Understanding Business Insurance

Think of insurance as preparing for the inevitable.

In the business arena, as in life, we all face some type of risk at virtually every turn. We all hope our exposure to risk is minimal, but having the appropriate form of insurance protection and an adequate level of coverage in place to mitigate risk is essential. And not just because your bank or your clients demand it.

For a small or medium-sized business, not being protected for uncovered losses could mean the difference between survival and failure.

Most small business owners think first of the basics: general liability insurance to protect against bodily injury or property damage claims to a third party; property insurance to protect business assets against loss from fire, theft, vandalism, and the like; commercial auto insurance for the company’s fleet of vehicles; workers’ compensation in case an employee is injured on the job; and maybe professional liability insurance (also known as errors and omissions insurance) to protect against claims of failure or improperly rendering professional services.

Most of these protections are typically included in a business owner’s policy (BOP), which often packages the required coverages a business owner would most often need.

Business interruption insurance might also be essential, for example, in the case of a restaurant that has a kitchen fire and needs to close for weeks or longer before reopening. Property and casualty insurance will likely help rebuild the physical plant, but the loss of cash flow can be devastating for the business owner and for the employees that staff the business. Business interruption insurance is designed to help compensate a business for lost income during such a catastrophic event..

“Many small businesses have a unique set of risk exposures that larger businesses don’t always have,” said W. Jeffrey Helm, president and founder of Atlantic Advisors Insurance Agency, Inc., in Norwell. “Often the small business owner is the one who is emptying the waste baskets and booting up the computers in the morning, as well as making sales calls and strategic operating decisions.

“What happens if this key player gets injured or falls ill? The company may not yet have a lot of savings in the bank, nor access to a large line of credit. Having disability coverage, for example, or business overhead expense insurance can help provide a temporary income stream so that the business continues to operate and meet its financial obligations.” 

Apart from basic coverages, the insurance needs of many businesses will be unique to their particular products or services. For example:

A retail store or some other business that accepts credit cards from its customers could find itself in danger of succumbing to a data breach, where sensitive or non-public information about customers or employees could be compromised. The financial liability of such a breach could be substantial, not to mention the potential damage to a business’ reputation. Data breach coverage can provide protection against financial losses.

A small to medium-sized manufacturing company may be exposed to financial loss if one of its key suppliers closes down or temporarily suspends operations. The effects on the manufacturer could be serious in such an event, potentially causing the company to breach contracts with its customers, pay penalties as a result, miss loan payments, or otherwise interrupt normal business. In such an instance, contingent business interruption insurance could help the manufacturer avoid major hassles.

A restaurant is going to have additional types of risk exposures, particularly with regard to protecting against the possibility of a patron becoming ill on site or being over-served at the bar.

Having the appropriate coverages in place can be critical to a business’ success. As important, if not more so, according to Helms, is establishing a relationship with an insurance professional who can help guide business owners through the process of analyzing the potential risks their enterprise might face and outline the coverages that could help mitigate them.

Helms said this relationship is equally as important to business owners as the ones they have with any other trusted advisors. “As an independent agency, our firm is focused primarily on finding value for our clients,” Helm said. “We work with them to determine what kinds of coverages they need and what they can afford and we design plans that make sense for the business owner.”

Here are steps to consider when weighing your business insurance needs:

Types of coverage and companies are not the only things to evaluate when making insurance decisions. The National Association of Insurance Commissioners (NAIC) advises insurance buyers to first brush up on their understanding of the terms used and the variety of coverage in different types of insurance.

Many of the major, multiple-line insurers around the country have useful online tools for analyzing potential risks and considering coverage options. Some of these large insurance companies also have online tutorials on risk management. The Hartford, for instance, provides what it calls a “Business Owners’ Playbook,” that helps readers through a self-guided set of scenarios to help them get started with the insurance planning process. Liberty Mutual, Travelers, Nationwide and many others have similar tools to jump-start the process. 

How do you evaluate whom to select? Referrals from trusted advisors are a good starting point, said the NAIC. The Insurance Information Institute (III) also recommends other ideas, such as connecting with local trade organizations or chambers of commerce for guidance. As counterintuitive as it may sound, Atlantic Advisors’ Jeff Helm even suggests checking with your company’s competitors to see who handles their insurance needs. 

Once you settle on a small group of potential candidates, there are a number of additional factors you’ll want to consider before making a final choice: experience level, licensing, and industry certifications, to name a few. Not least among these factors is personal chemistry and trust. “A business owner’s relationship with his or her insurance professional should be as intimate as the one they have with their attorney or their accountant or their financial advisor,” Helm said.

There are numerous ways to buy insurance in today’s world. You can go online or call a toll-free number, as many potential buyers see advertised on television. You can also buy directly from an individual company’s “captive” agent, work through an independent agent that may represent various insurance companies, or choose an insurance broker, whose function is to represent the insurance buyer and seek coverage from individual companies. 

Typically, the more complex the risk profile and coverage needs, the more consideration a buyer should give to working with an agent or broker. According to III, insurance professionals may be better equipped to review and analyze a company’s needs and then customize an insurance package to fit the company.