Insurance policies are not all created equal

Taking the leap of starting your own business is never an easy one. Whether you are a weekend warrior looking to pick up some extra income or branching out all on your own; you are taking a risk and putting yourself out there. this is something that most of the population could not fathom, but you are truly the future of our economy.

Most new businesses determine a budget, buy tools/equipment, set up a website and plan for all the business to come in. Insurance tends to be a side note that you know you will need to check off your list, but far too many too not take this aspect serious. Many new business owners seem to look at insurance and attempt to find the cheapest price they can find. This is a mistake that can lead to financial disaster for your business. Here is why this method of thinking can get you into trouble:

When you are a new business a few things tend to be very common. You generally know what kind of work you want to d. You might or might not have an idea of what work you are not willing to do. You also might have only a few employees, but you probably don’t know how much you’ll pay them. On top of that who knows how much sales you will have your first year. When you are shopping for a General Liability Insurance Policy these are all things you need to know. Before picking up the phone to call an insurance agent, here are a few things you need to keep in mind when comparing quotes:

 

Compare the Total Premium but also the rate being charged

Many companies will quote based on minimum premium. For an owner only company this might keep you at this level and not be a problem. Once you start adding employees or increase your operating space, other coverages might be necessary. The rates could increase much faster with one company as your company starts to grow. Talk with your insurance agent about these types of things so you have a ball park idea of what to expect down the road.

Look at the Exclusions on the Policy

As a general rule no insurance policy covers everything. All insurance policies will have some sort of exclusion. These exclusions outline a “hazard” that the insurance carrier will not be responsible for covering. This is very important to know, so you can avoid these exposures. Especially since your business will be on the hook for them. A lot of times they are exclusions for a reason. It is not typically for a carrier to strip down the policy just for a cheaper price. Most of the time these inclusions are in higher hazard areas. In the past these areas have cost insurance companies big and they are attempting to limit the risk they take. Taking this approach in your business operations can help you decide what work are not willing to do. It is usually easiest to make changes early on in your business as opposed to later down the road. Knowing these exclusions is important to minimizing the risk to your business and helps you determine what amount and type of risk you are willing to take in your daily operations.

Occurrence or Claims Made?

General Liability forms are written on either an Occurrence or a Claims Made basis. Occurrence is typically going to be more expense. If it is even available. Claims Made Policies limit the reporting period that you can report a claim to be covered under your policy. Professional Liability policies are typically offered only on Claims Made basis. If Claims Made is your only option, one of your main priorities should be making sure you don’t have a lapse in coverage. A lapse in coverage can leave your business vulnerable for much more than you may think.

 

Compare rating factors

Depending on the policy type, your type of business and coverages being offered; rating factors could vary into what determines your premium. Here are a few variables that can drive the premium though:

Square Footage: The amount of space for your building, the amount occupied and the amount of retail space can directly impact pricing of your liability policy. This is especially important for retail businesses. As well as General Liability, it can also impact your Commercial Property Coverage.

Payroll: Payroll is a direct rating factor for all Workers Compensation Policies. It also is a primary rating factor for most Contractors General Liability policies as well. Getting help to anticipate what your payroll will be should be something a decent agent can help you with.

Employee Count: Employee Count can be a direct rating factor for some General Liability Policies. It can also be a determining factor for Employment Practices Liability Insurance Policies.  In some cases full time vs part time can make a difference as well.

Property Value & Valuation Type: The amount of Value, Reinsurance rule and Valuation type can all impact your pricing for your property coverage. If the Valuation is Replacement cost vs Actual cash value, than the coverage is very different. This is because of how the claim will be paid and the amount your business is insured for. If the valuation amount is not sufficiently covering the amount of property you have this can leave you not receiving the full value you lost in the event of a claim. This is something that is much better to compare when choosing an insurance policy than hashing it out with your insurance carrier when its too late and you have a claim.

