After many years of working as a solopreneur, there are some insurance considerations I would recommend for any home based business. As described below, depending on your situation, cyber insurance as part of a business owner’s policy may be a great and affordable way to both reduce risk and increase your chances for success.
What is a Solopreneur?
While all solopreneurs are different, the definition of a solopreneur is generally someone who:
- Works alone.
- Has to manage himself or herself on a daily basis as the sole employee.
- Is trying to lead and solve interesting, real world problems.
- Intensely wants to make a viable business out of it.
Solopreneurs include web designers, e-commerce website owners, full time bloggers or online publishers, marketers, online coaches or independent consultants, freelancer writers, online network marketers, affiliate site or referral site owners, iPhone and Android app developers, graphic designers, etc.
A solopreneur can be a temporary situation or a permanent pursuit. Perhaps you are actively seeking a co-founder or other team members and want to eventually grow the business beyond solopreneurship, hire employees, grow rapidly and maybe even raise venture capital.
Or maybe you want to build a permanent lifestyle business. You do not want to grow your business if it would require you to change your lifestyle in an unreasonable way. For instance, you may place a significant importance on being able to be at home so you can see your family every day. Or you may live far enough away from major urban centers where a multiple hours long daily commute would be a nightmare.
Either way, as a solopreneur, your business has unique risks.
Why Solopreneurs Fail
The #1 reason that small businesses and startups fail is because they run out of money. This can happen for many reasons, including over spending, not properly managing cash flow and being hit with unforeseen expenses.
More often, solopreneurs fail because of personal struggles.
The nature of solopreneurship means that you have no one to delegate to except yourself. You are your team’s strongest and weakest link.
As the founder, you are both the greatest asset your business has, and simultaneously its greatest liability. When you are stuck negotiating with yourself on every decision, you will suffer from a lack perspective. Perspective is absolutely necessary in prioritization, which will determine how well you execute. The impact of every decision will fall on your shoulders alone.
Solopreneurs can also fail because of external issues, though.
For instance, e-commerce solopreneurs can find themselves overly exposed to an “Act of Google“. An Act of Google is like the legal term “Acts of God” which appears in insurance contracts referring to natural disasters such as hurricanes, earthquakes and volcanic eruptions. In the e-commerce and digital marketing world, an Act of Google is almost the same thing in that an algorithm change may spell disaster for your business if you are too reliant on a keyword or overly narrow digital marketing strategy. Your business could also be a victim of a cyber crime, such as ransomware, malware, or be on the receiving end of an unforeseen lawsuit.
The good news is that you can manage external issues by transferring risk away from yourself through insurance.
How to Transfer Risk
As a solopreneur, you are betting on yourself… Even if you are gambling against the odds.
But professional gamblers don’t need any unforeseen surprises bleeding their chips, so they count cards, research their opponents and know their own weaknesses. Professional gamblers do the necessary hard work as a form of risk management.
As a solopreneur you need to focus the work that matters to your business and manage your downside. You can avoid catastrophic losses to your business by using insurance to transfer risk.
Cyber Insurance for Solopreneurs
The reason most small businesses and solopreneurs do not have insurance is because they believe it is too expensive. But as described below, packaged insurance coverage can be had for as little as a few dollars per day.
What would the opportunity cost be if your e-commerce business was suddenly taken offline by a cyber attack or malware?
Cyber insurance coverage can include 1st party insurance and 3rd party insurance. 1st party insurance coverage protects you, the policy holder. 3rd party insurance coverage protects your clients, customers and partners who may be affected by a cyber incident that happens to your business.
Cyber insurance coverage can be added as an endorsement to a package policy (the Business Owner’s Policy described below) or as a separate monoline policy.
Types of Cyber Insurance Include:
- Cyber business interruption coverage
- 1st party data loss coverage
- Data response, or data breach incident response, data breach verification, customer notification and management, data breach recovery
- 1st party network security coverage
- 1st party network hardware and software
- Multimedia liability insurance
- Laptop insurance
- Distributed denial of service (DDoS) attacks
- Ransomware and cyber extortion coverage
- 3rd party data breach
- Crisis management and PR management coverage
- Terrorism coverage
The Business Owner’s Policy (BOP)
Solopreneurs can get cyber insurance packaged with an affordable insurance bundle known as a business owner’s policy, or BOP.
