Frank Look At Risks New Businesses Face

What risk can I really face as a business owner just starting out?

We hear variations of this question a lot.  Frankly, the question really boils down to this, “Why do I really need business insurance, especially as a start up company?”

Don’t you really want to ask that same question yourself?

What follows is a list of real scenarios documented with carriers across the country. These scenarios are both liability claims as well as property claims. As you read through, I am sure you’ll run across enough to make begin to understand the importance of commercial insurance.  Let’s get started and follow these situations which expose you and/or your business to risk:

  • A month after you open your shop, vendors begin calling you and demanding payment on bad checks. You go to talk to your bookkeeper about the problem and find that she has disappeared. You find travel magazines featuring Tahiti and deposit slips indicating that she has deposited your checks into her personal account.
  • One of your employees is interviewed on television without your knowledge.  In the interview, that employee calls a competitor “a sleaze ball who gouges his customers at every turn.” You get served with papers saying that the competitor is suing you and your business.
  • The old coffee maker you provided for your employees in the breakroom starts a fire, destroying your leased office and the building to burn to the ground.
  • A customer walks into your store, slips on a newly-mopped floor and breaks her wrist and cuts her head on a desk on her way down.
  • You walk into your office on a Monday morning and find the back door wide open and all your inventory, telephones, and computers are gone.
  • You meet with two clients for lunch. One of them has to leave early, and you volunteer to give the other one a ride home. On your way, you run a traffic light and get broadsided by another vehicle. Everyone in both cars is seriously injured.

There are hundreds if not thousands of examples just like this.  Just pick up the newspaper of browse the news online.  Don’t become a statistic due to an uncovered loss.

Are there risks assumed the minute you start a business, absolutely.  Getting business insurance in place must always be a priority for a new business.  A new business risks both any commercial assets as well as personal assets.  Talk to your commercial agent as well as your state department of insurance for guidance.

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Your Relationship With Your Commercial Insurance Broker

Setting expectations in your commercial insurance broker relationship

Value is a word often bantered around in the commercial and personal insurance advertising.  Just what is value as it relates to the commercial agent providing your business with insurance coverage today?  Are you receiving the value of a good trusted advisory relationship with your agent?

There is no magic wand to wave and produce the ideal agent or broker for your business.  An engineer’s business insurance needs will differ from a retail store’s insurance needs and a veterinary clinic’s insurance needs.  Instead, let’s turn the focus on what you feel you need to achieve value from your commercial insurance professional.

First, we suggest at least an annual review face to face.  An annual review isn’t, “Here are the latest premiums, sign here.”  Instead, you should expect a review of your business, what’s changed, and what has changed with your insurance agent.  Depending on the type of business you have, the risk your business carries, and how fast your business is growing or changing, we also recommend a quarterly or bi-annual update phone call.  More or less contact needs to be determined by you as the client.

  • Is your agent or broker genuinely interested in your business and not just the commission?
  • Have s/he recently toured your facility and inspected the equipment they are providing coverage on?
  • Is your business out growing your agent?
  • Are you and your company relegated to a junior staffer except at renewal time?

The bottom line is to set an expectation of what you want from your business insurance professional and then get mutual agreement when moving forward.  Your commercial insurance agent should be one of your most trusted advisers and not just a transaction.

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What Is Enough? How Do I Know?

Insurance coverage for my business, what is enough, how do I know?

The question we are often asked is how much coverage is enough.  Every business, retail, specialty, service, bar and grill, financial services, auto mechanic, doctor, lawyer, or any small business needs to insure the business against risk.  Certainly, every business is different and so are the risks with go with them.

Often standard liability policies for a small business are $1 million for any one loss and two million dollars in any one year.  For most of us, that sounds like a lot of money, but is it really when looking at protecting your business.

Consider the ramifications of you or an employee of your company seriously injuring a third party in an accident where fault is determined to be you or your employees’.  The case goes to litigation and jury determines the losses to the third party exceed 4 million dollars based on medical costs, lost income, and pain and suffering.