Gross Sales, Garaging Zip Code, Location Address: These are a few other of many variables insurance carriers will look at in quoting your insurance policies. Sometimes they are direct rating factors but on most policies they can be a gauge for determining your pricing.

 

There are many factors to consider when determining which policy and coverages are right for you. There are less expensive policies that don’t cover as much, and there are also Cadillac plans that might cover more than you are looking for and many options in between. The key to take from this is not that you have to go with the Cadillac or to take the cheapest option, but make sure you are comparing the correct variables to know you are choosing the right option for you and knowing what you are covered for and what you are not covered for.

What is EPLI Insurance?

EPLI is an acronym for Employment Practices Liability Insurance.  EPLI is a form of professional liability insurance designed to specifically address the unique risks associated with hiring, employing, and terminating employees. The number of lawsuits filed by employees against their employers is on the rise. Employment Practices Liability Insurance coverage is a safeguard for employers in today’s litigious society. It provides legal protection for the business, the owners, the officers, the directors, and the other employees.

Some common types of lawsuits EPLI covers include:

  • Employee Discrimination
  • Wrongful Termination
  • Age Discrimination
  • Racial or Gender Discrimination
  • Breach of Contract
  • Sexual Harrassment
  • Emotional Distress

Again, anyone can end up filing a lawsuit and unfortunately anyone does. These lawsuits do not have to be legitimate in order to rack up enormous costs to your business. The two main costs come in the form of defense costs and the time it takes you away from your business to fight the accusations in court.  Even though lawsuits are on the rise still seven out of ten businesses do not buy EPLI coverage. Of those that do not buy Employment Practices Liability Insurance coverage six in ten businesses think they are covered for this type of claim under some other type of insurance. Many think they are co9vered under their General Liability Policy.  Some important things to think about when deciding to buy EPLI coverage are that businesses are three times more likely to be sued by an employee than to experience a fire. The average out-of-court settlement for an Employment Practices Liability Insurance claim is about $40,000. If the case actually goes to trial, the average award amount is $218,000, and nearly 10% of these cases can result in an award of more than $1,000,000. Again, the average cost to defend a wrongful termination or employment case is about $45,000. Employees file over 90,000 charges per year with the U.S. Equal Employment Opportunity Commission and employees win 70% of cases that go to a jury trial.

Policy language within an EPLI contract can vary significantly between insurance companies. Some polices will include specific policy exclusions or limitations on coverage during certain events such as a merger, an acquisition, a major restructuring, or a reduction in workforce. Many insurance companies also utilize a common clause within an Employment Practices Liability Insurance policy known as a Hammer Clause. This clause gives the insurance company the right to tell the insured that it wants to settle a claim for a set amount of money. The business must either accept the advice of the insurance company and settle the claim, or it runs the risk of having to pay the claim if the court rules in favor of the employee. These issues make it crucial to have a strong relationship with your agent. Like many types of insurance, you rarely think about it until you need it. Taking a little more time to make sure you are covered correctly can save you company thousands when a lawsuit does happen.

Workers’ Compensation Insurance Limits

Workers’ Compensation Insurance comes in two parts, coverage A and coverage B.  Coverage B is technically called Employers’ Liability Insurance, but the 2 types of insurance are often generically referred to as workers comp insurance in common usage.  With respect to employees injured on the job, coverage A (Work Comp) provides unlimited coverage of all medical expenses, a set percentage of lost wages (which varies by state), a lump sum for disabling injuries as well as a disfigurement and death benefit.  Business owners often confuse the coverage that part B limits. This effects workers comp benefits, but workers comp benefits are established by the individual state’s statutes. They generally cover all medical expenses when they are implicated.  The limits on a policy only relate to employers’ liability claims.

Thus, it is important to know when employers’ liability limits could come into play.  As written about in a previous blog entry, the most common types of employers’ liability claims are as follows:

(1) Third party claims: these claims are generally brought about by an injured employee against a manufacturer of the object causing the employee’s injury. The manufacturer then brings a claim against the employer for contributory negligence.

