Acquiring insurance can be broken down into several sequential components – 
determining (1) what types of insurance you want and need, (2) finding a broker, (3) presenting the business plan to the broker, (4) finding an insurance company, (5) negotiating coverage, and finally, (6) abiding by any rules or regulations your insurance company requires as a result of granting you coverage.
1. The Types of Insurance Required
There are two main drivers determining what insurance is required: the lease, and the government. Commercial leases have sections dedicated to insurance to ensure compliance. Lack of compliance results in eviction. The government also requires insurance as a legally operating businesses, dependent on employee numbers and the work they do.
- General Liability & Property, also known as a business owners policy. This is the catch-all insurance category specifically for your leased space – if someone hurts themselves in your space, if equipment gets damaged in some way, if something gets stolen, etc., this policy will cover it. Artisan’s Asylum has found that the cost of this insurance can be roughly predicted as $0.20 – $0.40 per square foot per year.
- Umbrella Policy. This insurance covers any overages that might be incurred if any one situation requires more money than your per-occurrence limit. A common limit is $3 million per occurrence and $3 million in aggregate (to cover both a per-occurrence and aggregate overage situation). This insurance usually costs 15-25% of the price of general liability & property insurance.
Landlords generally want to be named on all of your insurance policies as additional insured. This means that your insurance covers your landlord, in case someone wants to sue them or claim damages against them.
Legislated insurance vary by province and country, but the common types of governmentally-required insurance are:
- Worker’s Compensation. This insurance pays for medical care to employees if they get hurt working for your business. The insurance is billed as a small percentage of the salary paid to employees. It’s estimated at the start of a year, and then audited and adjusted at the end of a year. The percentage varies from .61% of total yearly salary for clerical and administrative work, to 3.17% of total yearly salary for trade or vocational instruction.
- Disability Insurance. This insurance is a guarantee of an employee’s earned income if they happen to be disabled due to an on-the-job accident. Statistics show that one in four employees will suffer a disabling injury before retiring, which is why this is a required in several provinces.
2. Finding a Broker
A broker is your liaison to an insurance company, which you may never talk to directly. The insurance company is the entity that provides your insurance, not the broker. Think of the broker as a real estate agent – they sound like they’re speaking in your language, but they’re actually speaking a dialect of your language to insurance companies. All brokers are not created equal; most are specialists. Contacting a machine shop, or manufacturing company regrading their broker is a good start in locating an appropriate broker for a makerspace. It is important the broker understands the business plan, as they must be able to convince an insurance company to cover the endeavour.
3. Presenting the Makerspace
After locating a broker with experience insuring manufacturing-related businesses, they must be met in-person and brought up to speed on the makerspace. Generally brokers are less interested in how money is spent, and more interested in how money is made. At this point, they’re looking to understand the makerspace, so they can interpret the business plan into their insurance company dialect and present it appropriately. Makerspaces like Artisan’s Asylum had to provide the following information:
- A full business plan with projected expenses and income for an entire year.
- A signed lease with insurance requirements listed explicitly.
- A full list of staff (real or projected), their salaries, and a rough division of how much time they spend doing what kinds of tasks.
- An expected number of members and students that will make use of the space in the coming year.
- A copy of the membership agreement you have all members and students sign before using your space.
- A full inventory of machine tools, their dollar value, their age, their model numbers, their serial numbers, and their operators’ manuals.
- A full set of training and testing syllabi used to train incoming members on said tools.
- Exact details on any alarm or door access system you use, how it’s triggered, and how said alarms connect or are monitored by the outside world.
- The age, construction, and general character of your building – including when the roof was last serviced, if sprinklers are available, and so on.
- A full architectural plan showing all improvements planned for the next year.
- A dollar value for all improvements you have made or are planning on making to the building (electrical, mechanical, ventilation, etc.).
- Any and all plans for storage of hazardous materials, chemicals, and the like.
- A full safety plan, including evacuation routes, actions to take in various emergencies, incident report processes, and so on.
- The availability and coverage of security cameras, and policies regarding how long you save the data from them.
It is important to be careful and be truthful during this stage, as these questions need answering before any company will be willing to insure you. T
Note – it is not wise to present the makerspace as a new, ground-breaking type of business that your insurance broker has never heard of before. The insurance profession is about quantifying and accepting known risk – not taking chances on unknown risks. Frame the business as a slight modification of an existing business. Some makerspaces have been insured as craft schools with a membership component to allow for extracurricular work, and others have been insured as a membership-enabled machine shop that offers training on its equipment.
Once they’ve got a good idea of the business plan and model, the broker is going fill out a couple of forms that look like this, for every type of insurance being applying for.
4. Finding an Insurance Company
Once the application is complete, the broker will look to locate an insurance company to cover the makerspace. Insurance companies are grouped into markets that bid on insurance applications. The two main ‘insurance markets’ that the broker will choose from are:
- ‘Primary’ Market: A primary market is a group of insurance providers that are vetted and approved by the province. These are the insurance providers seen on television ads like; Geico, State Farm, Allstate, etc. The broker is legally required to approach primary markets first. Primary market insurers tend to only be interested in low-risk known business models, and are unlikely to be interested in the makerspace market.
