blog of one of our most popular posts which was originally published in October 2010. The same concept still applies – health insurance is available to small NY businesses, but it is not cheap! We also wrote a guest post in BetaBeat on this topic that generated a lot of feedback.
"How to Get Health Insurance as a Startup Founder in New York"
Let us know how your company is handling the challenge of group medical insurance.
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One of the biggest challenges for startups is finding a solution for employee health insurance - without bankrupting the company. In order to grow your company you are going to have to be able to attract and retain the best talent. Sure, a nice salary will go a long way, but everyone is going to want to know that they will have a good medical insurance plan in place if they work for you. This is especially true if they have a family (including children - who spend a lot of time in doctor's offices), or they are coming from a company (or are being recruited by other companies) where they had extensive benefits.
Why you might as well start smoking
The first thing you need to understand is that, as a startup, you will have fewer than 50 employees. This means that you will be subject to NY State's community rating guidelines.....these dictate that any company with fewer than 50 employees can purchase medical insurance and the rates cannot deviate from one employer to another. So your firm of 3 healthy people in their mid-20's that never go to the doctor and never have medical claims will get the same rate as the three 60 year old chain smoking, former coal miners running an asbestos removal company next door. So for obvious reasons the insurance companies are not inclined to provide their best rates to employers with less than 50 employees.
(once you reach 50 employees your company stands on its own performance - insurers will negotiate their rates, and as a "healthy company" you will have lower rates....lower than the community rates)
One solution is a PEO, where you can get broad employee benefits packages as part of their large group of employees. The downside is that you have to buy everything else the PEO is selling plus pay their administrative fees. The alternative: Do it yourself.
The million dollar question - answered
That brings us back to the original question: How much does health insurance cost for a startup? The rates vary by insurer and change quarterly. There are also variables that will affect your bottom line expense (employee contribution, increasing deductibles and copays, etc). If you are interested in the current rates for a NYC company follow the link below.
Posted by John Moccia on Wed, Jul 06, 2011
The acquisition of a D&O policy is often triggered by one of the following events:
- new board member requires that company has D&O
- new investor (such as a VC) requires D&O insurance as part of term sheet
Ultimately the D&O policy is the mechanism by which you will be shielding the personal assets of the officers and directors - as well as the balance sheet of the company (most company have an indemnification agreement in their bi-laws that basically translates into this: the company is responsible to cover claims against the D&O's out of its coffers...the problem comes when there is no money available or the indemnification is prohibited by law). Most people who will agree to be on your board will not be willing to risk their personal assets based on the performance of your company. You might not either.
So back to the original question - When? As soon as company is operational with a management team and board AND as soon as you can afford to transfer the risk to an insurer (minimum 
premium can be about $2,500/year)
One other important point to consider - as a private company your biggest threat of action against the management team will be from employees. D&O policies can cover employment practices claims (wrongful termination, failure to hire, discrimination...) once you have a workforce it will increase your risk and be another factor to consider when thinking about D&O insurance.
Posted by John Moccia on Wed, Jun 08, 2011
Selecting the appropriate limit of any kind of liability insurance is a bit of a crapshoot. There are a variety of factors that should be taken into account for D&O including:
- Industry
- Employee Count
- Do you want to incorporate coverage form Employment Practices (the single biggest source of claims against D's&O's for private companies)
- Are you entering into sophisticated transactions that could result in litigation (such as M&A)?
- What is your company's financial condition?
- Is your company public or private?
- Does your Board or VC have a limit requirement?
- How does D&O coverage fit into your overall risk profile - are you spending insurance dollars wisely with a higher limit or would you be better off with a lower limit on D&O, with the additional dollars go toward another coverage like E&O?
Assuming we are talking about a private startup company, generally speaking, startups will carry $1MIL - $3MIL. Keep in mind that for most policies defense costs will deplete the limit of liability, so make sure your limit is high enough to cover defense AND settlements. One other point - ask your broker for benchmarking info with data from peer companies. This may give you some additional insight and guidance. Now go get 'em, slugger!
