One of the most common questions I get asked comes from Pre-Clinical Life Science companies is why do I need insurance?
I agree that pre-clinical life science companies have about as little risk as a company can have. Why they need insurance really comes down to contracts, investors and statutory regulations.
If the company enters into a lease the lessor will typically require general liability insurance. This insurance is very inexpensive and it usually makes sense to bundle this with property insurance as any additional cost would be negligible. The property insurance can include research equipment, scientific animals, office furniture, and R&D Business Income among other things. A typical policy can start under $500 depending on the total value of your property.
If you have employees you will be required by the state you are domiciled in to have workers compensation insurance. This will cover your employees if they get injured at work for medical costs and lost wages. Again, this should be low cost and is based on your total payroll, benefits should not be included when calculating wages.
Product Liability insurance for pre-clinical companies is sometimes required if the technology is being transferred from a third party such as a university. It drives me nuts when third parties require a pre-clinical company to put this into place before a trial will commence because there is .001% exposure and it is expensive for my clients compared to the other coverages. If you cannot negotiate this out of the contract it is very important that your broker knows which carriers have flexibility on their minimum premiums for scenarios like this. If your broker tells you that the minimum premium is $4,000 they are mistaken.
D&O insurance, this would be needed if you have raised capital and have a board of directors. This coverage protects the personal assets of directors and officers of the company and outside board members typically require you have this in place.
These are the coverages that are usually required even when you are pre-clinical. If you are close to signing a lease or transferring tech I would recommend you have an insurance broker to review the insurance requirements in the contracts and ask them to pencil out what the economics would look like. Your broker should also be able to tell you if certain requirements are excessive to what the industry norms are so that you can try and negotiate them down.
Feel free to reach out to me here if you have questions or comments.