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Insuring a Coworking Space (A True Story)

An owner of a business that offers coworking space asked us recently to quote his insurance because he was planning to open a second location.

What we uncovered through working with him was an alarming reality that applies to coworking businesses across the country: their insurance might be based on a falsehood, and therefore worthless.

His business had been operational for about a year when we met him. His previous agent had written him a Business Owner Policy (BOP) with a well known standard insurance carrier.

This policy provided ample coverage for his business at $2m of liability coverage per occurrence and more than $550,000 of property insurance for a premium of approximately $2,000 per year. This seemed like an incredible deal.

He was planning to open a second location nearby, so it felt like an opportune time to shop his insurance out and get competing quotes for him.

Our thorough check of the admitted insurance market turned up some worrying results:

  • Travelers – Declined due to class of business
  • CNA – Declined due to class of business
  • Liberty Mutual – Declined due to class of business
  • Allied/Nationwide – Declined due to class of business
  • USLI – Declined due to class of business
  • Guard – Declined due to class of business

Each of these carriers informed us that they have a strict rule not to underwrite coworking spaces at all. This perplexed us. The client’s admitted carrier, seemed willing to provide insurance for our client, while all other admitted carriers declined. But since his carrier was apparently willing, we resolved to simply update his existing policy.

Initially the carrier was willing to add the second location and meet the insurance requirements for his new location.

However, when we called to push the changes through, his carrier informed us that additional underwriter review had been triggered.

After only a few minutes of review the underwriter explained that we had a problem: the original agent had submitted an application that had listed their services as Answering Service – nothing more. While answering services are one of the services that this business offers, they also offer many more including coworking space rentals, PO box rentals, desks by the hour and virtual assistant services. 

It was for this reason that his carrier determined to cancel his policy for both locations – effective only a few weeks before he was set to open his new location!

While we searched for a replacement for him, he searched on his own and asked his coworking business colleagues for help. Throughout this process we both learned that most coworking space businesses are insured with similar standard carriers, including those previously listed.

This led to an alarming discovery. If what these carriers told us is true – that they do not insure coworking rental businesses – then it would appear that anyone who owns a coworking business AND has a policy with these carriers may not be properly insured.

Inexpensive insurance may seem attractive on the surface. But if your insurance company refuses to pay a claim in a critical moment, that insurance is a worthless contract. Your business might as well be uninsured when it comes to coworking space.

In the event of a bad claim, especially one that touches the coworking aspect of the business, coverage may be denied or significantly reduced if the insurance company does not have a clear picture of what your business actually does.

In our example, our client’s previous agent told the carrier that the client was only an answering service, NOT a coworking space. Therefore the carrier misunderstood the nature of the business they were insuring, and unknowingly offered insurance to this business against their own underwriting rules.

The real lesson of this is something that other coworking business owners ought to hear. 

If you have a policy with one of these carriers…

  • Hartford
  • Travelers
  • CNA
  • Liberty Mutual
  • Allied/Nationwide
  • USLI
  • Guard

…you need to make sure they understand the nature of your business. We strongly recommend calling your insurance company directly to verify this fact. 

In the end, we were able to satisfy our client’s insurance requirements and get him a policy with a different carrier that was comfortable insuring coworking spaces (and we made sure the carrier was aware of all the facets of his operation). If it turns out that your insurance company thinks you are an answering service (or some other incorrect class of business) instead of a coworking space, drop us a line. We can help you get the insurance you need to actually cover your operation – coworking spaces included.

 We have the knowledge of the market to know which insurance companies actually want to insure coworking spaces. These companies often require more follow-up, detail, and interaction with the client than most insurance agents are willing to provide. We are willing to put in the time necessary to make sure our clients’ insurance gets done correctly. 

Reach out to learn more, or to get a quote today.

Business Owner Policy (BOP)

A BOP is a handy insurance package that combines General Liability insurance with property insurance, plus a bunch of extra coverages and frills thrown in. These frills include things like business interruption coverage, coverage for outdoor signs, employee theft coverage, coverage for valuable paper and records, data loss coverage, and even small things like lock replacement coverage. These BOPs are typically only offered to small businesses that do not have a ton of liability/property risk, such as CPA firms, retail businesses, restaurants, offices. BOPs also tend to be more affordable than stand-alone General Liability and Property policies, allowing new business owners to get off the ground with minimal insurance costs. Larger businesses with more risk, such as construction companies, farms, coworking spaces, roofers, and manufacturing companies would likely not qualify for these little packages.

Admitted vs Non-Admitted Insurance

"Admitted" insurance policies are those sold by companies that have been licensed by the state where the insured's business operates. These admitted carriers are subject to regulations by that state, which means they tend to be more conservative in their underwriting. In the real world, this means that admitted carriers tend to offer insurance only to businesses that have a lower likelihood of filing large claims. These low risk businesses might include offices, clothing stores, small restaurants, tech start-ups, and other similar businesses. Admitted carriers are also backed up by the state's insurance guaranty fund, which means if that carrier goes bankrupt the fund will step in and pay out claims.  Overall, admitted insurance is considered to be ideal due to the state support, low cost, and extra coverage that tend to come along with admitted policies. However, businesses with more risk of filing large claims are usually unable to acquire admitted policies due to the strict underwriting guidelines.

Larger business, or those with higher risk of filing large claims (such as construction companies, roofers, manufacturing operations, farms, and damaged properties or properties with a history of claims) tend to get immediately declined by admitted carriers. Therefore they have to get their insurance from "non-admitted" carriers. This simply means that the carrier is not licensed by the state. They may be licensed in another state, or even another country (such as Lloyd's of London). Since they are licensed elsewhere, they do not need to comply with the strict state insurance regulations. Therefore these carriers are free to take on higher-risk businesses. These carriers are also not supported by the state insurance guaranty fund. If a non-admitted carrier goes bankrupt there will be no bailout. While this seems risky on the surface, there are other ways to check the financial reliability of a carrier, such as the AM Best score, which rates carriers from A++ to F. Many non-admitted carriers are rated A- (Excellent) and higher, which means they have are considered financially stable. For businesses with more risk or claims, non-admitted carriers are often their only option for acquiring business insurance. There is a vibrant market for non-admitted (also known as "surplus lines") insurance, and lots of options available for business owners.