They don’t call them ‘start-ups’ for nothing. Yet despite their fledgling revenue streams, Australia’s growing market of tech start-ups and online retailers are providing savvy digital-age brokers with a new wave of opportunities.

For those of you more accustomed to bricks and mortar, a start-up is – well, nobody knows exactly.

The Macquarie Dictionary defines it as “the initial period when a business comes into operation”. But these days, it’s generally accepted that start-ups primarily operate through online or tech channels – usually with the aim to grow very large, very quickly.

Start ups

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Think mobile apps and web-dependent businesses. Former tech start-ups – and now big time players – include Facebook, Spotify and Google. StartupAUS is a not-for-profit-organisation with a mission to transform Australia through technology entrepreneurship.

CEO Peter Bradd points to a 2013 PricewaterhouseCoopers report that found the tech start-up sector has the potential to contribute 4% of GDP, or roughly $109 billion, and add 540,000 jobs to the Australian economy by 2033.

That kind of exponential growth is something Australia’s new Prime Minister Malcolm Turnbull is no stranger to. After all, he made a fortune from Australia’s dot com boom in the 1990s.

Upon taking the reigns earlier this year, he wasted no time crafting a new ministry position – appointing young MP Wyatt Roy as Assistant Minister for Innovation.

Roy, in turn, has been throwing around a lot of talk about embracing technology as a pathway to future growth. And it has the start-up world buzzing.

“It’s reassuring to see technology entrepreneurship and innovation move into its rightful place as one of the most important agendas for this government,” says Bradd. So what opportunities will growth in start-ups and online retail provide brokers?

Starting to grow

Intuitive Insurance Solutions Director Shane Thaw says it is a sector with enormous potential. “The rate at which technology is being adopted is ever-increasing.”

There’s just one little problem: online entrepreneurs rarely see insurance as a priority. “Often they have little or no revenue, so the cost of insuring their business can seem inconsistent with the exposure,” Thaw says.

“It is vital to help the business understand their exposures, and provide options to give the necessary business protection, but at reduced costs. Cover can be adjusted as their
business builds.”

Start-ups and online retailers are incredibly diverse, meaning the exposures are wide-ranging. However, Gladwin Legal Principal Rosalyn Gladwin, a lawyer with extensive experience in online retail, says two common exposures include cyber crime and privacy concerns regarding dealing with third party data – areas traditional businesses rarely treat as priorities.

“When you buy something online as a consumer it’s not uncommon that you will put in your address, phone number, date of birth and credit card details and other personal preferences,” Gladwin says.

“That doesn’t really happen in the physical trading space. So there’s a lot more data being collected, and with that collection comes risk.”

Luke Temperton, an Authorised Representative of Review Insurance Services, agrees: “For example, new legalisation can fine organisations up to $1.7 million for data breach. And I have had businesses that have lost all their communication due to cyber [crime], which cost them over $10,000 to fix.”

Lockbourne Insurance General Insurance Advisor Terry Stanley says cyber insurance must be an early upfront conversation with these clients.

There’s a lot more data being collected, and with that collection comes risk.

“They have a total reliance on their website,” he says. “Understanding their operating model, how they transact payments, how they store client data is key.”

Stanley says it is also vital to let potential clients know the importance of working with a broker who has experience in crafting insurance for online businesses. “We’ve spoken to a number of clients who have taken the DIY path via a direct insurer and as a result, have inappropriate products,” he says.

“They need to deal with a broker, not a call centre. It’s a true broking exercise in gaining an understanding of a client’s business model.”

And while that can be a time-consuming task, the pay off is that start-ups don’t have the same constraints on growth as old-fashioned businesses.

“The biggest risk when dealing with a start-up is the time invested in tailoring a program for a business that may only provide very small up-front returns,” Thaw says.

“The flip side, however, is the potential these businesses have for exponential growth.”