(2) Dual capacity claims:  This is similar to the above, but it comes up when the employer is also a manufacturer.  If an employee is injured by a defective product manufactured by his or her employer, he or she might bring a product liability claim against the employer in addition to claiming workers’ compensation benefits.

(3) Loss of consortium or other services to family members: loss of consortium and other claims such as modifications to homes or lost parental services resulting from a workplace injury can be covered.

(4) Consequential bodily injury: claims by the spouse or other family members of an injured employee arising from the injury such as a heart attack due to the stress of the news of the employee injury.

(5) Intentional acts/torts by the employer: claims covered in some jurisdictions such as knowingly allowing employees to work in unsafe workplace conditions.

Employers’ liability claims are rare.  However, they can occur and are often costly when they occur.  Employers’ liability coverage can cover damages/judgments, settlements, legal defense fees and other court costs.  Increased employers’ liability limits generally only increase the cost of the workers’ compensation insurance policy by around 1%.  Statutory minimum limits are usually (in all but a couple states) $100,000 bodily injury by accident (each accident), $500,000 bodily injury by disease (policy limit), and $100,000 bodily injury by disease (per each employee).  These limits can also be increased to $500,000/$500,000/$500,000 or $1,000,000/$1,000,000/$1,000,000 in almost all cases as well as $2,000,000/$2,000,000/$2,000,000 is sometimes available.

Now that we have created a better understanding of why increased limits could come into play, what are the most common reasons for a business owner to need increased employers’ liability limits?  The most common reason to get increased limits is probably that they are required by a contract important to a business owner.  This is a common request, and it is the most common reason our agency sees for increased limits.  However, there are several other good reasons to use higher than statutory minimum limits. To include a workers’ comp and employers’ liability policy under most umbrella policies, the limits generally need to be at least $500,000/$500,000/$500,000 and sometimes as high $1,000,000/$1,000,000/$1,000,000 limits.  Another good reason to have increased limits is for businesses which are in industries that are more likely to have an employers’ liability claim arise.  Such industries are generally higher risk industries which are more likely to experience devastating claims or manufacturing industries.  Devastating claims are more likely to lead to loss of consortium or other services by family members type claims.  Additionally, manufacturers are most likely to risk claims from disease exposures or dual capacity products liability type claims from employees.  This should provide an understanding of when it is worthwhile to consider purchasing a slightly more expensive workers comp policy.

Q&A with Tim Davis

Q&A with Insurance Expert Tim Davis

 

What are the most significant Weather Related Risks for Small Businesses?

 

What’s the biggest mistake small business owners make when it comes to safeguarding their businesses from weather-related interruptions and why is that a problem?

The biggest mistake small business owners make is failing to buy business interruption coverage. This coverage is not a stand-alone policy, but is typically included on a business owners’ package (or BOP) policy. The Hartford has some of the best coverage available on their business interruption coverage as a part of their BOP policy, but several other carriers offer great coverage as well.

How can we know if we need flood insurance in addition to business interruption coverage?

Flood insurance will not only provide coverage to replace the damage to your building, but the business interruption coverage won’t respond for flood-related losses if you don’t have flood insurance in place.

What’s a common misconception about business insurance related to weather issues and what’s the truth? 

As highlighted above, business interruption coverage won’t apply to all weather-related issues. Whatever peril (or risk) caused the business interruption must be a covered peril on the BOP policy. If an earthquake caused the damage and interrupted your business, but you didn’t have earthquake coverage on your policy, then coverage for the earthquake damage wouldn’t exist.

Another common myth centers around off-premises power failure. If a weather-related event causes power to fail at a location away from your business (like a blackout or a transformer a mile away gets struck by lightning) … business interruption coverage won’t apply. With most policies, the weather-related cause of the power failure must happen at your business.

Do we need special coverage to protect from wildfires, or will traditional property & casualty cover us? Why or why not? 

