Business Insurance Roadmap

Jordan Buckner: [00:00:00] As a CPG founder, you are going to encounter risks in your business throughout the entire life cycle of it. But as you are going, it's important to understand various insurance products along the way to make sure that you're properly covered in case things happen. Because from a lot of the brands I've been talking with, like there have been a lot more issues and concerns that have come up recently.

But it can get kind of complicated. So today I invited on Russ Taylor with SecureCPG to really walk through the journey of a CPG brand and the different insurance that you may want to have at different stages of the business. We're going to be covering everything from starting the business through hiring employees all the way to raising VC investments things that you need to know. Russ, welcome. 

Russ Taylor: Thanks for having me, Jordan. 

Jordan Buckner: So let's start at the beginning. When you are just starting on your business, it's important to actually have insurance from the very beginning. So what are some of the types of insurance that you want to have as you are just getting off the ground? 

Russ Taylor: Yeah. And These are what I [00:01:00] refer to as the non negotiables, right?

To be an operating business, you need to have general liability and product liabilities. When I talk about these and start explaining insurance to brands I say that these are really two sides of the same coin. You really don't get one without the other. And they're the basis for all insurance.

General liability is protection against your operations, harming a third party and causing bodily injury or property damage. And then product liability is the same exact thing, except for it's your product causing bodily injury or property damage to a third party. And when I am advising brands on these, you know, this is the one on ones of insurance.

And you need to get these when you start your business out, when you're going to a farmer's market, when you're, you know, really selling anywhere. And someone asks for a certificate of insurance. This is what they're looking for. Hey, if you 

hurt someone or something, we want to know that you have insurance coverage for it.

And this is what they're referring to as general liability and product liability. 

Jordan Buckner: Yeah. And I think a lot of. People are like, Oh, [00:02:00] maybe I'll get like, once I start getting to a certain level of my business, but it's something that you pretty much have to have , right away. And so it's one of the first things you need as a business.

Russ Taylor: Yeah. And it's typically the most affordable insurance you're going to get. You know, it's designed that way on purpose, right? They know you need to have it. Most food, beverage, beauty companies are pretty low risk from an operation standpoint. And then, you know, barring you know, a really exotic product.

The product incident rate is pretty low as well. 

Jordan Buckner: What's the starting coverage that you should have at this level? 

Russ Taylor: Most common, I'd say 98 percent loss of people get offered what's called a 1 million 2 million policy. So that's 1, 000, 000 per occurrence and 2, 000, 000 in aggregate. So for any one incident, you have up to a million dollars in coverage available to you, and then you have $2 million available throughout , the year of the policy period.

So you could have two $1 million losses or a bunch of small losses totaling up to $2 million in the year before you exhaust that $2 million [00:03:00] limit. And again, you can't, if you're if a claim scenario exceeds a million dollars. You're not going to have coverage above that unless you go out and get a number, but we can touch on that a little bit later.

Jordan Buckner: Next step in the journey is typically around hiring employees. When you actually bring on your first person on your team what insurance do you need them? 

Russ Taylor: Workers comp. And this is. So important to just be tracking it and be aware of it. And there's gonna be a bunch of people that listen to this. They go, well, I hire 10 99s and I, I hire people that are part time.

I would definitely talk to your attorney or your friends that are attorneys. But if you have an employee or something that can be construed as an employee, you are going to be required by your state to carry workers comp. Workers comp is pretty straightforward. It pays for medical bills and lost wages.

If an employee gets hurt during the course of work or in the workplace there's a lot of gray area around work from home and, you know, people that are traveling, driving to them from the office. That's for, you know, people have [00:04:00] questions there. They're more than welcome to reach out to me, but really this is mandated by all states.

If you have an employee, you need to have workers comp and the way it's calculated again, very straightforward. their payroll, their salary, or your company's payroll divided by 100. Multiplied by a rate that's given to you by the insurance company in the class code. So if you're an ice cream manufacturer, if you make sparkling water, if you make granola, each of you is going to have your own independent rate that the insurance company gives to you based on, you know, what you're making and how your employees are classified.

Jordan Buckner: And if you have employees who are, let's say you don't have any, your own manufacturer and you have someone who's like working on a computer all day you still need workers compensation coverage for them as well? 

Russ Taylor: You do. Yeah. 

Anyone that's working for you, you need to have workers compensation for.

And again, it scales based on the skill set that they're providing for you in a work capacity. So. Someone who sits at a computer and is, you know, doing spreadsheets and working in finances it's going to be next to nothing to get [00:05:00] coverage for them. You know, a couple cents per hundred dollars of payroll.

