Business Insurance: Where Not to Cut Corners
As business insurance premium prices increase and coverage becomes harder to obtain, you may be tempted to go with the least expensive option. While there are certainly things you should explore to control costs, there are some areas in your commercial insurance and risk management program that you don’t want to skimp on.
Considerations of where not to cut corners include:
Selecting Coverage Based on Price
Premiums can vary among insurers so it is certainly wise to shop around. But don’t make your decision based on price alone. There could be exclusions or limits that leave you exposed to greater risk. Make sure you understand what the policy includes and excludes before making a selection. Your broker can help make sure you have appropriate coverage at the most affordable price.
Failing to Have Adequate Property Limits
Limits are the most the insurer will pay if your building and its contents are destroyed by an insured peril. It’s important to make sure they are set high enough to cover actual losses. If the cost to repair or replace damaged property exceeds the limit, you won’t receive coverage for the full cost of the loss, leaving you to pay the difference.
Setting Liability Limits Too Low
Each line of coverage has a liability limit. These limits are the maximum dollar amount of damages an insurer will pay per claim, as well as total (aggregate). You can’t predict the amount of damages that may be awarded, so ensuring you have adequate limits is crucial. Your limits can also impact your ability to obtain contracts, appropriate permits, hold an event or perform other work.
Neglecting to Cover All Auto Liability
Your business may use vehicles it doesn’t own in the course of doing business. This could be rental vehicles (hired) or employee vehicles (non-owned). If an accident occurs when using these vehicles for business purposes, you are liable. Make sure your insurance policy includes hired and non-owned auto liability to help cover the costs for property damage and bodily injuries caused by you or your employees while driving for work.
Lacking Appropriate Coverage
There are several lines of coverage your business may need, depending on your scope of operations. Some of these are cyber, business income, directors & officers, and employment practices liability. Based on your business needs, obtaining some or all of these coverages may be a necessity.
- Pivoting to a remote work structure increased cybersecurity risk, including an uptick in social engineering attacks such as phishing and tailgating. If your business handles any personal information, it could be liable if there is a breach. You can transfer some cyber risk by purchasing cyber liability insurance. This insurance provides coverage if sensitive client or employee information is compromised, including the notification requirements costs.
- If your business operations are interrupted by damage to real property by a covered peril (fire, wind, etc.), business income insurance will cover lost profits, plus continuing expenses your business incurs. There are specific exclusions, such as closures caused by damages that are not covered (pandemics, flood, earthquake, etc.).
- Understand whether or not your business needs flood protection. It can cover buildings, the contents in a building or both. Floods are the most common disaster. Even if your business is not in a high-risk area, it can still be damaged by flooding.
- The economic slowdown due to the pandemic strained many businesses, causing increased shareholder claims. So ensuring you have adequately protected boards and management teams with Directors and Officers (D&O) coverage is critical. D&O liability provides coverage for officers and board members for damages (settlements or awards) and defense costs that arise from lawsuits alleging various wrongful acts.
- Employment Practices Liability Insurance (EPLI) claims are also increasing, making it important to carry EPLI insurance. Even organizations with good loss history and risk profiles are likely to experience premium rate hikes 3 to 5 times higher. EPLI protects companies by insuring the company, directors, officers and employees for actual or alleged employment wrongful acts, such as harassment, wage and hour law violations, wrongful terminations, and more.
In light of today’s market, there are a lot of things to consider in your next insurance renewal. Your organization should prepare early to ensure there is adequate time to evaluate options and make decisions. Our team can also assist with additional questions or concerns that your business may have about its insurance renewal.