Hackerspaces are Hard: Insurance

Do you dream of opening a hackerspace, makerspace, or co-working space? Maybe it’s in the works and you’re already scoping out locations, intoxicated by visions of all the projects that will emerge from it. Here’s a sobering thought: makerspaces are a great big pile of risk. If the doors of your ‘space are already open, perhaps you’ve come to realize that the initial insurance policy you signed doesn’t really fit the needs of your particular creative paradise. Even if it does, the protection you need will change as you acquire new toys.

So why should you even get insurance? For one thing, your landlord will probably require it. If you own the building, you should insure it to protect yourself and anyone who uses the space. Do it for the same reason you’d insure a car, your house, or your collection of vintage pinball machines: to mitigate risk. It takes a lot of hard work to open a makerspace, perform the day-to-day operations, and keep it growing and getting better. Whenever the unthinkable happens, insurance will protect your investment as well as the people who make it a great place to be.

In researching this article, I contacted several well-established makerspaces in the United States as well as most of the major insurance providers to get both sides of the story. My intent was not to make a how-to guide, but to simply explore the topic and provide a view of the process and the struggle.

Why is it Hard to Get Insured?

Getting a space insured is not an easy undertaking. While the task itself is hard for makerspaces, the concept of a community workshop is a difficult one for insurers to fathom. Most of their business clients fall into one category or another, so it’s easy to start with a boilerplate policy and go from there. But makerspaces and hackerspaces tend to touch many categories—machine shop, wood shop, electronics lab, and so on, and every category presents its own set of risks.

Another sticking point: most makerspaces are non-profit organizations. Some insurers I spoke with simply don’t cover any non-profits at all. Something else that makes risk assessment difficult–makerspaces are technically a private group, except for one night each week when many of them open their doors to the public.

To further complicate the picture, this is a group that has both shared and private resources and is trying to keep the private resources safe from theft and misuse. Most of this group’s valuable resources are tools, many of which are heavy or sharp or operate at high temperatures. It’s pretty much wall-to-wall risk. It will probably be a bit difficult, but it is by no means impossible to get insured in a way that meets the needs of your makerspace as well as those of your landlord.

The Insurance You Need to Have

Every landlord is going to require some type of insurance coverage. This should be spelled out in your lease. If it isn’t, find out what your landlord requires and get it in writing from them. Keep in mind that governmental requirements differ by state and throughout the world. Every makerspace’s needs will be different. If a space has salaried employees, many states will require workers’ compensation coverage. This covers work-related injuries and is designed to prevent lawsuits against employers.

A landlord will typically require general liability coverage. This covers all kinds of bodily injury from slip and fall accidents to severed digits. It also covers personal injury claims like invasion of privacy, libel, and slander. The landlord may also require property coverage to protect against theft, loss, or damages. Property coverage doesn’t include automobiles, so keep your Power Wheels racer and your Mad Max car safe or else insure them separately.

The Insurance You Want to Have

You might want to consider additional types of property coverage depending on your location. A makerspace in California would probably benefit from earthquake insurance, and one in Kansas should consider tornado and/or hail coverage. If you’re along the Gulf Coast or Eastern seaboard, look into hurricane coverage. All of these cost extra, though it could be worth it someday.

No matter where you are in the world, buying insurance against equipment breakdown is a great idea. But beware of the fine print, because there are two types of coverage—replacement cost and market value. Let’s say you get a great price on an old used Bridgeport mill and get it all set up. It runs like a champ for a year and half and then fails spectacularly. Did you get replacement cost coverage? Great!  You’ll get a big enough check to cover the cost of a brand new Bridgeport. If you chose market value coverage, your check will only be as much as the actual cash value of that beat-up machine and you’ll be stuck in a loop of buying used mills. Of course, a replacement cost policy will carry a higher premium. But choosing to insure equipment at market value is actually a negotiating point in your favor because the company won’t have to pay as much out whenever you make a claim.