Whereas, you know, , the examples in the insurance industry are always roofers and people climb up trees and cut down branches. Costs, you know, 15 or 20 per 100 of payroll to provide workers compensation for so it really is. If you had someone who's an office or a clerical employee, it's pretty affordable to insure them.

And then Taking that one step further, a lot of times, if you get into a retail contract, you'll see in there's a stipulation that they expect you to carry workers compensation. And you might be saying, Hey, I'm a sole practitioner, right? , I'm the only member of my business. You can go out and get a work comp policy that has statutory limits and you'll get what's called a minimum premium policy.

It'll show that you have work comp coverage. It usually costs, you know, anywhere from 200 to 300 for the year. To get, you know, a basic work comp policy that's really not protecting anyone or anything, but it's meeting a contract requirement. 

Jordan Buckner: Yeah. So definitely 

basic. And I have been able [00:06:00] to negotiate those a little bit as well for some retailers as well.

So try that option first, but if you need, go with this coverage. How also about like auto insurance? I know there's like own and unowned auto insurance that you can get. 

Russ Taylor: Yeah. A lot of the companies that we work with, a lot of the brands we work with in the CPG space, Don't have a work vehicle, right?

People are driving their own vehicles or they're renting a vehicle when they go to an expo to get their booth there or to, you know, shuttle employees around while they're out at Expo West or Utopia. So the coverage that's really easy to add on to almost every policy is HNOA. It sounds referred to fired and non owned auto.

What that does is it says, Hey, I don't have any vehicles titled to my business or titled in my name. For the business, but I do drive for work purposes and my employees drive for work purposes, or I've rented vehicle , to transport , my product. Cause I self distribute, you know, any number of scenarios that we've encountered in the CPG space.

And that policy extends the liability coverage, [00:07:00] not comp and collision to you and the vehicle that you're driving. That may not be the works, the company's vehicle. So perfect example is you have an outside sales rep. They're driving to and from meetings, they get into an accident, whether it's their fault or not, the person they get into an accident with finds out they're driving for work purposes and tries to sue the business.

Oh, the hired non owned auto policy steps in there and says, Hey this is third party damages we'll protect against the liability of you hurting their property or that person. The thing that would not be extended is the physical damage to the employee's car, right? Their personal auto policy would pick that up.

So just be aware of that. You know, if you have a business auto policy, it will cover damage to , the auto that is owned by business. Like I said, the majority of companies we're talking to don't have a work vehicle and they're driving their personal vehicle or employees are driving their personal vehicles.

And again, this is a very affordable policy, a few hundred bucks for the year. That can extend [00:08:00] a million dollars in coverage to, if you get into an accident while driving for work and someone that the person that you hit alleges that they were hurt or injured, that also would step in and pay again, third party damages. to that person, 

Jordan Buckner: I mean, that brings up a good point that I've never really thought of with that then if say there's an accident and the, in your employees, individual auto insurance policy should cover that, right? A lot of times like their rates might go up. Have you ever seen businesses like try to, or employees come back to the business and be like, Hey, I got in an accident, but now my rates have gone up and like, you have to pay for that.

Russ Taylor: That's a really good question, and I've seen a number of different examples, a number of ways companies handle that you know, in some organizations, salespeople get stipends to pay for , their car and they might say, Hey, that also, you know, is inclusive of you being able to, you know, pay for service and gas on the vehicle.

And they might say, Hey, yeah, that part of that is for your insurance. So you know, I don't know that I have a really great answer around that, but Yeah, , we've definitely seen [00:09:00] employees get into an accident in their own car and their personal insurance is responsible for it. 

Jordan Buckner: Let's move on to entering into retail.

I know you touched on this a little bit earlier, like a lot of times retailers will have contracts and agreements of having certain insurance limits and liabilities. What other kind of requirements do they usually have? 

Russ Taylor: Yeah, the big one here is, and particularly with the larger retailers that are national, they're going to require a limit above and beyond that 1 million, 2 million policy that we discussed earlier.

And the most common limit that we see is about a 5 million limit of liability. So in that circumstance to, 1 million, 2 million underlying general liability and product liability policy. You would call your agent and get an umbrella policy or an excess policy to go over top of that 1 million, 2 million limit.

And it would be a 3 million policy would bring you to a 4 million per occurrence, 5 million in aggregate, and a 4 million umbrella policy would bring you to a 5 [00:10:00] million per occurrence. Occurrence 6 million in aggregate. All you're doing is you're adding that umbrella limit number to the, on top of the 1 million and 2 million policy.

