Insurance Application Behind the Scenes

Jordan Buckner: [00:00:00] Getting insurance can be a little bit of a black box for companies in terms of applying and then seeing what you might get out the other side. So to walk through some of these questions that you need to know in either starting a new policy or evaluating or existing policies, I want to invite on Russ Taylor with SecureCPG to really walk through some of these questions.

Russ works with tons of CPG brands specifically to help them identify their insurance coverage needs and evaluate any gaps in their policies to make sure that brands are fully covered. Russ. There's been a lot of recalls in the last year and lots of other issues that have come up. Production issues that we've talked about on the podcast as well.

So make sure that you actually have coverage and to do so have the right questions that you're answering as well. Russ, welcome. 

Russ Taylor: Thanks so much, Jordan. Appreciate you having me on. 

Jordan Buckner: So walk us through maybe the typical process for applying for insurance for a CPG business. 

Russ Taylor: Certainly. A lot of brands come to us or, you know, their [00:01:00] insurance agent the first time they're asked for a certificate by a vendor or a retailer that says, Hey, , we're going to carry your product.

We're going to help distribute it, whatever it might be. And you know, a lot of brands don't have any real insurance knowledge, to base it off of a lot of entrepreneurs are first time business owners. So, you know, for all the new founders out there, do not feel bad if you are, you know, feel clueless or helpless around insurance, you are not alone.

The first thing that is going to really have to happen is you should be having an informed discussion with an agent around what your product is and what your business model is so that they can accurately describe that to an insurance underwriter who works for, you know, as we refer to them in the industry, the carriers.

And those are the companies like Hartford and Travelers and Chubb. Big, massive companies that most people have heard of, and then there's specialized insurance companies that are regional or super regional that, you know, you may be less familiar with, but each of those companies is going to have questions surrounding what your business does, what your product is, and [00:02:00] what kind of coverage you're looking for.

The most typical thing that they're going to be looking, the information that they're going to like gather from your business that your agent is going to collect and then provide to the insurance company is an application sent around your business address, your revenue. The type of product you have, your ingredient list and a handful of other fairly basic business questions that most founders are going to have access to either off the top of their ad or on a pretty quick spreadsheet that they can pull up the underwriter at the insurance company is then going to digest that information and try and spit out a quote for you based on the information that you provide.

Jordan Buckner: Is that going to, the information that you're submitting change? A lot based on the type of coverage you need as a business. Is it typical where like one carrier will do general business insurance, liability insurance, and kind of all others, or will companies typically have to work with multiple, you know, like workers con where they typically have to work with multiple different. Carriers. 

Russ Taylor: That's a really good question. So most insurance [00:03:00] companies, particularly the ones that we're seeing today have the appetite and capacity to write CPG food and beverage brands are going to be able to handle really any line of coverage that you're looking to acquire, whether that's general and product liability.

Workers compensation, property and inventory insurance directors and officers insurance, which is often a side letter requirement in a letter from an investor. So companies like Hartford and Travelers, they have the capability to write all those lines of insurance and make your life a little bit easier by only having one insurance company to deal with.

As you grow, and this is where insurance, we can go down the insurance rabbit hole a little bit. Some of the larger brands we work with that are, you know, multiple millions of revenue or multiple tens of millions in revenue, they might actually get a better deal by having multiple lines of coverage with different insurance companies.

But they also might see a benefit by having everything with Selden, like one carry, like a Hartford. So it really depends. I'd say Jordan, the most frequent thing that we see that causes [00:04:00] insurance to get a little bit more complicated is when your product is not traditionally accepted by.

the larger insurance companies, so CBD, THC things like Kratom and Kava skincare products right now are having a tougher time getting within appetite of the standard market insurance companies. And so you might have to find multiple insurance companies that are willing to provide various different policies to get your business fully covered.

Jordan Buckner: That brings up an interesting question because one problem I ran into Russ with is that, My brand TeaSquares was that I think in trying to figure out like what business activity our product fell into because I think, you know, we were categorized as like a manufacturer slash maybe food manufacturer that one time like we had, we were renting a shared kitchen space and manufacturing the products ourselves, but at times we also started working with like a contract manufacturer.

We're like, we weren't manufacturing things ourselves. So how does business kind of selecting that business activity [00:05:00] come into play when you're kind of working with insurance companies to, to define what you do? 