The Agent and the Broker

So how do you find an insurer? The last time you bought car insurance, you probably chose the company based on past experience, word of mouth, or maybe even the company’s advertising spokesthing. You reached out to them and were assigned an agent in your area to work with. Here’s the problem with getting insurance this way: your agent isn’t really on your side. Sure, they might send you a postcard on your birthday, but their loyalty lies with the insurance company.

This is not the ideal method of shopping for makerspace insurance. What a makerspace is asking an insurance company to cover has far more serious implications compared to more common business models. For instance, your local grocery store has slip and fall insurance, but it’s a little different. If you wipe out on a melted Popsicle in front of the frozen pizzas, you’re not likely to cut your hand on a circular saw on the way down or land in a pile of sharp CNC waste.

What you want is someone who works for you. Someone who will take all the documentation you can provide about your makerspace and play the insurance game on your behalf. You want what is known as a broker.  When I asked Bucketworks in Milwaukee about their experience obtaining insurance, they pointed me towards their broker, John Toepfer from The Anderson Insurance Group. John was an insurance carrier underwriter before becoming a broker, so he understands exactly what information insurers are looking for when assessing risk. In fact, he has a special application prepared for makerspaces that gets to the heart of potential hazards.

Be Transparent, Because They Will See Through You

So let’s say you found a broker to spare yourself the headache of finding a company that will even think about insuring a makerspace. Like I said, each space is different and has a special set of needs that depend on many factors like location and building construction.

Finding a broker is just the beginning of the journey. There is no off-the-shelf insurance model for makerspaces. The policy you sign will be custom-made from all the available information about the building and the intended activities within. The more knowledge you can drop on your broker, the better.

What does this knowledge include? Usually, a copy of the lease. This will ensure that you, your landlord, and your insurer are all on the same page. The size of the building is a factor as is the size of your membership ranks.  You would do well to describe the intended goings-on in great detail and make a comprehensive list of all tools and equipment. Copies of instruction and service manuals for all your dangerous machinery go a long way toward assessing risk accurately.

Transparency is a good policy in general. The company is going to send an inspector at some point, so there is no point in trying to deceive them. Established makerspaces know the value of transparency. For instance, Dallas Makerspace has a wiki page devoted entirely to the subject of insurance. There’s even a log of their experience obtaining insurance and a few examples of the kinds of questions that were asked of them.

How to Make Insurance More Affordable

The fewer people with access to dangerous equipment, the more affordable the insurance premium. If your makerspace rules explicitly state that no one under 12 can use the soldering irons, you’re mitigating risk and will be rewarded for that when the insurance company is calculating your premiums. Installing an alarm system and/or surveillance cameras could also get you a discounted rate.

Once you have coverage, one fairly obvious way to make it more affordable is to pass the cost on to the members. Makerspaces charge an average of $50 per month for individuals. Is that the right amount for your membership fee? Whatever fee model you settle on, the cost of the insurance premiums should be a factor.

Don’t Be a Stranger

Your membership dues will probably include a chunk of money for new equipment. Once the board is voting on what to buy, keep the insurance company in mind. Dallas Makerspace got an auto lift last year and promptly found out the hard way that it wasn’t covered in their existing policy. After the insurance company found out about it, the owners paid an inflated rate until they were able to revisit their policy.

Don’t Reinvent the Wheel

Still don’t know where to begin? Go ahead and stand on the shoulders of giants. Established makerspaces have worked out a lot of the general kinks of getting insured, and there’s no shame in asking them for advice or for the name of their broker. Some makerspaces go so far as to offer serious consultation sessions in exchange for legal tender. Learn everything you can from them and pay it forward.

If you’re building the first makerspace in your area, it might be more difficult to get started. You can save a lot of time and frustration by going to some place like a local machine shop or other high-risk industrial operation to ask for the name of their broker or insurance company.

Makerspace insurance is hard, but there are ways to make it easier. Plan out the space in advance, collect documentation as you go, and find a broker to play the insurance game for you.

Filed under: Business, Featured, Original Art