Some of the other things that we've seen from the retail space requirement is a product recall policy. Product recall is a super important coverage. It offers very broad coverage. Terms, so there's a lot of things that are covered within that, such as not only getting the product out of the marketplace, but destruction of the product legal fees associated with a recall.

If you need to issue a PR statement, it can cover a lot of those expenses or be used for a lot of those expenses. And definitely do , your phone work on the recall because they are expensive policies because of how quickly a recall event becomes expensive. 

Jordan Buckner: With the next side of that business of instead of retail, there's also e commerce. I think a lot of founders might not really know of all the risks that can happen there. So can you share , some policies and some of the common occurrences that might happen with brands [00:11:00] who are selling online?

Russ Taylor: Yeah, e commerce is growing so fast and we strongly recommend a cyber insurance policy for all of our brands, but particularly our e commerce dominated brands. And when you're dealing with online payments and online customer tracking and PII personal identifiable information. On the computer, it's just really important to make sure that you have a coverage that's going to be specifically applicable to the way you operate your business.

One of the big things we see is media liability can be excluded. From , your website media liability and be excluded from your general liability policy in certain instances. So you could be running a promotion on your website and something could be wrong with that promotion or something could be wrong with your website and it could be coverage from your general liability could actually exclude it.

That would be picked up in a cyber policy. Also, the most frequent claim we see is falsified invoice or falsified [00:12:00] PO, where someone intercepts an email between you and a vendor or you and a customer, and a payment happens in one direction or the other, and It really just gets sent to a, you know, a malicious third party.

So you could be left in the lurch, you know, for a small brand, a fine, 10, 15, 000 PO is a big deal. And cyber insurance, which is again, very aggressively priced right now. You can get a lot of coverage for very low premium amount. We'll pick up that falsified invoice and falsified PO. Coverage and do a really nice job and they'll offer cyber forensics teams if needed to try and track down how it happened.

Jordan Buckner: No, I think that's definitely really needed now because even the largest companies are being victim to cyber threats and they're going after smaller and smaller companies as there's more out there. Let's jump into manufacturing. There's two sides, self manufacturing and work with the contract manufacturer.

What are some of the problems that happen with self 

manufacturing? Okay. 

Russ Taylor: Yeah, self manufacturing is great. I personally love [00:13:00] walking into factories and, you know, hearing the war of machines. The tricky part is, right, you're responsible for upkeep and maintenance on those machines now. And, you know, making sure that you have your property schedule accounted for.

So, if you have a bunch of equipment, if you have a bunch of inventory, boxes, raw materials. Laying around in your warehouse or in your factory, you want to make sure you have the correct dollar amount tied to that, and that can be a fluctuating number. So. You know, having a good relationship with your agent and being able to update them on, you know, your inventory levels.

If you buy new pieces of equipment, you want to make sure you reach out to , your agent, let them know, Hey, I just bought this shiny new piece of equipment. I want to make sure it's added to my property schedule. There's some interesting stuff that can happen if you have really, really large pieces of equipment.

There's special ways to schedule that on a property policy that will allow it to be more affordable. Then if it's a movable piece of equipment so that that's getting a little into the nuance and down the rabbit hole of insurance, but that's something we take a [00:14:00] look at with all of our customers is making sure that like big and movable equipment is scheduled correctly because it can be considered part of the building.

And then you want to have your business interruption tied to your ability to produce. So when you are self manufacturing. You're saying, Hey, I'm, you know, I'm producing 000 worth of product a week. If something happens and your key piece of equipment goes down that, you know, wraps every one of , your pieces of inventory that gets finished and you can't use that, it halts production.

You want to have a policy that pays you for the lost revenue that you can no longer produce if that piece of equipment is is inoperable. So those are two things that we look at. And then taking it, you're turning the page and taking a look at, okay, I'm a CPG brand. I outsource all of that for us. You know, what, you know, what do I need to be concerned about at this point?

Well, one of the number one things we see when we're reviewing policies for people is that they have this beautiful property schedule. Tied to their corporate headquarters, which is in downtown Manhattan or [00:15:00] downtown LA or downtown Austin. And their factory that manufactures their product is in Ohio or Colorado or Nevada.

And I go, great. If you have a loss in Nevada, this million dollar limit on your property schedule is not going to pay you a single red cent and they go, what do you mean? I go, well, the property has to, you, the property has to be covered where it is. It can't be. You know, if you're in downtown Austin, you have a million dollars of business, personal property tied to that policy at your corporate headquarters in Austin.

