Georgetown Insurance Service, Inc.
Silver Spring, MD
Business can be unpredictable, but your insurance coverage shouldn’t be. Yet, far too often, business owners find themselves in the unenviable position of learning that an event they assumed would be covered is not. First, they ask “why?” then they ask, “why didn’t I know that?”
Business owners must be knowledgeable consumers in all decision-making. This especially rings true when selecting insurance coverage for their company. The best way to be informed is to ask the right questions when selecting coverage – and upon every policy renewal. Your business is a dynamic entity, and your coverage needs will change often – never assume what was right a year ago is right today.
Here are the four questions business owners should ask themselves to assess the adequacy of their insurance coverage.
Question 1: Do I have the right coverage for my industry?
Coverage requirements vary by industry. A restaurant owner requires far different insurance than the proprietor of an autobody shop. Your agent should be familiar with industry-specific needs and be able to advise you on special requirements associated with your vertical. Landscapers, for example, need a policy that includes, among other things, coverage for motor vehicle accidents involving commercial vehicles. Firms that apply pesticides and herbicides also need protection against chemical spillage and other hazardous incidents. It’s important to speak to your agent to find out what add-ons to existing policies – or additional policies – could make a big difference if an adverse event occurred.
Owners should also consider business income insurance, regardless of industry. If something catastrophic happens such as a hurricane or other natural disaster and business operations are halted, this form of insurance provides assurance that your employees will be paid during times of business closure.
Question 2: How do I know if I have enough coverage?
It’s important to point out that no one is ever fully covered against all possible events and claims. Recognizing this fact, business owners must contemplate the unthinkable when it comes to insurance. If a catastrophe were to occur, would I have enough insurance? Are my coverage limits high enough?
You also want to consider the impact of inflation on prices. Unless your fire insurance, for example, includes an escalation clause that allows for an increase to cover any unexpected costs arising from price fluctuations, you may find you don’t have enough funds from insurance to rebuild or restore. Discuss the adequacy of your current limits with your insurance agent and, together, you can assess whether the right clauses are in place.
Question 3: What other types of insurance should I know about?
Business owners should be aware of at least two other forms of insurance. The first is Employment Practices Liability Insurance, also known as EPLI. This protects a business against lawsuits filed by employees (e.g., wrongful termination or sexual harassment) or potential employees (e.g., discrimination or illegal background checks). Please see our earlier blog on EPLI for a more complete discussion of this topic.
It’s important to remember that mounting a defense against a lawsuit – even a frivolous one – can incur attorney costs of hundreds of thousands of dollars. And, should a suit be successful, settlement amounts will increase your liability even more. With EPLI, the adequacy of limits is particularly important. Your policy should be at least $1 million, and perhaps higher, depending on your business.
The escalation of cyberattacks is creating an even greater need for cyber insurance. If you’ve never heard of this type of insurance, you’re not alone. But the threat against your information is real and can even originate from the outside world or even from inside your organization (a disgruntled employee).
We’ve all heard about the attacks on governments and “industrial giants,” but a recent report indicates that no industry is safe and small- and medium-size businesses are increasingly becoming targets. If you think you’d never be a victim, consider this recent claim involving a commercial garage company. Hackers held them at ransom to get their sensitive customer information, such as credit card numbers, back.
Cyber insurance, sometimes called cyber risk insurance or cyber liability insurance coverage (CLIC), can help cover the costs incurred related to recovery from an event. It can help with the forensics investigation, which details what was breached, how to repair the damage, and how to prevent a recurrence. It can aid with business losses, which can involve the cost of recovering data and covering network downtime and other business interruptions. It can also assist with notifications, such as advising your customers of the breach and extending credit monitoring services to affected individuals along with the costs associated with legal suits and extortion payments.
Question 4: How do I know if my insurance agent has my interest in mind?
As an agent, I encourage clients to shop around and do their due diligence. Unless you investigate the marketplace, you may think all agents are the same. They’re not.
Here are some things to consider:
- Does your agent check in with you to see if you need anything? Frequent check-ins are important.
- Does your agent work with a lot of contractors? In the contracting world, insurance requirements can differ depending on where the work is being performed.
- Does your agent always advise you to do what’s in your best interest? For example, if there is a claim, it counts against you. Sometimes the best advice may be to pay out of pocket and avoid drops in coverage or higher premiums.
As in all things, the admonition caveat emptor – or “let the buyer beware”– applies. Asking these four questions will position you – and your business – in the best place possible when the unexpected, but inevitable, event occurs.