Russ Taylor: Yeah, it's a nightmare, frankly, because insurance companies are. radically ill equipped to understand the modern brand.

And that's sort of the thesis that we have at SecureCBG and that the team members that I work with daily, we discuss how, you know, the insurance company is sort of this massive cruise ship, and we are swimming against it, trying to help turn it to understand that CPG has evolved much more quickly than other traditional manufacturing industries have for CPG brands that have their own product, they're always going to be labeled as a manufacturer of sorts.

And that's the only designation or classification that the insurance companies. Can really tag to you. So it's very important that they understand that your operations might be outsourced, even though the product is your own, because that can change the operations liability coverage that's associated with the brand versus the product liability, which is always going to fall on the person who owns the [00:06:00] product. the other thing I touch on there is that when you're looking at this policy, right, that lists you as a manufacturer. And you want to make sure that they have your product classified correctly. Sometimes it can be right, you know, beverages can be shipped and packaged in glass or aluminum cans or plastic, and each of those has a slightly different rating.

So you want to make sure that, you know, You communicate clearly and articulately with your agent and with the carrier that, you know, Hey, you know, I'm a beverage company, but mine comes in cans or mine's comes in glass. And that's a, should be a fairly straightforward conversation because, you know, business owners know their products inside and out.

But you know, your agent should be asking those questions to make sure that they get your rating correct. And then this is something that we look at a lot. You as a business owner, Jordan, with TeaSquares, you were rated as a manufacturer. And when you outsource some of that to a contract manufacturer, they have an insurance policy that also rates them as a manufacturer in those instances where brands are outsourcing their operations, that [00:07:00] contract between the co manufacturer and the brand becomes critically important.

And you should be having legal and your insurance agent review. That contract, your insurance agent should be reviewing the liability section and the your attorney should be reviewing the 

the in agreement in its entirety. 

Jordan Buckner: You know, I think that's an issue that I experienced a lot of brands who I know went through way is like setting up coverage at the very beginning of your company.

And not communicating regularly with your agent as the business grows and as your business changes because that can drastically affect what's being covered, your pricing. And as you grow, you're only going to get more gaps in your coverage if you don't fill those. 

Russ Taylor: Yeah, it's look, I understand you don't want to talk to me as your insurance agent more than you have to, right?

It's, we're sorted as necessary.

Jordan Buckner: I would actually love to talk with you because like my, the insurance agent I use came recommend it from you know, a mentor I had at the time that had their own business, but they were a purely like consulting based business and had no physical product, no assets. So their insurance [00:08:00] agent was not frankly like qualified to rate our business because they were like, Oh yeah, you're a manufacturer.

That's all the question, you know? They were like, yeah, even at the time we were doing before Teasquares, like we were making like meal kits. We're like, we use like some fresh ingredients, we're packing everything, we're shipping. They were like, I don't know all the intricacies, so we'll just use this broad term.

But like, even you mentioning like, oh yeah, beverages in different containers are rated differently. Most insurance companies will not know that and will not ask you that. 

Russ Taylor: Yeah, it's funny. We kind of joke with our clients about Hey, look, we understand that you may not want to hang out to your insurance agent all that much, but we try to say quarterly meetings with scaling brands, because we understand one, the intricacies of.

They may be launching a new product. They may be changing locations. They may be switching you know, vendors or third party. Third party suppliers that they utilize and all of those can ostensibly change the risk profile of a company. But the other thing is, right, it doesn't have to be this long drawn out conversation like you and I are having right now, which can be very informative.

[00:09:00] Usually when we're touching base with our insureds, it's, we can make it as simple as an email or as in depth as they want to go. And it is really beneficial not only for the brand, but for us as agents to make sure that we understand that you've made a change and there's no surprises at renewal, which can create havoc at the last minute in some cases.

And again, insurance is usually, you know, item number 37 on the to do list. So making sure it doesn't become a fire to put out is our chief goal when we work with companies. 

Jordan Buckner: I love that. When going through the application process you know, what are some of the common red flags or issues that can delay or complicate the application?

I know you mentioned, you know, some of the under regulated products like CBD or THC, are there any other kind of red flags or issues that come up? 