Find more answers to your insurance questions here: 
Posted by John Moccia on Wed, Oct 27, 2010
One of the biggest challenges for startups is finding a solution for employee health insurance - without bankrupting the company. In order to grow your company you are going to have to be able to attract and retain the best talent. Sure, a nice salary will go a long way, but everyone is going to want to know that they will have a good medical insurance plan in place if they work for you. This is especially true if they have a family (including children - who spend a lot of time in doctor's offices), or they are coming from a company (or are being recruited by other companies) where they had extensive benefits.
Why you might as well start smoking
The first thing you need to understand is that, as a startup, you will have fewer than 50 employees. This means that you will be subject to NY State's community rating guidelines.....these dictate that any company with fewer than 50 employees can purchase medical insurance and the rates cannot deviate from one employer to another. So your firm of 3 healthy people in their mid-20's that never go to the doctor and never have medical claims will get the same rate as the three 60 year old chain smoking, former coal miners running an asbestos removal company next door. So for obvious reasons the insurance companies are not inclined to provide their best rates to employers with less than 50 employees.
(once you reach 50 employees your company stands on its own performance - insurers will negotiate their rates, and as a "healthy company" you will have lower rates....lower than the community rates)
One solution is a PEO, where you can get broad employee benefits packages as part of their large group of employees. The downside is that you have to buy everything else the PEO is selling plus pay their administrative fees. The alternative: Do it yourself.
The million dollar question - answered
That brings us back to the original question: How much does health insurance cost for a startup? The rates vary by insurer and change quarterly. Therer are also variables that will affect your bottom line expense (employee contribution, increasing deductibles and copays, etc). If you are interested in the current rates for a NYC company follow the link above.
Posted by John Moccia on Fri, Oct 15, 2010
Very often, the first time a company will look into errors and omissions (E&O) insurance will be when it shows up as a 
requirement in a client contract. The company is still young at this point, and eager to get revenue on the books - the last thing they need is to have a new expense hit the bottom line. However, if they want to close the deal and land the new client, they need to provide evidence that they have this coverage. The box must be checked! Startup E&O insurance, therefore, is purchased out of necessity and the single most important consideration is the cost. A $1million dollar E&O policy, $25,000 deductible, $1,500 premium - check.
If you're insured with Kirkwood, you may not be covered
So let's assume you get what you pay for....the cheapest possible policy will also be the most restrictive and provide the least coverage (not always the case but more on that in a future post). Knowing that, you have to recognize that the policy cannot be expected to provide a wide security blanket if something does go wrong. Privacy claims, intellectual property claims, claims made outside the US and a variety of other shortcomings are typical to "check the box" policies. As long as you're OK with that, the startup E&O policy serves a good purpose - it's just not true insurance.
The Ticking Time Bomb
Each year the company grows, adding clients, growing revenues and expanding operations. During this time the startup E&O insurance is renewed, the nominal cost may have risen, but it corresponds with the growth of your company, no biggie - many boxes have been checked at this point. Maybe you hav
e even increased the limit to $5 million or $10 million to satisfy larger contracts. E&O? Check! But then the claim comes in - and coverage is declined. Kirkwood cites various exclusions in their policy. Now you are looking at possibly millions of dollars in defense and settlements. The future of your company hangs in the balance. You are scratching your head - you paid for insurance right? Isn't it supposed to work??
There is nothing wrong with buying an inexpensive E&O policy to get those early contracts as long as you understand the you may have inferior coverage and you are self-insuring to a great extent. But, as your company matures, you must go back to that policy and see if it still makes sense. You can probably afford to transfer more risk to an insurer, strengthen your corporate shield and protect the longevity of your organization.