A wild fire would be a covered cause of loss on many commercial property policies, but it is not guaranteed.  I would recommend reading over your policy – identify covered causes of loss as well as exclusions in the policy.

What kind of protection do we need related to employees and customers who might be injured on our premises during a weather event?

Your standard workers compensation insurance (for employees) and general liability insurance (for your customers) policies should suffice. These two policies should be enough to protect your business from incidents that occur on your premises.

What documents should we be sure to store safely to make the claims process go faster after a weather disaster strikes? Please describe each document and why it’s important.

Financial records will be the most helpful piece of information to provide to simplify the claims process. Carriers will evaluate the income losses your company sustained based off the company’s past sales history and reasonable projections of your company’s profits and losses for the time your company suffered from the weather-related interruption.  Policy information – including agent and carrier contact information.  Also, it is good to take pictures of the equipment in a building – including serial numbers.  This helps with replacement parts and valuation.

What phone numbers should we keep on hand in the event of a weather emergency and why? 

Make sure you have either your insurance agent’s number on hand, or (even better) the claims reporting phone number for the insurance carrier on your business owners’ package policy.  I would also consider having phone numbers for emergency response/clean up companies.  In the event of a major weather event, it is smart to have a few companies to choose from – maybe even consider a company from a neighboring community so that they are less likely to be impacted by the same weather event.

What’s the first thing we should do if our business is impacted by a weather event and why? 

Life safety is the very first concern – make sure that all employees and guests at your premises are accounted for and safe.  Then, secure your building and business personal property.   If you can help prevent further damage by taking additional steps, those extra expenses can be covered in some policies.

What else should small business owners know about preparing for and responding to a weather disaster? 

A proper BOP policy with business interruption coverage will provide a real sense of relief in the aftermath of a disaster. Loss of business income is the #1 reason that most businesses do not open after a serious loss. This coverage will help provide coverage for the actual income loss sustained; the net income (net profit or loss before income taxes) that would have been earned over that period; and provides costs for things like payroll so you can keep your employees while your company rebuilds.  Be prepared – think ahead – develop a contingency plan.  If something happens, have a plan already in place and make sure that everyone in the business is aware of what steps to take.

What other questions should I ask my agent about this coverage?

Check the time period you have for extended business income. Thirty days is standard coverage, but some carriers can offer up to 12 months by endorsement. Also ask your agent if you need contingent business interruption coverage — this pays out when your company is unable to operate because of an event like a natural disaster that damages the business of one of your suppliers or customers, which causes your company to lose income.

 

 

What is Inland Marine Insurance?

Also referred to as “Equipment Coverage”, Inland Marine Coverage is coverage specifically for property that is likely to be moved or in transit. It is a highly specialized type of property that requires a unique valuation. This can include products that you are having shipped across the country, but it can also apply to a tractor. This type of coverage is essential for many business owners and the best way to determine if you need it is to have a strong trusting relationship with your insurance agent and tell them everything about your daily operations.

Inland Marine CoverageNow many business owners have an initial reaction to being offered inland marine coverage. That reaction frequently is that this coverage does not apply to my business. In many cases a business owner feels their insurance agent is just trying to tack on an extra coverage. A coverage that they do not really need and in some cases, they might be correct. Again, if you have an insurance agent that you trust they should be able to explain this coverage and help you determine if it is right for you. Any agent worth their weight will not be mentioning a coverage that has no benefit to you the business owner. You might have a difference of opinion about what the risk is, but an agent should never recommend something you do not need.

The best way for an insurance agent to stay in business is to keep you the customer happy. Keeping you happy occurs by saving you money on your policy up front, but also in making sure you are fully covered when incidents do occur. This is where you may differ in opinion about the risks your business faces and about the amount of risk you as a business owner are willing to take. It is the job of the insurance agent to make you aware of these risks and offer the products for you to protect your business to the fullest.