Russ Taylor: No, alcohol is a big one right now. So can't companies that are making like RTD beverages with the alcohol or denim, no insurance company is going to extend you a policy without seeing a contract [00:10:00] between the brand and then the company manufacturing and bottling that, that product. Similarly with, brands that have unique or quote unquote riskier products, ingredients in them. They're going to need to see an ingredient label and they're going to need to see a contract for more benign products that in the snack world, the chips and the granola was it becomes a less of a lift, but a lot of times if you're a brand, that's, you know, approaching multiple millions of dollars in revenue.

They're going to see financials before they extend certain amounts of coverage. And then each year for anyone listening, I want you to remember you're buying insurance annually. So your renewal is hopefully just a simplified process of the original application, but again, you're going to need a lot of the same information that you use to get your first policy each year, when you apply for your renewal process.

With insurance. So I'd say the biggest hiccups we hit are when we're asking for financials. They don't necessarily have to be audited, but a lot of [00:11:00] times it's a P and L statement that will show something. And remember that the insurance companies reserve the right to audit a business at the end of each policy period.

So. the other point I wanted to touch on is that we ask for a projected revenue, and that can be be a little bit difficult, particularly for scaling brands that can say, Hey, we could be going from 500,000 to a million, or a hundred thousand to 500,000, or 5 million to 10 million, whatever it might be.

So part of our open dialogue with our clients is usually set around trying to make the, the best projection we can because premium a lot of times is rated. A large component of it is the revenue that the brand is driving. 

Jordan Buckner: In those situations, is it usually, like, how does that resolve if your estimate is wildly off?

Like, do they charge you the difference, essentially? If you, like, overestimate, do they refund you? Like, is it usually better to, Be more conservative or be, you know, higher because there's like fees associated with it or something. 

Russ Taylor: No, it's a great question. And I'd say it's more art than science in that particular [00:12:00] instance.

We have a particular way that we like to do it. But to answer your question in the sense of how, how does it impact you financially when you report those numbers? So if you underestimate and you're scaling quickly. That's part of why we build in those quarterly meetings and you should be talking to your insurance agent, or at least providing them an update semi annually because if, and when you do get audited, the additional premium, so we use the example of you go from half a million to a million.

They're going to audit you on that half a million additional revenue that you did report at the beginning of the policy period, they're going to charge you the additional premium, and that's due and payable within 30 days of that audit which is not usually a fun experience for brands that, you know, might be sensitive to cashflow, which is realistically almost every brand conversely, depending on the type of policy, but more often than not, you can get return premium.

It's not as fun as it sounds, right? Because it's kind of like waiting for, you know, your refund check after your taxes, right? It's, you know, it's a cash free loan to the [00:13:00] insurance company. So our system or our approach is usually get an estimate that we think is very much attainable for our, our client.

You know, they think, Hey, we think we're going to hit a 500, 000, 750, 000 might really be a reach. Let's go with 500, 000. We can adjust that, you know, during one of our quarterly meetings. And then you still get the benefit of amortizing that additional premium over the remainder of the policy period. 

Jordan Buckner: That makes a lot of sense. I know we even started talking about pricing, but how does. How do couriers start, you know, determine pricing on a policy? Because I know they typically just come back and say like, all right, here's your pricing. 

Russ Taylor: Yeah. And it's always fun when they just throw that massive number in front of you. So typically the, for general liability and product liability, and that's what we'll get into because property underwriting is a little bit more of a pain in the butt.

But for general liability and product liability, the most typical way, because brands are rated as manufacturers. They take your top line revenue, divide it by a thousand, and then they multiply it by a rate that they have in their internal system [00:14:00] for the product that you're making. So, You know, a granola might be, you know, 10 cents per thousand dollars of revenue.

And, you know an energy drink might be a dollar per thousand dollars of revenue. I'm pulling those numbers out of thin air, but it, that's really how it works. And so your top line revenue divide by thousand multiplied by. Whatever rate they've determined within their internal underwriting system for the product that , you are making and selling.

Jordan Buckner: Do you know why it's divided by a thousand? 

Russ Taylor: I do not. Workers comp is divided as a hundred dollars his payroll divided by a hundred dollars. So I guess just be thankful. They're not divided by a hundred and they're divided. 

Jordan Buckner: Got it. No, that makes sense. And then along with pricing you know, one thing I was always confused about is like, how are agents compensated? , for working with founders. 