The BOP is a packaged insurance policy including different coverage types including commercial general liability, commercial property, business interruption and cyber insurance together in a single affordable policy.
- Commercial General Liability (CGL): This coverage is third party coverage designed to protect you against claims of bodily injury or property damage to a third party (someone other than you) who engages with your business. If you run a business out of your home and have clients, vendors, partners or independent contractors who come to your home office to visit or do work, you should have a commercial general liability insurance. The CGL protects against claims such as “slip and fall” or other injury.
- Commercial Property Insurance: Commercial property insurance is first party coverage, meaning it protects you from loss of your own personal and/or business property. Commercial property insurance covers physical assets from loss or damage from fire, theft and natural disasters. Physical assets could include your office, computers, furniture, artwork, etc. If you are currently running your startup out of your home, you may wonder if you are covered by your homeowner’s insurance policy. It’s important to note that most homeowner’s policies will not cover losses to any business property.
- Business Interruption Insurance: Business interruption provides coverage for your business in the event that business is interrupted, causing a loss of business income. Business Interruption protects your business operations if they are interrupted due to a covered event, such as a fire or natural disaster, business interruption insurance provides coverage for loss of business income by replacing that lost income. Insurance policies reimburse for loss of business income based on your startup’s exposure basis which means how much revenue or profit you have.1 Business interruption insurance can cover payroll costs, loss of income and ongoing financial obligations that your business has during the interruption period. If your office has been damaged business interruption may be able to cover the cost of renting a temporary office space while repairs are made.
- Cyber: Often referred to as a data response or cyber liability endorsement, this covers things like breach management, claims expenses, investigation and defense costs. Covered data response services may include, but not be limited to, the following:
- Services of a security expert to determine the existence and cause of a data breach that resulted in a theft or unauthorized disclosure of personally identifiable information.
- Attorneys fees.
- Call center services that can help you to manage notifications of individual customers of yours who may have had personally identifiable, non-public information exposed.
- PR and crisis management expense allowance within a reasonable time frame after the occurrence.
Check Your Coverage Limits
In the event of an attack, a cyber policy should provide coverage for restoration costs, payment of a ransom demand in cash or cryptocurrency (such as Bitcoin, Ethereum or Litecoin), and forensic expenses to evaluate the condition of your site and/or data to be sure that the recovery process is clean.
Solopreneurs are more vulnerable to disruption from a cyber incident because recovering from an attack can take 100% of their time to try to recover the business, not to mention the costs associated with recovery.
The cost of a cyber attack is increasing as the cost of the cleanup increases. Research indicates that a cyber breach can cost over $200 per record breached. The average breach cost for a company was $665K and the median breach cost was $60K. The recent Equifax breach exposed up to 143 million customer records. However, the amount of insurance that Equifax had was a limit estimated to be $100-150 million. This is much less than what it will cost the company to remedy the problem with their customers. At $200 per record, the cost of the Equifax breach to Equifax could be over $28 billion.
However, even a breach with only a few records can be very costly. NetDiligence reports that one event in their dataset of cyber attack costs involved only 1 record but the breach cost that company between $1.5-2.0M.
Equifax is the opposite of a solopreneur and the fact is that most solopreneurs do not handle personally identifiable information. As such you may not need data breach coverage, but you may want to consider coverage for cyber extortion, such as ransomware.
However, if your business handles (or your clients handle) personally identifiable information, you would be wise to consider a cyber insurance policy that covers this 3rd party data breach exposure. Examples of businesses that collect this type of information are banks, financial institutions, franchisors, investment managers, lenders, mortgage brokers, accounting firms, healthcare providers, doctors and hospitals.
While a solopreneur may never expect a cyber incident to affect them, a cyber insurance policy can help you to transfer risk so you have some additional peace of mind knowing that you have coverage for costs you could incur after an attack.