That $1 million limit doesn’t look so big anymore.  It is often important to ask your licensed professional insurance professional what is realistic for your industry and business.  A commercial umbrella policy is often a cost effective way to increase your liability coverage without breaking the bank.  An umbrella policy will pick up coverage where your existing policy stops.  Check with your commercial broker about recommendations for an umbrella policy.

Property coverage is another area where a discussion with your commercial broker is necessary.  It is always recommended to carry the highest coverage affordable.  Review the coverage with your licensed insurance professional while considering a starting from scratch in the event of a catastrophic loss.  It is always wise to have a separate discussion regarding the commercial vehicle insurance your business is carrying.  Take time with your commercial broker to discuss where your business is today, and also future plans and projects.  Often, a change in your business means you should at least update your commercial broker.

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How Does Business Interruption Insurance Work?

Business interruption insurance covers your actual business from the loss or damage to your income due to a loss at your business.  Let’s look at an example of a real business situation to define the key elements of how business interruption insurance works.

Bill and Sally opened a coffee shop and bakery in a leased space downtown.  The income is generated through take out goodies as well as some sit down business at their location.  They have several freezers for storage and service, a storage area for paper goods, restrooms, and small retail and sitting area for their customers.  The shop averages $700 a day and monthly does about $21,000 in revenue.  The shop nets about $1,500 a month not including salaries paid to both Bill and Sally.  Their lease is in year 3 of a 10 year contract with an option.

A fire in the building destroys the shop. While this fire started in another area, the lease specifies each tenant have property insurance. A claim is submitted to the property insurance.  However, to maintain the space, utilities need to be paid, equipment loans paid, minimum orders are required by several vendors to maintain the business.

A contractor is hired, and new freezers and equipment ordered.  Still, it will take 6 weeks or more to get up and running.  No revenue is being generated, which also means Bill and Sally have no income.  This is a tough scenario for any married business owners working together.  There is the stress of the loss of the physical business and equipment, loss of income, and financial pressure..

However, their commercial insurance broker added Business Interruption insurance to their business insurance coverage.  This insurance will cover the loss due to time, quantity and other values. Bill and Sally submit a claim based on actual business records of losing $31,500 in revenue and profits of $2,250.  Now, the shop has this covered as well as the property insurance claim, allowing them to get through to re-opening the business.

Many businesses are forced to close for good by not preparing for the down time and revenue loss.  Have you spoken with your commercial insurance broker about business interruption insurance?

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Explaining Commercial Insurance As Simply As Possible

Insurance can be overwhelming to say the least.  Commercial insurance covers a wide range of issues, coverage options, and exclusions.  Let’s look at trying to keep it simple to look how your commercial insurance works.

How does my business insure:

Property and Buildings

Property and Casualty insurance covers building and property.  As simple as that seems, there are a number of losses that aren’t covered, such as flooding as one example.  Just because your business is in leased space and not owned also does not mean you can go without property and casualty insurance.  Don’t assume homeowner’s insurance will protect a home based or part time home business.

Auto and Truck

A commercial auto insurance policy will cover your business vehicles and their drivers.  Again, while seeming quite simple, many business owners assume a variety of risks by using their cars and assuming a personal auto policy will cover any risk.  Sometimes, the auto coverage can be combined with Property and Casualty in a Business Owner’s Policy.  Check with your commercial insurance broker to determine your needs.

Workers Compensation

Every business must have workers compensation in place to protect them if an employee is injured on the job.  Some states also require additional coverage be provided.  Work with your commercial insurance broker to determine what coverage is mandatory.

Ask your insurance agent/broker about other options available for your business.  There are a great number of coverage options available to protect your business.  Discuss with your agent about what risks your company faces while conducting your day to day business.

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Has Your Company Outgrown Its Business Owner’s Policy?

Business owners today recognize that protecting themselves and their business is critical in today’s business environment.  We are often asked is a Business Owner’s Policy, or BOP all the coverage a company will need.  As your business grows, it’s more than likely additional coverage will be needed to offset increased risk.