Posted by John Moccia on Fri, Jun 04, 2010
When faced with the task of setting up Payroll, Employee Benefits, Human Resources and Workers Compensation Insurance many startup Tech/Digital Media companies turn to Professional Employer Organizations(PEOs). The concept is that, using a PEO, the company can outsource all of these items to another company and take advantage of economies of scale by participating in their larger group buying power. And by using a PEO they can pass off unwanted administrative tasks and focus on their own business. When working with a PEO the company pays the cost of the services plus a monthly, per employee, fee for the administration of the program. The startup must take the entire bundled package from the PEO, which often includes HR services that they, as a small company, may never use (recruiting, workplace safety, training, etc.).
But what would the cost be to do it yourself (DIY)? Do the benefits of outsourcing really make financial sense? And does it scale for a company that expects high growth, or will it create an unnecessary financial drain on much needed cash?
InnovationGuard has a Startup Package that is available on an a la carte basis – meaning they choose only the services they need – including a full suite of Payroll and HR services. We recently did a conceptual comparison for a startup who was considering a PEO for their company. For illustrative purpose we used the same actual costs for the basic products/services such as workers compensation (for example, the cost is set by the State, so there should be no difference). Then we added the PEO’s monthly per employee administrative charge. (A PEO does not typically break out these costs in their bill – they simply charge a single all inclusive fee.)
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InnovationGuard
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PEO
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Employee Medical
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tbd
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tbd
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Workers Compensation
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$80
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$80
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NY State Disability
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$7
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$7
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General Liability (GL)
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$125
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n/a ($125 separate thru iG)
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Payroll/Tax Service*
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$103
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$103
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HR Handbook
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No charge
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incl
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Web Based HR Management Platform
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No charge
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incl
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Processing Fee
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No Charge
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$600 ($150 per EE X4)
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Total Monthly Cost
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$315
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$915
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Total Annual Cost PEO – $10,980 (plus each additional new employee will be another $1,800/year more than a DIY program)
Total Annual Cost InnovationGuard – $3,780
*includes direct deposit, UPS delivery, and option for paperless paychecks
Based on the Following:
3 Male Employees, Programmers – $240,000 annual salary
1 Female Employee, Exec Officer – $60,000 annual salary
Are there administrative costs associated with a DIY that do not appear here? Perhaps. But for tasks like filling out applications, gathering and submitting employee and payroll info – both will require some time on the company’s part. Once all of these things are set up there is very little ongoing administration necessary. A key missing piece to all this is Employee Medical insurance, an area where the PEO as an “employer” of potentially thousands of employees can get better rates from insurers. While groups of over 50 employees can benefit with lower health rates, that is dependent upon the group’s overall claims history. In the case of this company, for whom we did the conceptual, the PEO’s single rate was estimated to be $350/mo. A small group rate from Oxford for an HMO in NY would be appx $400/mo…..and that is before increasing co-pays, deductibles, employee contributions, etc. to bring cost down. Another thought – while there may be a financial advantage on the medical insurance, our experience is that most startups hire young healthy employees who rarely even use their medical coverage.
I obviously come at this issue from a biased perspective. I would be interested to hear thoughts and feedback on other company’s experiences with PEO’s, including the pros and cons.
Posted by John Moccia on Fri, Apr 23, 2010
“The West is the Best…” Those wereMr Mojo Risin’s words, not mine. Personally, I’ll take the East coast every day of the week. And now with NY heating up, there is no better place to be if you work in or with the Innovation community. A couple of quick updates:
- As noted above NY Tech is hot – this recent article from NY Magazine highlights the NY Tech explosion http://nymag.com/news/media/65494/
- iGuard hits the road as next week is the semi-annual TechAssure conference, which is being held in San Francisco. I highlighted TechAssure in a previous blog post. Look for Twitter updates and some interesting takeaways in future posts. I’ll also have the FlipCam and hope to come back with footage of me with the guy from the GoToMeeting commercials ….I’ll explain later.
