INSURANCE

Business (commercial) insurance can be any kind of insurance that protects businesses against risks. Some principal subtypes of business insurance are (a) the various kinds of professional liability insurance, also called professional indemnity insurance, which are discussed below under that name; and (b) the business owner's policy (BOP), which bundles into one policy many of the kinds of coverage that a business owner needs, in a way analogous to how homeowners insurance bundles the coverages that a homeowner needs.

BEFORE YOU CHOOSE AN INSURANCE COMPANY

Choosing an insurance company to provide your business insurance is an important part of your business insurance plan. Once you have chosen an insurance professional, you will need to choose among different policies and programs offered by different insurers.

PRICE, STABILITY, AND SERVICE

Price, stability and service are three important considerations in choosing an insurance company:

• Price.  The cost of coverage can vary greatly from one insurer to the next without any difference in coverage. Have your insurance professional secure quotes from at least three insurers.
• Stability.  Insurance companies do fail and the results can be disastrous. Companies are rated for their stability by various rating services such as A.M. Best or Standard & Poor . Consider companies with a Best's Rating of B+ or better.
• Service.  You will want an insurance company with an excellent reputation for customer service.

REGISTERED IN YOUR STATE

You will want an insurance company with a physical location in your state. You will also want a company that is registered to sell insurance in your state.

Sometimes smaller insurers will sell policies through another company registered in the state. For your business, stay with a company registered and physically present in your state. You can search on your State Insurance Department website to determine if an insurer is registered in your state.

CHOICE OF COUNSEL PROVSION

Some insurance companies have a choice of counsel provision in their policy that allows the insured to pick their own attorney to defend them in case of a lawsuit. This can be a valuable option and is typically only available for higher premium packages.

Regardless, find out how an attorney is retained to defend you in case of a lawsuit. Some lower value insurers make use of house counsel attorneys that are actually employees of the insurance company. You want the ability to choose your own counsel or be promised that skilled representation from an independent lawfirm will be provided to you.

PICK A MARKET LEADER

The insurance business is one of fluctuating highs and lows in each market. Some insurers will enter markets for a short period of time to determine profitability and leave the market (and their insureds) if it appears unprofitable.

Stay away from market floaters or companies offering a "deal" because they are new to the market. Instead, find the leaders in the market that have stayed in the market for at least ten years. They will not be the cheapest premium. But, such companies typically offer extra services that make up for the extra cost.

Business is a challenge, but finding the right insurance to protect your business shouldn’t have to be. Consider the following recommendations when shopping for business insurance.

PROPERTY – WATCH THOSE LIMITS

Before buying property insurance for your new business, make a list of all of your property. Be sure to include property whether or not you think it requires insurance. When you discuss the items on your list with your insurance company, they can help you best determine what needs to be insured and how much insurance you need.

It is not uncommon for businesses to have fluctuating property values. Building and personal property coverage limits must be reviewed frequently and updated accordingly. Many businesses fail to do this - an omission that can lead to a penalty for underinsurance, not an additional issue that your new business wants to address after a claim.

INSURANCE FOR LOST INCOME

A majority of businesses that go bankrupt do so because they lose income after an insured loss and didn’t have business income protection. In addition to insuring your property, be sure to insure the life of your business with a business income policy. For a specified period of time this policy will pay for a loss of net income and continuing expenses while your business is recovering from a covered loss. This policy is a must-have for your new business.

LIABILITY – UNDERSTAND LIMITS AND LIMITATIONS

General liability coverage will pay for defense costs and damages resulting from claims of bodily injury and/or property damage for which your business is legally liable. Unlike property insurance, there is no set value for liability damage - you never know what the claim will be or how severe the damage. This is why higher limits are always recommended.

Increasing liability limits is not difficult and relatively inexpensive. A few extra dollars invested in premium, can literally increase your liability limits by thousands of dollars.

General liability insurance does not cover “Professional Liability” claims. These are claims for which your business is legally liable, but did not cause bodily injury or property damage to a third-party. An example of a professional liability claim would be a CPA’s miscalculation causing financial damages to a client.

Consider the standard of conduct for your type of business. There may be a professional liability policy tailored to your industry that is essential to your business insurance portfolio.

KNOW THE LAW

Many requirements for business insurance vary by state law. Before starting a business contact your state’s insurance department for information about which types of coverage are mandatory (i.e., worker’s compensation).

CONSIDER A BOP

A business owner’s policy (BOP) combines many essential business insurance coverage types under one policy. If eligible, your business will enjoy features through a BOP that are normally purchased individually and usually have higher premiums. Such features include replacement cost, business income and employee dishonesty coverage as well as higher limits of liability.

When we talk of Commercial (business) Insurance, we mainly talk about four broad categories:

1. Commercial Property Insurance
2. Commercial General Liability
3. Commercial Automobile Insurance
4. Commercial Umbrella Insurance

We focus on the two main types of commercial insurance that businesses have: Commercial Property Insurance and Commercial Liability Insurance. Take a brief look at the coverage areas that fall under each of these types of insurance.