Now I speak about this relationship with your agent, because Inland Marine Coverage is a specialized product in the insurance industry. It is very important for some business owners to have, but many business owners do not carry it and many do not understand how going without it puts their business at risks. First take the example of a construction business who has just a general liability and workers compensation policy. This is typically the bare minimum to get your business up and running. If your construction business is operating away from your business residence than all of your tools are not covered under your either of the policies you have in place. If you were to severely damage a tractor or some other type of expensive equipment than you are responsible for any repairs that might occur. Say you have an expensive piece of machinery that you cannot operate without. If you do not have cash on hand to repair or replace that piece of equipment what is your business going to do? If you have an Inland Marine Policy in place than you can replace that piece of equipment through your insurance policy.

Again having a good relationship with your agent and speaking honestly with them about your daily operations can go a long way towards determining whether you need Inland Marine Coverage. Having open and honest discussions with your agent allow you to determine what risks you have and how much risk you are willing to take as a business owner. The amount of risk a business owner is willing to take is different for every business. Your agent works with all types of business owners on a daily basis. If you are the type of owner who is willing to take on more risk, you should make that known to your agent. At the same time you should partner with an agent you trust and listen to them when they recommend some type of coverage. If they are the type of agent you should be doing business with than they will not be recommending something that is not in your best interest.

What is the Assigned Risk Provider?

The assigned risk provider is also frequently referred to as The State Fund or The Pool

Workers’ Compensation Insurance Coverage is required by law in nearly every state in the country. The basic purpose of the Workers’ Compensation Insurance is to provide wage replacement benefits and medical treatment for employees who have been injured on the job. Workers Comp prevents the employer from bearing the costs of injuries that occur during normal business operations.

Each state has their own method for how they go about determining rates on workers’ compensation class codes. Most states partner with the National Council on Compensation Insurance (NCCI) to determine rates for different class codes. Some states; like Indiana for example, have their own rating system administered by a government organization. Most use the basic guidelines of the NCCI system.

Every state also has a different way for how they go about setting up a provider of last resort for the employer’s of the state. This provider of last resort is also referred to as the assigned risk provider, the state fund or sometimes as the pool. This provider is designated as the provider of last resort for businesses who cannot find coverage through the open market. It is typically more expensive from this provider for a number of reasons.

Businesses that end up having to purchase coverage from the assigned risk provider, may not be able to find insurance coverage for a number of reasons. Lots of times it is because the business operates in a classification code that carries more risk than most carriers are willing to take. Sometimes it is because that business has had too many claims within a short period time. It also is frequently because the business just does not generate enough income for the amount of risk in their industry. States usually have a requirement that the business has to try to obtain coverage from a certain number of providers on the open market before they can apply to the assigned risk provider. Usually that number is two or three providers.

There are three main ways states go about providing employers with an assigned risk provider. Some states provide their own fund, some use NCCI and some have a partner carrier who guarantees coverage for employers who cannot find coverage on the open market. Typically states who have a strong assigned risk provider who competes with the open market enjoy the best rates on workers’ compensation insurance. There are different ways to provide this strong provider, but typically the stronger this provider is the lower the rates employers pay.

Utah is an example of a state who has its own fund. This fund is called the Workers’ Compensation Fund. This fund dominates 57 percent of the market and is the main reason Utah enjoys some of the lowest rates in the country for workers comp coverage. Colorado has a partnership with a company called Pinnacol. Pinnacol was begun around the time workers’ compensation became a requirement in the state. It was designed in partnership with the state government so there would always be someone guaranteeing coverage and competing to keep the rates reasonable for the employer’s of Colorado. Both of these states enjoy some of the lowest rates on Workers’ Compensation Insurance because of their strong Assigned Risk Providers. New York is an example of the other end of the spectrum. New York has its own state fund administered as a non profit agency. New York also has very difficult regulatory compliance regulations for workers comp. These regulations force many carriers to simply not offer coverage in the state. All of these factors combine to cause New York to have some of the highest workers compensation rates in the entire country.

