For many tech startups chasing big-name clients, the first major enterprise contract can deliver an unexpected blow – not in the sales pipeline, but in the insurance clause. “They’re three years into the business... and that first MSA hits,” said Joseph Cook (pictured), founder of The Arizona Group’s tech and cyber liability practice.
With that one master service agreement, a bare-bones insurance policy purchased online for $600 a year suddenly has to become a robust, multi-layered program worth $45,000 or more. “To be compliant with T-Mobile’s MSA, or Ingram Micro’s MSA... it could be $45,000 a year or more worth of insurance,” Cook said. “But their perspective against what is fair in the market has been skewed by the previous artificial program... they’re now a $10 million company. So, this is half a percent of insurance cost which is well within benchmarking… but they don’t yet know that.”
Cook sees this pattern time and again among privately held tech companies – particularly those backed by private equity. “The private equity firm will want to mandate certain coverages... but doesn’t necessarily protect operations of the actual subsidiary,” he said. That results in coverage designed to protect capital exposure, not the operational reality of the business.
This misalignment often stems from treating insurance as a vendor line item rather than a strategic consultative service. “You have these folks who have a facetious general liability-only policy... bought themselves through an online platform,” said Cook. “It’s never been questioned.”
Startups often assume that minimal coverage is sufficient until they face a contractual obligation they can’t meet – or afford. “Having a better understanding and setting yourself up earlier to be contractually solvent is something we certainly stress,” Cook said.
Complicating the matter further is the rapid evolution of tech risk. From AI and data privacy to cross-border compliance, exposures are growing more complex. Yet, insurers – particularly admitted carriers – have been slow to keep pace.
“They are on the heaviest side of regulation and thereby in some cases a little slow on leading edge risk,” said Cook. However, he noted that well-structured policy forms do exist. “If you have a worldwide coverage territory and you have an issue in the EU... there are forms that will respond for the GDPR.”
For risks like cyber liability, Cook sees non-admitted products as more adaptive. “The regulation doesn’t become an impediment to the product being responsive,” he said.
The solution, Cook argued, is cultural and operational: a shift from reactive to proactive insurance planning. “There’s this perspective that it’s, ‘Oh, I bought insurance and now I’m done.’” In reality, smart firms treat insurance as a dynamic process. “You’re in a closed loop feedback system... always trying to right-size the approach.”
Brokers, he believes, have a key role to play in this shift. “A roadmap of who you want to be when you grow up is important,” he said. For instance, if a startup plans to pursue contracts with large enterprises, that intent should guide early insurance decisions. “You need 10 million of tech E&O and cyber liability. That’s built into their boilerplate contract right now.”
Advance planning avoids costly surprises. “You’re not going to take that contract to gross $5,000 more a year and go net negative,” he said. Alignment on expectations and timelines helps prevent sticker shock.
In a crowded tech market, contractual readiness can set a firm apart. “If growth is your goal, simply being contractually solvent is a leg up on your competitors,” Cook said.
Firms that understand and plan for insurance obligations can move faster and more confidently. “If you can’t afford to win the contract, you’re not ready to win the client,” he said. “Insurance is the cost of entry. Not an afterthought.”
According to a 2024 NAIC report, fewer than 20% of small tech firms carry cyber policies that meet enterprise standards – a gap that reflects the very blind spot Cook wants to close.
In today’s landscape, a startup’s ability to scale may come down to something it rarely budgets for: being insurable on demand.