COMMERCIAL PROPERTY INSURANCE

Property Insurance is any type of commercial insurance that reimburses an insured party who has suffered a financial loss because property has been damaged or destroyed:

• Property is considered to be any item that has value and can be classified as real property or personal property. Real property is land and the attachments to it, such as buildings. Personal Property is all property that is not real property.
• The Building and Personal Property coverage form is used to insure almost all types of commercial property.
• The insuring agreement in the Building and Personal Property coverage form promises to pay for direct physical loss or damage to covered property at the premises as described in the policy under covered cause of loss.
• Coverage for the building includes the building and structures, completed additions to covered buildings, outdoor fixtures, permanently installed fixtures, machinery and equipment. The building material used to maintain and service the premises is also insured.
• Business Personal Property owned by the insured party and used in business is covered for direct loss or damage. This type of commercial insurance policy is also intended to protect against loss or damage to the personal property of others while in the insured party’s care.
• Basic property insurance policies are written to cover fire, lightning, explosion, windstorm, hail, smoke, aircraft or vehicle damage, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse and volcanic action.
• Other property insurance policies add coverage for water damage, weight of snow, ice or sleet, breakage of glass and coverage for falling objects.
• Most commercial insurance companies use two approaches to determine value of a property:
• The replacement cost of a property is the cost to replace it with new property.
• Actual cash value (ACV) is replacement cost, minus the accumulated depreciation for age and condition.

COMMERCIAL LIABILITY INSURANCE

A Commercial Liability insurance policy provides insurance protection to pay for bodily injury or property damages when the insured is legally responsible:

• The policy provides coverage for liability arising from personal injury and advertising injury.
• Coverage for medical expense is also provided. This pays medical expenses resulting from bodily injury caused by an accident on premises owned or rented by the insured party, or locations next to such property, or when caused by the insured’s operations.
• The policy also covers accidents occurring on the premises or away from the premises.
• Liability coverage is provided for injury or damages arising out of goods or products made or sold by the insured.
• In addition to the limits, the policy provides supplemental payments for attorney fees, court costs and other expenses associated with a claim or the defense of a liability suit.
• There are two commercial general liability coverage forms, the occurrence form and the claims-made form. The difference between them lies in the way claims are handled under the two forms. While the occurrence form covers bodily injury or property damage claims that occur during the policy term, the claims-made policy form only covers claims made against the insured during the policy term.
• The fire damage limit provides liability coverage for fire damage caused by negligence on the part of the insured to rented premises. If a fire occurs because of negligence and damages property not rented to the insured, coverage is provided under the occurrence limit.
• Coverage is also provided for injury resulting from offenses such as false arrest, malicious prosecution, detention or imprisonment, acts of invasion, or rights of private occupancy of a room.
• Liability coverage for libel and slander is also provided in the policy. This coverage pays for damages done in the course of oral or written advertisement that disparages, libels or slanders a person’s or organization’s goods, products or services.

Some businesses have unique insurance needs. In most instances a good insurance professional will identify these situations. Basic policy types may not cover or, in fact, may exclude coverage for certain operations. Or, there may be certain laws or regulations requiring a specialized type of insurance.

In considering the types of policies applicable to your business consider the following:

• International Operations.  If your company does business overseas or has projects overseas, most traditional policies will only cover claims brought in the United States. You will need an International Liability policy and you may need to secure coverage for liability, health insurance, workers compensation and property insurance in the country where you are doing business. Most countries require such coverage to be through an insurance company domiciled in the native country.
• Valuable Papers Insurance.  Certain businesses such as design firms, law offices, investment firms or accounting firms handle and produce critical documents. Some property and casualty policies will allow you to schedule or list such critical documents, other policies do not. Some policies have a blanket limit covering such documents that may not be sufficient. It may be necessary to procure a separate policy to guard against the loss of such documents.
• Scripted Policies.  Some things or operations are so unique that an insurer will write a policy specifically for that risk. If your operation owns or operates something unique ask your professional if it is covered or if it can be covered.
• Maritime Operations.  If your business operates water vessels that dock at United States harbors, you will need Maritime Operations coverage. This coverage will include a specialized form of workers compensation coverage that covers employee claims under the Jones Act and the Longshoremens Act.
• Railroad Operations.  Most commercial policies exclude coverage for operations taking place within a certain distance of railroad tracks or in a railroad yard. You will need to secure this coverage if your business will be operating around railroads.
• Kidnap & Ransom Insurance.  If your personnel travel overseas, this coverage may be necessary to aid and reimburse the business in case of a kidnapping.

These policies are unique and complicated. If your business is involved in some of the things identified here, talk to your professional and make sure you are covered.

An insurance company bases insurance premiums on the risks involved. To do this, they evaluate the situation to determine the risks, or potential for losses. The insurance company determines its rates on the results.

The steps you take today to lower your risks can not only help safeguard your business but may make you eligible for lower insurance rates.