So administering the state fund is left up to each individual state. Again there are three main ways the states go about doing this. Some handle it themselves, others partner with an outside carrier and some contract this service out to NCCI. All three ways can be effective ways to keep costs down for the employers of that state. The strength of these pools goes a long way towards determining what employers across the state pay for workers compensation coverage.

What is Artisan Contractors Insurance? 

Inside the insurance industry Artisan Contractors Insurance is commonly referred to as insurance for Artisan Contractors. What is an Artisan Contractor? That is a question many new business owners ask when applying for insurance the first time. These business owners frequently find out this is what classification their business is in. Artisan Contractors are a wide range of businesses that operate in different parts of the construction industry. Electricians, Plumbers and Painters are all included in this category.

Artisan Contractors Insurance for Electricians

Some common (NCCI) industry classification codes include:

  • 5191 Electricians
  • 5183 Plumbers
  • 5537 HVAC Contractors
  • 5221 Concrete Construction
  • 5474 Painters
  • 5437 Finishing Carpenters

They each have a similar, but different role within the construction industry and each type of work carries unique risks. From an insurers perspective they each carry their own risk and that is why they are separated into several separate class codes. Working with your insurance agent to make sure you are in the proper classification code can go a long way towards removing any headaches down the road relating to your commercial insurance policy.

Below are some common types of insurance recommended for Artisan Contractors Insurance:

 

General Liability

General Liability (GL) is typically the first line of insurance purchased by a business. GL is required by law in most states; additionally, businesses are often required to purchase coverage with most contracts for leases, loans, and work performed for others. GL exposures are primarily at the contractor’s office or shop and are generally limited due to lack of public access to the premises. Retail sales increase the possibility of customers slipping, falling, or tripping if customers visit office to view products.  Job-site exposures include potential injury to the client or damage to the client’s property. Tools, power cords, building materials and scrap material, use of saws and other power or hand tools are all potential risks.

Workers’ Compensation

Workers’ Compensation Insurance is a state mandated insurance coverage required by nearly every state in the country. The basic purpose of Workers’ Compensation Insurance is to assure that injured workers get medical care and compensation for a portion of the income they lose while they are unable to work.  Workers receive benefits regardless of who was at fault in the accident. Also, Workers’ Compensation Coverage prevents the employer from bearing the costs of injuries that occur during normal business operations.

Commercial Auto

Automobile exposures are generally limited to transporting workers, equipment and supplies to and from job sites. Hazards depend on the type and use of vehicles and radius of operation with the main hazards being upsets. Vehicles may have special modifications or built-in equipment such as lifts and hoists.  If employees utilize their own personal vehicles for work related tasks then Hired and Non-Owned Coverage should be purchased.

Hired and Non-Owned Auto 

Hired and non-owned auto insurance is commonly added (or endorsed) onto the commercial auto insurance policy. This endorsement adds additional coverages for the insured in the event there becomes a liability issue for their business for an automobile accident involving a vehicle they don’t directly insure. This coverage will pay for damages to a third party, on behalf of you the insured. This coverage kicks in if the business is held liable for an accident or injury caused by a vehicle they hired or a vehicle someone uses while performing work for a business. If you send an employee to run and errand on behalf of the business, your business is responsible for damages that occur.

Property Insurance

Commercial property insurance for business owners covers many types of losses and damages to a companies property. Property exposures are generally limited to those of an office, shop, and storage of materials, equipment, and vehicles.  Property insurance typically provides coverage for events like fire, smoke, wind, hail and vandalism. Policies often have included or excluded coverages. Some natural disasters like earthquake or hail, may have separate deductibles.

Inland Marine

Inland marine exposures include contractors’ tools and equipment, including ladders and scaffolding, hoists, and portable welders, the transport of materials, and installation floater. Goods in transit consists of tools and equipment as well as products purchased by the customer for installation at the job site.