Insure you review the specifics of your Business Owner’s Policy with your commercial insurance broker. If you’re not doing this annually, it’s time for you to make an appointment.  On the surface, a Business Owner’s Policy will seem to be pretty inclusive.

Make sure to read the policy carefully and ask questions to any language you don’t understand.  It is also important to note any exclusion.  Often, it’s possible to find you or your business is not covered while you have assumed it was.  Some very common coverage exclusions could potentially be devastating should an event take place.

Equipment breakdown or mechanical breakdown coverage is not usually covered in a Business Owners Policy.  This type of policy is a separate and covers equipment breakdown, loss of revenue to a business.  This coverage is extremely important if your company depends on certain equipment every day for its scope of work and revenue.

While most business owners are aware of needing commercial fleet or commercial auto protection, liability protection should be increased with the fleet insurance as the Business Owners Policy may not additional liability coverage relating to business owned vehicles and the damages which could result.  Another consideration is in a location subject to hazardous weather such as tornados or floods, debris removal should be added.   Before rebuilding, debris must be removed and often is not included and the cost of removal can be very expensive.

The last coverage we need to discuss Professional liability or Errors and Omissions insurance.  Check with your insurance professional to determine if your business and occupation need professional liability insurance. It is sometimes added to some Business Owners Policies.  Attorneys, accountants, engineers, and doctors are just some professions that should carry this type of coverage.

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Keep Your Commercial Insurance Up To Date!

As your business grows, make sure your commercial insurance coverage is up to date.

You went into business knowing you had a good thing going.  You’ve worked hard and things are really starting to fall into place. Business is good, growing, and you continue to exceed expectations and your plan. Your banker is ecstatic, your employees are excited, and it’s a fun time to be in business.  Have you let your commercial insurance broker know how well your business is doing?

When a business first opens, a somewhat standard business insurance package is put into place.  Depending on the business, some type of general liability insurance and business property insurance is put into place.  Many times, the coverage is adequate, and sometimes lean to help keep premiums down.  Now, back to the business description noted above, the first key is new employees.

As soon as an employee is hired, with rare exception, you are required to have workers compensation insurance.  Besides the employee benefit, with workers compensation coverage, the employee cannot sue the business for being injured on the job in most cases.  Imagine what could happen if it wasn’t in place!

As your business grows, your business insurance needs change.  The business insurance package you put into place is not static any more than the any other changes in your business.  There is nothing worse than growing your business, seeing great success, and having one incident cause financial crisis by being under insured, or, worse yet, have no coverage for that event.  Let’s look at how to avoid that happening in your business.

Again, with the quick example above, business is thriving.  It’s probably time to up the coverage limits, perhaps even write new insurance.  As your business grows, it may be time to look at business interruption insurance which may also be known as loss of income.  It’s quite possible you need mechanical breakdown insurance, or now should add some additional disaster insurance such as flood insurance if your area warrants it.

Talk with your commercial insurance broker to determine if product liability insurance may be needed.  Do you need to add professional liability insurance?  What coverage may fit now that didn’t early on? Do you need to raise your general liability limits?  Is it time for commercial vehicle coverage?

The rewards of growing a business are numerous.  Don’t risk it by not growing and evaluating your risk exposure along the way.  Make time to speak with your commercial insurance agent at length at least once a year, perhaps more if needed while growing your business.

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Cyber Liability Insurance Insurance

What is cyber liability insurance, and do we need it?

We’ve all been exposed to the news and seen companies like LinkedIn, Yahoo, The New York Times and large banks such as Wells Fargo and Citigroup have cyber attacks and security breach issues.  Most of us have seen the same with local and regional companies in our respective areas. Millions and millions of consumers are transacting and exchanging business now on the internet.  It might be time to take a look and see if a data breach or type of IT incident is covered in your general liability insurance coverage.

Most general liability policies will not cover the loss of customer or employee information resulting from a data breach.  Some directors and officers’ liability and a few general liability policies may offer limited coverage but have significant gaps in what is covered.  Don’t wait until it’s too late to find out for your business.