Russ Taylor: It's a good question. And we love the transparency that we provide around this because insurance is unnecessary, unnecessarily opaque around the pricing that brands get. And then I'd say on probably half the calls we have the savvy founders ask us that question [00:15:00] exactly.

And we as an agency are compensated. Roughly 10 percent out of the premium, right? So if you pay a thousand dollars, our agency makes a hundred dollars off of that. So you know, to all the brands listening, when you're paying those massive premium dollars, they are not going into my pocket, unfortunately but that's the standard setup.

Every agent is compensated like that. So the other thing I always like to tell people is don't work with an agent who's saying they're going to have to charge you an additional fee, you know, Because , they should be getting compensated out of the premium dollars that you're paying to, you know, Hartford or Chalmers or whomever it might be.

Yeah, that makes sense. And then are there any other issues or common mistakes that you see in either companies getting set up with insurance at the beginning or as they're growing their business? 

You know, for emerging startup scaling brands , that are, you know, sub 1 million in revenue. I'd say the biggest mistake they make is forgetting the plan for the future at this point in their life cycle.

You know, they usually come to someone like us [00:16:00] or whomever their local agent that they get connected with is, and they want the bare bones, most basic insurance policy that they can get, which is usually general liability and product liability, because those are the need to have, you can't be an operating business without those.

What I really like to do at that point is say, Hey, we're happy to get you those. But you should be aware that as you grow, there's going to be other needs. and I want you to be aware that these policies are going to be things , you're going to want to ask me about. And I may, you know, I may not have it on my radar when you guys decide to do a 15, 000 run of inventory or bring on investors that is going to require you know, a director's and officer's coverage to be added to your policy.

And then it's never fun to have the conversation with a brand and surprise them that, Hey, you're going to, you know, you're going to have to get this policy and it's going to be an extra, you know, thousand, 000 in premium, whatever it might be. And that can really derail their growth plans if they've never even considered that that's something that they're going to have to add to , their bottom line expenses.

Jordan Buckner: That makes a lot of sense. Yeah. Yeah. It's wild just [00:17:00] the coverage that you need and why to make sure that you're adequately protected because we talked about so many brands think that they are protected from things, but then are not based on the contracts that they have or changes in business.

And so I love your idea of having a quarterly review set up and working with an agent who understands CPG brands and all the nuances, because it really can make a big difference in those worst case scenarios. 

Russ Taylor: Yeah, it's, 

it's never fun. We deal, you know, we deal with food and beverage, you know, products.

So we see recalls, we see contamination, we see spoilage happening to all these companies. And a lot of those coverages that would be really beneficial in a time of need for you know, a food and beverage brand are not automatically included on policies, and so you, you need to be making sure that.

Your agent is, you know, checking and going over with you to make sure that the coverages you want and are worried about. Are included you know, perfect example is general liability and product liability are really for third party damages. [00:18:00] So someone consumes or uses your product and is otherwise harmed by it from a bodily injury standpoint.

But if your product you know, gets, you know, I like to use like pistachios and peanuts and nuts. If a piece of shell gets in there and it's, you know, it's not supposed to be in the product. Right. That could be a contaminant that's not automatically added to the property policy in a lot of instances as a line of coverage recall is something you have to elect by itself, and it could be hugely beneficial for brands if they experience, you know, the unfortunate circumstance.

Or situation that is a product recall or a product withdrawal. So we've talked about this a lot, Jordan, where it may not be the most fun part of your year, but if you do it right, the, you know, the first time, and then you set up follow up meetings where it's, it's maintenance type meetings. It becomes much less of a headache.

Jordan Buckner: Well, I actually love talking about insurance with you. It's so much fun. And maybe it's because I see the issues that happen to [00:19:00] brands and how not having coverage can really, really screw your business. and having someone that's knowledgeable makes it so much easier. So yeah, anyone listening, I definitely say set up a call with Russ and his team to.

Be able to figure out what coverage you have, if you currently have insurance, any gaps, if you don't have insurance, how to get set up, because I've talked to dozens of founders in the last year who have had issues that were not covered by their current current insurance coverage. And so make sure you take care of that now, before those issues happen to you.

We'll include links in the show notes as well. Russ, thanks so much for being on and talking about this today. 

Russ Taylor: Awesome, Jordan. Thanks for having me.