- The Business Insider has picked up on InnovationGuard and has republished a couple of posts. I always enjoy the pictures they select to accompany their articles. Their War Room provides a lot of good info for Startups
Posted by John Moccia on Wed, Apr 14, 2010
As an entrepreneur/executive of an early stage tech company one of the decisions you need to make is who to use to help you insure your company. For some reason many people go to great lengths to do due diligence when selecting an attorney or accountant, but then spend thirty seconds deciding who should handle their insurance. Those people tend to do business with one (or more) of five “people”. So here are the five people you meet in heaven when you buy insurance – and how these people impact your company:
The Buddy
Why: You’ve just set up your company and you need the basics – General Liability, Workers Comp, Property, etc. The guy on your whiffle ball team, who also helped you with your homeowners insurance, says he can hook you up! He has no experience working with other companies like yours, no relationships with insurers that are familiar with your industry. But he’s a great guy and he assures you it’s a no brainer. He sends you some applications to fill out. The questions seem odd, don’t really apply to your company – and most of all it takes a sh*$! ton of time for you to complete. You fax them back, wait a couple of weeks and he surfaces with a policy and a bill.
The Result: No thought went into anticipating what you may need next (like E&O when you sign your first client contract, D&O when you get your first round of financing, global coverage when you open a sales office in the UK, etc). The insurer you are with – let’s call them Thunderbird Mutual – can’t provide any of those coverages. So when they come up, which will be sooner than you think, there will be a mad scramble to find these policies with different insurers, costing you time and more money. You end up with a disjointed, patchwork insurance program with multiple insurers and no economies of scale by having everything in one package. Since your buddy has no experience in your industry, he has no ability to provide services that may drive down your cost and reduce the likelihood of your having a claim. Now you can get away with the buddy’s insurance program for a while – but if you have a claim, or need advice on a contract or industry specific issue you will find out the hard way that he was not the right broker for you.
The Biggest Broker in the World!
Why: Your company is the next Facebook. You have some high profile VC board members. You need to work with the Biggest Broker in the World! In fact, one of those board members knows one of the top executives from the Biggest Broker in the World! from his country club.
The Result: The Biggest Broker in the World! handles the insurance for companies like Microsoft, Dell and Cisco. Their best talent handles those accounts. Their average account brings in $50,000 of revenue in both commissions and other fees. All of your policies combined will throw off a total of twelve hundred bucks of income. You will have a lot of questions and need a lot of hand holding. Your company will change a lot over the next couple of years – hiring and firing, adding locations, new products, new client contracts, etc. The Biggest Broker in the World! assigns you to their D team – maybe a recent college grad, maybe a service center…..until you can be more profitable for them. Like when you are about to have your IPO. You’ll wait won’t you? And will you also please let them know when you are bigger, cause no one at their company even knows they insure you.
The Butcher, the Baker and the Candle Stick maker
Why: You already bought a policy from the Buddy (for this segment let’s call him the Butcher). Now you open an office in San Jose. The Butcher doesn’t have a license in CA and suggests that you contact someone local out there. He knows a guy from insurance school, the Baker. You call the Baker and he is happy to set you up with a set of new policies for your California office! Next, you land that big round of VC money and the term sheet says you need Directors and Officers (D&O) insurance. The Butcher and Baker both say they can do it for you but you’re not so sure. This one seems a little more sophisticated. The VC suggests a broker that they use, that specializes in D&O insurance, the Candle Stick maker. This guy drives his Benz to your office, tells you about how he handles the D&O insurance for the last four IPO’s in the country and assures you that you are with the right broker (NOTE: some brokers specialize in specific types of policies as opposed to industry segments where they can handle all types of insurance for that niche. This happens a lot with D&O as the premiums are usually high, and there is little or no service work involved – so they throw off a lot of income to a broker. Hence the Benz.). He sets you up with a state of the art D&O policy. It is the most expensive insurance policy you have ever seen.