A recent study by the US Secret Service found over 70 percent of all data breaches were in small to midsize businesses.  It is time for your company to determine if coverage for cyber liability is needed.  Naturally, there are a wide variety of coverage options and factors to be considered.  The higher the risk, the higher the premium, as analysts have suggested the average data breach costs a company about $5,000, 000 per event.  Medical related industry and ecommerce business and data storage are considered high risk.  However, any business is facing online exposure through websites, email, and various types of consumer interaction as well as credit card processing.

Cyber liability insurance should cover first and third party damages.  Talk to your commercial insurance broker about cyber liability insurance. Your state department of insurance will also be a resource for you. As technology grows, so does your IT/Internet risk.  Don’t wait until your company is a statistic.

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Confused About Worker’s Compensation?

Simple explanation of worker’s compensation insurance:

We will review worker’s compensation insurance and how it works in a simple fashion.
Every state except Texas requires you to carry worker’s compensation insurance in some form.  Even though it is not required in Texas, it is possible that your customers or vendors will require your business carry it as a requirement to do business with them.  That policy has become quite common in Texas.

There are two reasons an employer has to carry worker’s compensation insurance, also known as worker’s comp.

The first is to insure workers that are hurt while working will be taken of financially.  Worker’s compensation insurance will pay the medical costs and a portion of their wages while recovering from the injury.

The second reason is to protect the employer (the business) from being sued by the injured employee.  It is important to have a good understanding of worker’s compensation in your state as requirements and coverage differs in every state. Generally, there is a waiting period in each state which can vary depending on the state.  This is to reduce frivolous claims.

Worker’s compensation insurance and the laws governing it utilize a no fault concept.  It doesn’t matter who is at fault, the employer or employee.  There are some instances where fault could come into play, such as being under the influence of illegal drugs or alcohol.  It also is possible for suits to be filed even though a claim is submitted through worker’s compensation.

Make sure to discuss and review coverage and options with your commercial insurance broker.

It should be pointed out; if you work as an independent contractor you also should carry worker’s compensation insurance for your protection.   Review with your agent to determine what is needed for worker’s compensation insurance in your business, even if you are an independent contractor.

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Rental Property Owners: Do They Need Insurance?

“I own rental property, why would I need business insurance?”

Good question!

People often don’t consider owning an investment property as owning a business.  That’s a discussion for a different day, but the reality is that being a landlord increases risk exposure and it’s critical for landlords to understand the risk.

Therefore, it is important to have Landlord Insurance in place when owning rental property. Landlord insurance is very similar to homeowners insurance in many ways.  However, it expands the coverage to protect the landlord in a number of ways.

Your landlord insurance policy will cover your property for damage.  Should your building be destroyed or damaged from fire, your insurance covers rebuilding it.  It is important to work with your insurance professional to determine the proper amount of coverage.  Get an estimate from a contractor or two, do the work to determine the real cost associated with rebuilding.

Underinsuring can cause headaches and you holding the bag to pay the difference if the coverage is not adequate.  Consider what is excluded and make sure to ask about flood protection, lightning, wind, and other types of natural disasters.  Every carrier and policy is different, read the coverage carefully.

A landlord insurance policy will typically carry a loss income provision.  Check to make sure your policy includes lost rental income.  In the event of a fire or loss, the lost rental income will reimburse you during the rebuilding phase.  If you depend on the rental income, make sure your landlord policy covers this provision.  New landlords offer forget this important component while needing the rental income to pay the mortgage.

There is often some confusion to contents coverage in a landlord insurance policy.  It is important to remember that tenant’s contents are not covered.  If you rent fully furnished apartments or offices, review with your insurance agent what is covered.  Generally, some items left at the building for maintenance and repair may be covered.

A landlord insurance policy also will normally carry liability protection as well.  In the event a tenant or third party is injured or sues you, this coverage will protect you as the landlord.  Your landlord insurance will cover legal and court costs and pay out in the event of a judgment.

Review the liability coverage in detail with your insurance professional in detail to understand what is covered, what’s not, and if additional coverage not discussed may fit your situation.

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