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Fast-growing firms warned to keep updating cover

Capsule co-founder, Tom Wynne, speaks to The Times about the risks of high-growth firms being underinsured.

Four fifths of high-growth firms are underinsured leaving them exposed to events that could put them out of business, a specialist broker has warned.

Some industries such as ecommerce and healthcare have had exceptional rates of growth in the past 18 months because of the pandemic but many may not have updated their policies to cover higher stock levels and their larger workforce.

Times Enterprise Network reported recently about the impact of a fire at the Northampton warehouse of My 1st Years, a baby and children’s brand that had been on track for sales of £30 million in 2021. The fire, in May, destroyed more than £3 million in stock, £1 million in equipment, a 100,000 sq ft warehouse, a head office and a photography studio and forced it to make refunds to 1,400 customers while pausing trading.

Jonny Sitton, the company’s co-founder, said that Aviva had settled their claim but they were underinsured in certain areas so that their payout was 20 per cent lower than it could have been.

Tom Wynne, co-founder of the specialist insurance firm Capsule, said that this scenario was all too common among companies growing quickly. “In our experience 80 per cent of high-growth businesses are underinsured or insured on the wrong basis,” he said.

80 percent

Capsule, which was founded last year and works with companies including the sports clothing brand Castore, the deodorant firm Wild and the online jewellery brand Abbott Lyon, said that common areas of underinsurance included stock, business interruption and property.

Wynne, 31, said insurance brokers focused on small and medium-sized companies were not necessarily set up to cater for the needs of fast-growth firms. He said they typically operated online or through annual reviews when cover is assessed. “That is fine for most SMEs as often very little changes in that period and they are on hand if needed whereas in the high-growth market things change very quickly,” he said.

In this scale-up market it’s really important you have confidence your insurance will respond to a claim

Tom Wynne, CEO at Capsule

He accepted that for most business leaders insurance was not a top priority: “Founders will be focused on business growth and insurance, unfortunately, isn’t the sexyist topic. Often it is a hygiene factor — ‘Yes, we are insured’ — but the real question is what are you covered for and by who. The balance is to make sure businesses are not over-insured and are not buying too many products, or products before they need them. Just that they are suitably protected.”

He argued that founders, particularly the person looking after finance, would be better served by seeing their insurance broker as a partner, sharing trading data and their future plans to ensure that the right cover was in place. “In this scale-up market it’s really important you have confidence it will respond in a claim,” he said.

One insurance product he advised many entrepreneurs to hold off on is cybersecurity, arguing that it was often better to use the money to improve security and procedures and so lower the risk of an incident happening. He pointed out that the small print of many cyber policies required such action to be taken anyway. “In cyber-liability the problem at the moment is there are lots of clauses that say A, B and C needed to have taken place. So make sure you meet those requirements before you become a buyer of that cover,” he said.

He had also, however, come across ecommerce traders using platforms such as Shopify that thought that the liability for data breaches sat with Shopify when it did not, and they had no cover.

Private equity and venture capital firms would scrutinise existing cover as part of their due diligence, he said, the former seeing appropriate cover as part of good governance.

Wynne said that he had co-founded Capsule last year after reading the Fast Track series of league tables identifying British scale-ups, which were published each year with The Sunday Times. He had previously been group managing director of the family-owned insurance firm Kingsbridge, where he led two rounds of private equity investment and then sold it to a US group in April 2020, when it had operating profits of £8 million.

Original Source - The Times

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Capsule Insurance Services Limited t/a Capsule are an Appointed Representative of James Hallam Limited who are authorised and regulated by the Financial Conduct Authority (FCA), under Firm Reference Number (FRN) 134435. Capsule's FRN is 948838. Registered in England and Wales company number: 13340821. Registered office is 48 Belle Vue Terrace, Malvern, England WR14 4QG.

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