And you know, something, Hey, your inventory gets damaged in Colorado. The insurance company is going to say, really sorry to hear about that, but it wasn't in Austin, so we don't, we're not going to pay you on this. So really, you know, getting your locations dialed in and making sure that you have everything, you up to date on, you know, if you have 100, 000 of equipment or inventory or, you know, BPP in Colorado and another quarter of a million dollars in Illinois you just want to make sure that you have those updated, you know, probably quarterly or at least semi annually to make sure that that information is correct.

And then conversely, business [00:16:00] interruption, this is something that we identified early on that really, we don't think anyone was doing totally correct is business interruption. A lot of times, again, we find is tied to the corporate headquarters, but you know, if my office is unusable, right, I'm just going to take my laptop and log into the cloud and work from home.

If my manufacturing plant gets, you know, hurt in a lightning storm or damaged during, you know, a windstorm and they can't produce my product, I want that business interruption policy to pay me the law, my variability to produce my product. And so therefore I can't sell it. So again, make sure that business interruption is tied to the locations.

Where production and logistics and shipping are actually happening. 

And as that ties into right, , a lot of brands are working with contract manufacturers. I think they naively assume that those companies will have liability insurance that covers that brand's product. Is that usually the case, or are there things that you need to get from them to insure it, or should you have your own insurance to cover your [00:17:00] inventory, even though it's at a third party facility?

Such a great question. 

we find that people incorrectly assume that their warehouse or their manufacturer is just providing them with insurance. My line of that usually is this is America. Nobody pays for something that isn't theirs. And while they have their own insurance and just ask the question of them, when you're engaging the relationship, or if you're already working with them, say, Hey, look, what does your insurance cover?

And we've talked about this before, Jordan, make sure you get a certificate of insurance from Your manufacturer and from , your distributors, if they run a forklift through a pallet of your product, right, they're going to pay for it, right? That's what their general liability is for. But if their building gets hit by lightning and burns down, you know, we're not going to hold them accountable for that.

That's not their fault. You know, we've seen it where some of select few have insurance for you, but a lot of times it's pennies on the dollar, maybe 25 or 30 cents. And in most cases they are not holding the appropriate insurance for the inventory that's on their shelves. 

Jordan Buckner: Yeah, right. Cause they're probably not keeping updated [00:18:00] with , the limits.

Cause it's going to increase , their fees that they're going to pay anyway. 

Exactly. 

Yeah. So then are there insurances that you can get as a brand? I think you kind of mentioned that property insurance where you can say, Hey, we have property at this third party location that's worth 50, that we want to insure.

Right. 

Russ Taylor: Yep. And it looks and smells and feels just like a regular property policy. You just need to list the addresses in particular. So if you're located downtown Austin and you're working with a manufacturing company out of Baltimore, Maryland. Right. You just say, Hey, look on, you know, one 23rd South high street, Baltimore, Maryland, two one one eight two.

Like I have a hundred thousand dollars worth of, of inventory there at any point in time and the insurance, I would say, great. And , they can schedule it. And you know, again feel free to reach out to your agent or if you have questions Jordan, I'll give him my information at the end.

I'm sure. We talk about a lot with people, we help people make decisions where, you Right now, property insurance in Florida, New York California in particular, Colorado is not great is really just way more [00:19:00] expensive than Ohio, New Jersey. North Carolina. So you, you know, when you're looking at warehouses and manufacturers, property rates do come into play.

I, you know, I don't know that it's going to affect anyone's decision in a hugely impactful way, but you can try and find someone in Ohio where property rates are, you know, about half of what they are in California. 

Jordan Buckner: That kind of brings up the other thing that happens. The brands are often shipping products cross country via freight.

 Are those shipments covered by like a freight and transportation company's insurance or is that something that a brand should get their own insurance for? 

Russ Taylor: Yeah, , this is a little bit more of a gray area because freight forwarding shipping companies a lot of times do offer insurance or load that they're carrying.

It really comes down to the contract and who you're working with. I'd say this is about a coin flip, right? Where half the contracts I see with the companies we work with, , their common carrier, their freight forwarder is providing, you know, 50 or a hundred thousand dollars of coverage per [00:20:00] shipment.

But then the other half that, you know, they're saying, Hey, no we don't offer insurance a lot of times where we advise brands to get a transit or cargo policy is if they're shipping, you know, via FedEx or UPS, and they don't want to buy the individual insurance. Every time they ship through one of them, you can get a very affordable transit policy that'll cover you know, a shipment for you.

