There are various reasons for this, but more often than not, it’s because of gaps in the policy or the business’ failure to meet basic insurance conditions. For startups with limited cash flow and funding, this can be a really costly oversight.

How can startups avoid getting their business insurance claims rejected?

Founders have a lot to deal with, and when you’re juggling funding, hiring, product-market fit, and a hundred other things besides, it’s easy to overlook the niceties of insurance. But this can leave you exposed to significant losses if things go wrong. The annoying thing is that most problems are caused by one of three errors.

Underinsurance

One of the biggest reasons theft insurance claims result in a lower payment than expected is simple underinsurance. This is when your policy doesn’t reflect the actual value of your equipment, tools, or property. When that happens, insurers apply the ‘average clause,’ meaning they reduce (or reject) your payout to reflect the shortfall in coverage.

So, if your startup has £100,000 worth of tech equipment but you’re only insured for £50,000, you could end up with just half a payout, or potentially, nothing at all. Many founders rely on outdated valuations or guesswork, assuming it’s “close enough.” But once you’ve had a claim rejected, you’ll realise fairly quickly that it’s not.

Security conditions

It’s easy to generalise, and I know that this isn’t always the case, but a lot of startups are so focused on growth that they inadvertently overlook the details in other areas. Most insurance policies include specific alarm, surveillance, or cybersecurity requirements. While they’re not written in the headlines, they will almost always be there in the details. And if you don’t adhere to them and don’t have the right systems in place, whether that’s a certain type of locks, intrusion detection, multi-factor authentication, or even enough lighting, your insurer may have grounds to reject your claim, even if the theft is legitimate.

This also applies to online crime, such as data theft or phishing fraud. If you’ve sought coverage but haven’t implemented the cyber protocols required by your policy, your claim might not hold up. It’s also worth remembering that the average insurance policy won’t include digital theft unless explicitly added.

Exclusions

If you’ve not done this before, it’s easy to assume that a general business policy covers ‘theft’ regardless of the form that theft takes. But that can be a dangerous assumption. Many policies exclude certain types of theft, such as theft by deception, employee theft, IP misappropriation, or theft from vehicles or remote workspaces. If you’re using a standard off-the-shelf policy, it may not be tailored to cover your actual risk profile, so it’s always sensible to dig into the details rather than make assumptions.

Don’t forget business interruption

Theft and financial loss are bad enough to deal with, but their impact is compounded when you add in business interruption, and this is something that many startups overlook. Business interruption insurance should be a prime consideration for every kind of business, because if events like a fire or storm shut you down, even temporarily, it can have a major impact on revenue, growth, and investor confidence.

A few days of downtime could delay launches, destroy customer trust, or breach service level agreements, costing thousands of pounds. If a startup is reliant on physical locations and is unable to trade after a fire or flood, an inability to operate could result in massive financial loss, unless the business is insured for that interruption.

How founders can better protect their startup

Navigating insurance is always depicted as complicated, tedious, and unnecessarily time-consuming, but if you take a few practical steps, it’s possible to keep your business protected against any eventuality.

Review and update your coverage annually

All businesses change over time, but startups evolve particularly quickly, which means that your insurance needs are likely to evolve too. Obtaining desktop rebuild costs assessments, which are normally valid for three years, can help to make sure your policy reflects the current value of your assets, your team setup, and your operational model.

Actually read the policy

Fine print in insurance isn’t there to trick you into making mistakes. It’s just a way of passing on the details without additional reams of paper. And it matters. So, when you receive your documentation, don’t forget to check for details of any security system requirements, both digital and physical. As well as any specific exclusions, and coverage limitations.

Think beyond ‘stuff’

Of course you need to protect your business against immediate loss. But you also need to include business interruption coverage in your policy to protect your business against the wider impact of any theft event. In many ways, it can be just as important as general theft insurance, because it can help you to stay afloat if an event causes major disruption.

The role of insurance is to de-risk catastrophic losses. Whether you’re a startup or a conglomerate, the premise remains the same. But if it’s going to serve you properly, you need to get the details right. If you don’t, it will become abundantly clear after the fact.  

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