The Result: You have three brokers. None of these characters communicates with the other. You have overlapping coverages and therefore are paying duplicate premiums. None of them feel like they are “in charge” of your account, so they don’t make any recommendations, review/update coverage or take much of an interest in your company. None of them realizes you have salespeople working from their homes in 6 States and now each State’s insurance department is fining you for non-compliance on Workers Comp. You have bills coming in from 3 agents, at least 3 insurers and your bookkeeper can’t figure out which bill is for which policy. A new client contract calls for evidence (a certificate) of insurance. Hmmmmm, guess you gotta call all 3. You have a claim and are unsure which policy would cover it, so you call all 3 brokers, none of whom think their policy will cover it. But go ahead and send it in the insurers will fight it out. Ahhh, music to your ears while your company is getting sued…
So, when it comes time to get insurance – maybe the bank, landlord or VC is requiring it – rather than just hiring anyone so you can check a box and move on, spend a little extra time selecting your broker. It will pay dividends down the road. Here are some questions you should consider asking a prospective broker:
- What other companies in my industry/like mine do you work with?
- Can I call someone at those companies and ask about your work?
- My company is poised for growth an we expect a lot of moving parts – and insurance is not our main consideration. How will you help us stay on top of these changes so we don’t miss anything?
- Do the insurers you work with specialize in my niche and offer industry specific coverage?
- What special services do you provide that will help me save time, reduce my premiums and minimize the possibility of us having a claim?
- How much time should I expect to spend on completing applications?
- Can you describe are your smallest and largest clients?
- Do you handle all areas of insurance for companies like ours or just one type of coverage?
- Do you have any group buying programs where I can leverage the power of a bigger group in my industry?
Posted by John Moccia on Fri, Mar 26, 2010
At InnovationGuard we are all about simplicity. We want to provide the best insurance solutions in the least amount of time – so you can stay focused on growing your own company. As part of that approach, we are very excited about the launch of our new online Errors and Omissions platform which will allow you to obtain a quote and bind coverage by answering a few simple questions. And as long as your phone doesn’t ring, this whole process should take you less than 5 minutes. In an upcoming post we will walk you through the platform using a short video tutorial. Until then, you can find the link below as well as in the iGuard MarketPlacepage of the blog. The platform is in a Beta mode (we are still tinkering with aesthetic issues) but it is fully functional and ready to roll!
http://tinyurl.com/ygckwwa
NOTE – This policy is offered only to companies in New York State. InnovationGuard is not an insurance agency. This policy would be placed by The Rollins Agency, Inc.
Posted by John Moccia on Thu, Mar 18, 2010
As I sit at my desk at work, blogging, twittering and linkedin-ing I can’t help but wonder how other businesses are adapting to social media. Are they using it to leverage and promote their brand to a wider audience? Are they concerned that employees will be distracted and unproductive and blocking access to social networks? A quick Google search yielded some interesting articles discussing the pros and cons. I am one of the people who thinks the game has changed, social media represents a cultural shift in the way we not only do business but live our lives. It seems pretty clear that the worst thing to do would be to bury one’s corporate head in the sand and pretend that this new way of communicating is a passing fad. In fact, many companies have already been able to harness the power of social networks and turn it in to a bona fide source for new business (in addition to the traditional companies that use social networks for marketing and business development, many new firms are popping up to help other companies understand and better utilize social networks for commercial purposes). In the popular book Crush It!, Gary Vaynerchuk extols the benefits of social media and suggests that if your employer does not allow you to blog, tweet, etc.. you should consider quitting and starting your own company. A bit extreme? Perhaps. But at the core, his idea makes sense. At a minimum every company should adopt a corporate social media policy – one that fairly recognizes this cultural shift, allowing employees the freedom to speak out – but, at the same time, does not harm them, their employers or co-workers or the reputation of their company. This will open communication lines, mitigate potential misunderstandings between employers and employees and to avoid the dreaded facebook firing.
In addition to the articles below I have posted in the document library a SAMPLE Social Media policy. A workplace social media policy should be customized for your own firm and you may wish to seek assistance from legal counsel. But this will hopefully provide you with some ideas and a starting point.