So this really comes down to, you know, who you're working with and making sure you just have a discussion with them upfront about whether or not they have insurance while they're shipping, or if you need to buy your own policy, 

Jordan Buckner: you know, this actually kind of brings up a good point of why I recommend brands work with solving those CPG or, you know, Okay.

More specifically with you, because you know, all of these things. And so as brands are going through and they're like, Oh, I need to ship. Is this covered? Like, they don't have to figure it out themselves. They can just like call you and be like, Hey, Russ, like, what should I think about this? And you're like, yeah, send me the policy.

I'll take a look at it and be like, yeah, you're covered. You're good. They were like, no, if you're sending something that's like really valuable, you might want to get X, Y, and Z. 

Russ Taylor: Yeah, a hundred percent. [00:21:00] Right. There's, it always comes down to somewhere. There's a paper trail of where the coverage is and exists.

Yeah. And it's just making sure , you do a little bit of due diligence around it. And either you can save some money because, you know, they have insurance, or you can save yourself a lot of money because they don't have insurance and you go, great, I'm not going to have a truck overturned with my product on it and I have to pay for it out of pocket.

Jordan Buckner: The last thing I wanted to cover as well was any liability insurance needed for raising a VC investment. I know with Teasquares, when we expanded our board, the question was asked around DNO or directors and officers insurance. Is this something that's kind of commonly required after investment rounds kind of, what do you see in terms of , the something companies should have at a certain point?

Russ Taylor: Yeah, this is something that is very, very common. We recommend it to almost, it will excuse me. It is a requirement by almost every investor that we have seen. In the CPG space, right? If, particularly if they're going to join your board they're going to want protection against their, , you know, the person sitting on the [00:22:00] board.

So if you were thinking about raising venture funds even taking on you know investment from a very wealthy individual, they might require it. And I'll try and break it down as simply as I can for you. So directors and officers or DNO insurance is a function of a broader term called management liability.

And management liability is has directors, officers, officers, insurance, employee practices, liability, and fiduciary liability. But directors and officers is really for people in the C suite of the company and people who sit on the board. It's protection in the event that someone alleges they mismanaged the company.

Or did something to cause the company financial harm and that policy steps in to protect their personal assets. So you are the CFO of the company and someone on the board. Or an investor alleges that you made a snafu , that cost the company a bunch of money and the company's now struggling because of it.

Right. The DNO insurance would protect you in , that instance where, Hey, I don't want, you know, someone suing me [00:23:00] personally. Right. , they sue you and then the DNO insurance. Steps in place because , you're protected by it as, you know, a member of the board or a member of the C suite of the company.

Jordan Buckner: Did it also protect investors from like outside lawsuits? Like if a customer gets sick and sues the company, but they also try to sue like the board members. Does that cover there? 

Russ Taylor: It would. Yeah, , that happens. Pretty infrequently, but yeah, it, again, it does protect from outside people trying to sue.

That's a great point because, you know, again, the goal is protection of personal assets from people who are involved in the high level decision making of the business. And so any third party or an internal party suing the board or the company, it would protect their personal assets. So it's hugely important and I'm sure all the founders listening to this can understand why.

You know, someone who's writing another check for hundreds of thousands or millions of dollars, and it's going to be involved in the strategic decisions of the company is going, Hey, yeah, I really want to make sure my personal assets are protected above and beyond, right. Just, you [00:24:00] know, the normal insurances they carry personally.

Jordan Buckner: Very true. Russ, thanks so much for being on today and talking about the various insurance products that.

I think it's super helpful because when I was running Teasquares, we looked up our insurance at the beginning and almost didn't update it unless like we had to, but we've talked about this before. My number one recommendation is find someone who knows CPG industry and and then my second one is have quarterly conversations with them to let them know what's new with the business run by any questions so that you are adequately protected.

I know you and I have both been talking with founders recently who have had massive product loss from various situations and did not have coverage. And in some cases, I thought there would be coverage and it wasn't there. And so really it's all about making sure that you are know exactly what you're protected for and what you're not protected for.

And if anyone has any other questions, I know Russ is open to talking through questions or issues that you have. So we're going to put your information in the show notes. Feel free to reach out, ask questions and make sure [00:25:00] that you are properly covered so that one mistake or one oversight doesn't take down your whole business.

Russ, thanks for being on. 

Russ Taylor: Thanks for having me, Jordan.