What New Businesses Should Consider When Developing Their Property & Casualty Insurance Program
Mary M. Hosmer, CPCU
Mary is a Business Development Specialist with Ansay & Associates and is President and CEO of Insurance Resource Consulting Group, LLC.
The first consideration in developing your Property & Casualty Insurance Program is choosing a knowledgeable, trusted insurance agent. As a former President of the Independent Insurance Agents of Wisconsin, I am partial to the Independent Insurance Agency System. An independent insurance agent has the opportunity to work with several insurance carriers and they can find the best insurance carrier for your specific needs.
Your independent agent will conduct a risk assessment to determine your potential exposures and liability limits. He or she will present you with insurance programs and carrier alternatives as well as be directly involved at the time of a claim.
How do you find an independent insurance agent? Certainly, you can find a listing online, but I would suggest you talk to business owners you trust and get a recommendation from them as to who would best serve you.
Why purchase insurance?
I like to think that people purchase insurance coverage for peace of mind knowing their assets and company are properly protected. That is not always the case! Businesses are required to carry certain types of coverage as outlined by their lease agreements, loan requirements, statutory requirements, contractual requirements, client requirements as well as vendor requirements. You will need to understand those requirements and share that information with your agent so your insurance program will be designed to satisfy those requirements. Sometimes, your insurance program cannot comply with every requirement your contract requests. You will need to understand those gaps, and, if at all possible, negotiate the removal of that requirement from the final contract. You will more than likely need to have your attorney and your insurance agent work together on your behalf to solve those potential issues.
When insuring your building and personal property, do not base your insurance limits on what you paid for your building or equipment, or the depreciated value of your building or equipment, but what it would cost to replace those items. Property insurance coverage in the State of Wisconsin is relatively inexpensive, so this is an area that you can increase your limits to replacement cost value without increasing your overall premium significantly. Choose your deductibles wisely! The deductible is the amount of out of pocket money your will pay for each property loss. A standard deductible is $500 or $1,000. It generally does not make sense to increase your deductible above $1,000 as the corresponding reduction in your premium may not be significant.
Business Income and Extra Expense is coverage that will protect your business in the event you are out of business due to a fire or tornado, for example. It will pay your ongoing expenses, including salaries and profit while you are out of business. It will also pay the extra expenses to continue your business operations, i.e, increased transportation costs, increased costs in setting up a new location, etc. Many new business owners do not feel that Business Income and Extra Expense is important to insure. Not having this coverage is one of the major reasons businesses are not able to re-open after a major loss. Most new businesses can be insured with coverage that will cover these expenses for 12 months following a loss which is generally sufficient to cover most losses.
Also, make sure you are properly protecting your computers, both hardware and software as well as the expense to hire IT professionals to get you back up and running as soon as possible. As a side note, make sure you are backing up your data on a regular basis and storing that information off site to minimize a potential loss in this area.
Property insurance coverage protects your property within 1,000 feet of your premises, so if you have equipment, inventory or other property that is taken off premises beyond 1,000 feet you will need to specifically insure them.
Equipment Breakdown insurance protects against breakdowns caused by power surges, motor burnout, boiler malfunction and operator error. It can pay for:
- the cost to repair or replace the damaged equipment
- costs associated with the time and labor to repair or replace the equipment
- business income when a covered breakdown causes a partial or total business interruption
- other expenses incurred to limit loss or speed restoration
- the cost to replace spoiled stock or materials
Through the risk assessment, your agent will determine the need for you to consider insurance coverage for Ordinance and Law, Property in Transit, Sign coverage and various other types of coverage necessary for you to be properly protected.
General liability insurance coverage protects you and your business in the event someone, other than your employees, trips or falls or is injured on your premises. It also provides coverage in the event you are sued for bodily injury or property damage due to your product or services. This is the area that needs to cover requirements outlined in any lease or contractual agreement. You should discuss those requirements with your agent, as well as your attorney, and design your insurance program accordingly. You should also consider adding Employment Related Practices Liability to protect you from human resource related law suits from your employees, such as discrimination, wrongful termination, failure to promote, etc.
If you have a service business e.g. an Accountant, Attorney, Insurance Agent, IT Professional, Medical Professional, you will need Professional Liability insurance. This provides coverage in the event your client, vendor, competitor, etc. would sue you or your business for a financial loss due to your business activities.
We have all heard about employees who have embezzled money or other items from their employer. Employers generally feel that their trusted employee would never steal from them and for the most part this is accurate. Be aware of your insurance policy’s coverage that protects you in the event of this kind of loss and work with your accountant to set up checks and balances to avoid such losses. You will also need to provide coverage for money and securities you have associated with your business. You will have the option to add Computer Fraud coverage to your Crime insurance to protect you if hackers steal funds from your business through the internet.
Your automobile insurance policy provides automobile liability and physical damage for your vehicles. It is important to insure your vehicle in the same name as you have the vehicle titled. Your business automobile coverage should include “Hired and Non-Owned” insurance coverage to provide protection for your business in the event someone is driving their personal vehicle for your business. If your vehicles are owned and titled in your company’s name, you will need to provide a list of those drivers, their date of birth and the driver’s license number of those whom drive your vehicles once a week or more to the insurance carrier. Your premiums will be based on this information, as well as your actual automobile losses in the past 3-5 years.
Under Wisconsin law, an employer is required to carry workers compensation insurance if:
- the employer usually employs three or more persons full-time or part-time. This employer needs insurance immediately upon employing a third person.
- the employer has one or more full-time or part-time employees and has paid gross combined wages of $500 in any one calendar quarter.
Please note that there are different requirements for farm employees.
A sole-proprietor is not required to carry workers compensation coverage. However, a sole-proprietor may elect workers compensation insurance coverage on him or herself. If your business is structured as an LLC, and you want to provide workers compensation coverage for the members of the LLC, you must specifically elect coverage for them as well.
If you are eligible for workers compensation coverage and elect not to carry the coverage, you should contact your health insurance carrier to ensure they will provide health coverage in the event you were injured in a job related injury.
Workers compensation insurance premiums are based on your class of business, the payroll associated with each class and your past loss history. Your agent can work through these classifications and premiums with you.
The Umbrella policy provides excess limits over your General Liability, Automobile Liability and Employers Liability provided under your Workers Compensation insurance policy. I would suggest, as a new business, you should consider a $1,000,000 Umbrella Liability policy. This will help protect you in the event of a major liability loss and many times will work to comply with the insurance requirement discussed earlier.
We have all seen the many reports of security breaches that both large and small companies are experiencing. Cyber or Internet Liability insurance policies have been developed to protect companies from the costs of those breaches. Be sure to check with your insurance agent to help you understand your exposures in this area, ways to guard against a potential breach and the insurance coverage available to protect you.
I can’t stress enough the need for a knowledgeable, trusted agent to walk you through the issues in developing the right insurance program for your needs and be available to you to answer any questions you may have in the event of a loss.
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