If you’re thinking of starting a company in Germany, there are a lot of things to consider – like creating a business plan, deciding on a legal structure, and taking care of accounting. But it’s also important to think about insuring yourself as a founder against any risks that might come up. In this article, you’ll learn about the types of insurance you should consider as a new entrepreneur, and which risks you should protect yourself against.
- The most important business insurance
- Public liability insurance
- Contents insurance
- Cyber/IT insurance
- Is business insurance worth it?
- How do I find the right insurance?
Business is risky. How risky depends on the sector and the activity. To protect your business, identify these risks and tailor your insurance coverage accordingly. Regardless of the industry or sector, the following types of insurance are essential for founders.
Gewerbliche Haftpflichtversicherung (commercial public liability insurance) protects you if you are sued for damages. There are two types of insurance:
- Betriebshaftpflichtversicherung (business liability insurance), and
- Berufshaftpflichtversicherung or Vermögenschadenhaftpflicht (professional indemnity insurance, financial loss liability or pecuniary loss liability).
Third-party liability insurance
Betriebshaftpflicht (public liability) – also known as Firmenhaftpflicht (company liability) – covers personal injury and property damage caused to third parties by you or one of your employees in the course of a business activity. Let’s unpack two examples from the everyday life of a founder:
Third-party damage or injury is called Personenschaden Dritter. Here is an example to give you a better idea:
A customer trips over your laptop cable and breaks his arm. He claims compensation for all the costs he incurs as a result of the accident, such as medical expenses or travel costs. But there are also follow-up costs after the accident. Public liability covers physiotherapy or compensation for pain and suffering due to physical impairment. Being liable for personal injury can even mean paying a pension to the injured party. Such claims can quickly be a threat to the survival of your fledgling business.
Third-party property damage
The German term for third-party property damage is Sachschaden Dritter. Damages of this kind are along these lines:
You visit a customer in her office. During a conversation, one of your employees accidentally knocks a glass of water onto the customer’s laptop. In those few seconds, water leaks into the device and the laptop needs to be repaired. This is a case of third-party property damage, which the customer will claim from you. Betriebshaftpflicht (public liability) covers this damage.
Professional liability insurance
Berufshaftpflichtversicherung (professional liability insurance) – also called Vermögensschadenhaftpflichtversicherung – covers you if your mistake causes financial damage to a third party.
Direct loss vs. consequential loss
A distinction is made between echter Vermögensschaden (direct financial loss) and unechter Vermögensschaden (consequential or indirect financial loss). This distinction is important for choosing the right insurance as a new founder.
Direct financial loss
An echter Vermögensschaden (direct financial loss) is where you have only caused financial damage to others. That is, this happened without first causing injury to others or damage/destruction of their property. In other words, a pure pecuniary loss. For example, you give bad advice to a customer or miss a deadline, resulting in a sales drop for one of your customers. They hold you liable and demand compensation.
Consequential financial loss
An unechter Vermögensschaden (consequential financial loss), on the other hand, results from damage to property or personal injury. For example, if a client stumbles in your office, is injured and suffers a loss of income as a freelancer – this is a consequential financial loss. This term refers to financial losses resulting from personal injury or property damage.
In addition to Haftpflichtversicherungen (public liability insurance), which covers claims by third parties, there is business insurance that covers you in the event of damage to your own property. For example, your business premises and your business assets.
As a founder, you should protect your business inventory, goods or supplies with contents insurance which is called Inhaltsversicherung in Germany. (You may also see it called Sachversicherung or Geschäftsinhaltsversicherung). This insurance kicks in if your business property is damaged or stolen.
What does contents insurance cover?
The insurance covers fire, water damage, storm/hail and burglary. If a fire causes a business interruption, many insurers offer an additional component to the contents insurance in the form of so-called Betriebsunterbrechungsversicherung (business interruption insurance).
Here the insurer will cover the costs or loss of earnings (depending on the insurance tariff). Some insurers include electronics insurance in the Inhaltsversicherung (contents insurance). This covers the costs of damage to technical equipment.
61% of German companies were attacked at least once in 2018. This is according to the Cyber Readiness Report from specialist insurer Hiscox. It is not only large, established companies that are affected. Hackers are also targeting SMEs and startups. One-click on an infected email can result in a cyber incident with costly consequences. A crippled computer system can spell financial disaster, especially for you as a founder. That’s why it’s never too early to take out cyber insurance to cover the costs of personal and property damage. Some insurers also offer immediate assistance and preventative support even before a claim is made.
As a company founder, it is important that you have a clear head as you build your business. A lack of insurance coverage can result in consequential costs that could jeopardise the very existence of your start-up. Make sure you have basic business insurance to protect your fledgling company. Business and professional indemnity insurance is cheaper than many people think. Insurance premiums depend on factors such as the amount of coverage, the deductible and the company’s individual key figures. Many insurers also offer discounts for new companies.
It is important to identify and properly cover the risks that are specific to your business model. When looking for the right business insurance, your industry and business activity play a role. The risks to be insured are different for a management consultant than for an online shop. Many insurers offer tailor-made policies for specific industries. During a consultation, you can describe your company’s activities in detail so they can tailor your insurance policies to suit your company.