- ‘Secondary’ Market: The secondary market is a national group of insurance providers that aren’t explicitly vetted by the province. These providers focus on high-risk entities, and in exchange for not knowing the general risks associated with the makerspace, they demand tremendous amounts of information about the business before they’re willing to insure.
It may help to tell the broker that you don’t expect to find an insurance company in the primary market. They’ll have to go through the motions of looking for insurers in it anyway, but they’ll have more confidence in you and your knowledge of the insurance industry.
5. Negotiating Coverage
Negotiations will be conducted with the potential insurance company before a fixed quote is provided– or, if a fixed quote is given, the company may have conditions to meet prior to getting insurance. Some conditions of insurance and negotiating points seen in makerspaces included:
- Installing security cameras in shop areas.
- Installing heat detectors and fire suppression gear in welding areas.
- Installing a door access system or burglar alarm.
- Restricting access hours for members.
- Requiring members and students to be at least 18 years old.
- Requiring a tool training and testing process for all members, regardless of prior experience.
- Requiring employment policies such as conflict of interest, whistleblower, and sexual harassment.
- Not insuring particular aspects of your business (such as not insuring against theft if you’re a 24-hour facility, or not insuring against certain types of natural disasters if you’re in susceptible areas).
These restrictions will likely loosen as you develop a history of good performance as a business, but may be required at the start to get an insurance company to give you the final check-off.
One interesting negotiating point is asking for property to be insured as At Cash Value instead of Replacement Cost. Replacement cost for property like tools means the insurance company will pay for brand-new tools to replace older tools if they’re damaged, no matter what the wear on them may be. At Cash Value means that the insurance company will pay enough money to buy a tool that’s equivalent in wear, tear, and age to the tool currently owned. The ability to offer “at cash value” instead (which is much lower cost and thus, lower risk to the insurance company) is a significant bargaining chip.
6. Follow the Rules
After the policy is closed (if the building is big enough, or property value high enough) the insurance company will send an inspector to verify the building quality and floor-plan are consistent with the report.
After that initial inspection it is expected to send updates to the broker if any significant changes in the business model occur. If there is an accident, a group of inspectors will come to the site looking for violations of the plan or model submitted. If they find any discrepancies, they’ll use that as an argument against covering the accident. Discrepancies could include having a tool on-site not included in the list; training members on the use of a tool in a way that wasn’t documented, not training your members sufficiently, not having features like cameras or door access systems that were promised, etc.
If rules are followed, there is little to worry about. If the rules are onerous, either find a quote with another company or use good behavior over the course of the business operations to petition for a loosening of the rules upon renewal.
Discussion: Insurance is a critical topic for all businesses including makerspace enterprises. What are some of the most significant risks that you feel may be associated with setting up and operating a makerspace?
Discussion Summary: Based on cohort discussions, other factors that may be considered in this topic are:
- Intellectual Property Issues: as serviceable and profitable devices are created within makerspaces, attention will shift to the intellectual rights to these devices, and how the owner of the “makerspace environment” takes a level of ownership over the devices the environment produced.
- Safety Hazards: the makerspace environment, particularly construction technology, presents safety hazards to users. Liability of the makerspace in the event of injury or death is a topic that could be considered in the future, as well as coverage that best protects a makerspace owner from legal action as a result of tragedies within the makerspace.
Please view the cohort experience in the comments below. If you are accessing this OER after November 3, 2013, you are welcome to further contribute to the discussion.
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Safety hazards are clearly the foremost risk involved with makerspaces. Since members will use equipment that they may be experimenting with and therefor unfamiliar with, I would speculate that risk of damage to property or injury is significantly higher than it would be with a trained professional. Outside of safety hazards, the overhead cost of setting up a makerspace enterprise, particularly a large one, carries with it substantial risk of financial failure, if the enterprise is not well managed, and is unable to grow its membership base to cover costs before investments dry up.
Hello @brendangalexander and Jason below,
The mentorship and collaboration that happens in these spaces necessitates that there are scaffolded and safe learning opportunities. The safety hazards of a makerspace could be an issue, but remember that the point behind a commercial makerspace is not that it is a free-for-all with untrained individuals using various power tools. To provide a commercial example of these scaffolded environments, TechShop employs Dream Coaches who, among many other requirements, must have working knowledge of all tools in the shop, teach safety and basic use classes, perform tool maintenance, and know and enforce all rules and policies (take a look at a job description here http://techshop.ws/job_openings.html?&action=detail&id=14). Also, these spaces often require insurance waivers, and also acquire insurance policies, providing protection to founders and members.