The business owners should consider these steps:

• Maintain adequate lighting throughout your business premises.
• Keep electrical wiring, stairways, carpeting, flooring, elevators and escalators in good repair.
• Install a sprinkler system, smoke and fire alarms and adequate security devices.
• Keep only a small amount of cash in the cash register.
• Keep good records of inventory, accounts receivable and equipment purchases.
• Consider keeping a second set of records off-site, such as with your accountant, insurance agent or at home.
• Make sure your employees have good driving records.
• Make sure your employees know how to lift properly and use all necessary safety equipment, such as goggles, gloves and respirators.
• You should consider using the services of a risk manager. An outside consultant can advise you of any safety or environmental regulations you may have overlooked.
• Talk to your employees about safety practices.

You may also want to raise your deductible where appropriate to lower your premiums. How high to raise the deductible should be governed by how much you can afford to pay out of pocket. Be careful not to raise it so high that you cannot cover it should a loss occur.

Businesses increasingly rely upon external and internal communications networks to operate their businesses. For example, in my business, a law practice, more and more courts are moving to mandatory electronic filing of court documents.

What happens if the network is disrupted? What if the network is out for a substantial period of time? Fortunately, there are insurance products available to protect the business in just such an occasion. These policies are in addition to your standard commercial property insurance and business interruption policies. In most cases standard policies will not recognize a loss of network claim and additional coverage can be a valuable addition to your risk management program.

This insurance has a variety of names, but is typically sold as a network risk or data loss risk policy. It can be sold as a stand-alone insurance product or as an endorsement to standard policies. You will want to read all of the fine print regarding the coverages and go through several "what if?" scenarios with your insurance professional to make sure the policy covers your needs.

A network risk policy covers various types of network losses:

• Business Interruption Caused by Loss of Network.  This coverage will cover losses of income and extra expenses caused by a network outage. Make sure the policy includes coverage for point of service attacks, physical network damage, hacker attacks and, most importantly, employee attacks or malicious insider attacks.
• Digital Data Protection.  This coverage will cover the costs and damages incurred by the loss of physical data or information caused by network outage.
• Compliance Cost Coverage.  When a network outage occurs or a malicious attack puts private information in your database at risk, several federal and state laws require notification to customers and others affected by the potential security breach. This notification can be expensive. The policy covers the costs associated with such compliance.
• Cyber Crimes Coverage.  You will want coverage for specific intentional acts such as cyber terrorism or extortion.
• Third Party Lawsuits.  If your network fails and causes damage to a third-party for whatever reason, and that party sue your business, your network risk policy should cover these losses and provide for a defense.

This insurance is specialized and your business may not need such coverage based on your risk exposure. For example, a flower shop with an E-Bay store may suffer losses for network outages - but, how much in comparison to premiums? On the other hand, a commercial web development company that "loses" a database of customer supplied information can face substantial exposure. The point is, do not purchase this coverage just because of perceived threats reported in the media, but consider the coverage if your real experience and real business require it.

I have property that I have no interest in insuring. Is this possible?

You may not have a choice. State law as well as other sources (such as a lien holder or lessor) may require you to insure certain property at a specified limit. If this is not the case for a portion of your business property many insurance companies are willing and have methods available (e.g., endorsements, exclusions, etc.) to help business owners control costs by managing their insurance budget. Contact your insurance company first; it can help you find ways to do this that will not result in a costly penalty for underinsurance.

Do I really need this much liability insurance?

Unlike property insurance there is no way to determine the potential amount of a liability loss. For this reason higher limits always are recommended. Increasing liability limits does not usually cost much and will tremendously increase the value of your policy. Additionally, many businesses are required to furnish proof of liability insurance in the form of a certificate. Often those requesting the certificate require certain limits of liability before acceptance.

What is business income insurance and do I need it?

Yes. Business income insurance is an essential coverage. While property insurance will pay to repair or replace damaged property after a covered loss, it does not pay for lost income from a cessation of operations. Business income insurance is like a disability policy for your business. It pays the net income and continuing expenses for a specified period of time to keep your business afloat during the recovery process following a covered loss.

Is there a comprehensive insurance policy for business owners with many coverage needs and a budget?

Yes. Many businesses are eligible for a business owner’s policy (BOP). A BOP combines many important features of commercial property, general liability and business income policies. The BOP does not cover everything and is not available for everyone. However, those who qualify, appreciate the ability to manage so much coverage under a single policy.

I don’t want to sacrifice coverage but is there some why I can keep costs down?

Yes. First, obtain quotes from at least three different business insurance companies. Some may offer special packages for your business type; others may qualify you for a BOP. You’ll never know what’s available if you don’t look.

Second, talk with the insurance company about flexibility. Some insurance companies may be more willing than others to work with you to find ways to tailor your coverage to help control costs without giving up valuable coverage or incurring costly penalties for underinsurance.

Third, ask about multiple-policy discounts. Insurance companies reward clients who have numerous policies with them. Remember that personal insurance coverage may help you earn a multiple-policy discount on your business insurance.

Finally, remember the old insurance adage: the more risk you take upon yourself the less premium you pay. This is why higher deductibles will save you money. Most companies offer deductible options - consider raising yours and pocket the savings. Be careful, however, to never raise deductibles to a level higher than you can afford to pay out of pocket.