I agree completely with @brendangalexander that liability and injury insurance would be paramount. In an industrial makerspace, trained personnel must be onsite at all times, much like a shop teacher in a high school. People will be coming in who have not used the machinery and will need to be trained and educated about the safety risks associated with each piece of equipment.
Thank you for pointing out that a commercial or industrial makerspace would have trained professionals to provide scaffolded learning opportunities, Jason. This is an integral part of the commercial makerspace environment!
With the rapidly increasing cost of insurance, particularly liability insurance it will be interesting to see the impact on makerspace start-ups.
Definitely plays a role in the decision making. Maker-spaces with potentially dangerous equipment such as wood working tools, or mechanical lifts would require more expensive coverage. As a makerspace developer, it would potentially be advantageous to wait a few years after opening to integrate this type of equipment..perhaps during the renewal process where new terms are being negotiated and the trust of the issuance company has been earned.
I also wonder about Safety requirements needed in Maperspaces especially relating to the safety of the equipment. When a space has 300,000$ plus of equipment varying from 3d printers to lazers, one must insure themselves against theft and damages.
Hello Marie-Astrid,
Yes, insurance is an important component for any business, not only for theft and damage but for liability as well. Just as with any business, the insurance coverage will vary depending on the content and activities – if the venture exists within an established space, there is a chance that it could be covered under a general umbrella policy, but there are resources specifically tailored to designing and acquiring insurance policies for Makerspaces. You could check the Makerspace Playbook as listed in our references section, or a local provider for specific or regionally based questions.
I was wondering about intellectual property issues between makers. As Makerspaces gain in popularity, more and more commercial products will be invented in these spaces: some small, some very lucrative. Although completely antithetical to the Makerspace ethos, in an (unfortunately) increasingly litigious culture, I wonder if there have been or will be cases of IP theft between makers? If so, and the inventor decides to pursue legal reparations, would the Makerspace itself be held in part legally responsible? It seems a stretch, but stranger things have happened!
Jen – I agree with you that IP theft is a significant consideration here. Personally I would be concerned about having my idea this accessible. I’d be curious to know more on this topic.
Hello Jen,
You bring up a good point. Some spaces provide for privately rented areas, but as with any collaborative project area, there is the chance that ideas may shift and borrow from person to person. I suppose, depending on the maker’s specific project and their personal philosophy towards sharing ideas, privacy could be more or less important. Messy legal battles could happen, and I’m sure there would never be two cases that were the same. I do not know if this would be a barrier to starting a makerspace venture in the first place.
That being said, there have been a variety of successful and commercially based objects started in various makerspaces. For one example, check out this link to items started at Artisan’s Asylum http://www.kickstarter.com/pages/artisansasylum
Artisan’s Asylum, while a non-profit space, specifically defines one of its roles as being a springboard for entrepreneur makers.
Hi Nicole,
Thanks for the response. I actually don’t think fear of IP theft or being sued would be a deterrent to setting up a makerspace (at least I hope not!) After all, a big part of what makes a makerspace a makerspace, and not just a workshop or an empty room, is the collaborative aspect of it. As a makerspace entrepreneur, you would have to weight up the risks. And as a maker, whether you are active in a makerspace or not, you are always at risk of being copied. For example, I’m involved in the Etsy community, and there are big issues right now with a particular company ripping off designs from Etsy sellers, redoing them cheaply, and selling them to chain stores under their own label (http://www.fastcodesign.com/3020194/how-a-company-gets-away-with-stealing-independent-designers-work). It’s the nature of the beast and doesn’t stop me from making, but it does make me think carefully about the channels I use to market my work.
I imagine my space as one monitored 24 hours with cameras and backed by a very binding contract that focused on prerequisites to the safe operation of machines. This would be used to bow out of any liability claims. Sort of like a ski hill’s use at own risk policy, anything fun or interesting would require the maker to give up any opportunity to sue. This seems counter to the spirit but it would help me sleep at night and not run around screaming at people to be careful during the day.
Hello @adammatthews,
Thank you for your comment, I had a laugh at the end. There is certainly more than one type of risk when it comes to makerspace ventures. Many makerspaces with power equipment offer and require safety courses prior to full access to the space, this would tie in with the liability coverage. The Makerspace Playbook (link available in our reference section) suggests that the space registers as an LLC or Corporation to cover members from personal liability, and provides a sample liability waver template including the assumption of risk and release.
Adam – Your mention about the binding contract and Jen’s comment about have me wondering whether makerspaces require their participants to sign some sort of a non-disclosure agreement (NDA) such as an NDA that an employee is required to sign prior to gaining employment with some companies. Taking this a step further, if NDAs were signed by all makerspace participants, then guests, prospective partners and others associated with a project visited the space would have to do the same.
One question that came up in a meeting with my would be insurance broker was whether each individual member coming into the space to create their product or fix stuff should carry their own liability coverage. The reason being that if someone fixes their own car’s brakes and they fail, harming others, we as a makerspace might be held liable. Makes sense in a way, but the impetus it would create to people becoming members seems horrendously limiting.