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Small business insurance supplemental coverages can provide automatic protection for newly acquired buildings and/or contents. Every carrier has different limits for this this newly acquired property. It is a marketing ploy for the carriers to differentiate their products from others. The limits for newly acquired buildings can range anywhere from $100,000 to usually not more than $1 million for automatic coverage. There is usually a timeframe for the newly acquired properties with the most common timeframe being 90 days of automatic coverage. Some carriers try and make their contracts unique by extending that up to six months or even a year.

Almost all polices do not ask extend any coverage for newly acquired buildings or contents pass the policy expiration date. So, if you purchase a new building on January 1st and your policy renews on February 1st, the usual 90 day automatic extension of coverage will not be extended into another policy term. If the policy renewal date is not a problem, you will have a problem if at the end of the automatic newly acquired property time limit expires; you will have no more coverage.  You need to report and declare the values for the new property before the automatic time period ends.  Clearly the definition of newly acquired buildings and contents can be murky waters because escrows, real estate transactions, and possessing the property can all be at different times and dates.

Another supplemental coverage that is sometimes included but most of the time not included automatically is that of ordinance or law coverage. Building ordinance or law coverage helps protect you as the insured from regulations that are mandated by Federal, State, County or local governments or government entities.

Usually these types of laws and regulations have to do with two types of areas of law after a substantial loss. If there is a loss to the building and it is more than 30% damage to the building, most ordinance laws come into the mix. The ordinance or law might require that if the building is damaged more than 30% that you demolish the entire building. The percentage such as 30% damage to the building or whatever percentage the ordinance uses to trigger its enforcement can also require that any repair or rebuilding has to include the most current building code requirements.

While you might have coverage to replace and repair the damages to the building, but if you do not have building ordinance or law coverage you will not have the extra costs involved in replacing up to current standards as required by law. Sometimes the building that you have the insurance on might have been grandfathered in because of the age of the building with regards to local building codes. Once you sustained a substantial loss, usually 30% that will allow the government entity the ability to enforce its current building code regulations and laws. This coverage, while not as obvious as the dollar amount listed for the limit of your building property coverage, can be a substantial part of your overall protection.

 

Small business insurance supplemental coverages are additional protections that are applicable if there is a covered loss. Many insurance carriers have special property enhanced endorsements which expands greatly the coverages above and beyond the basic property insurance forms. The supplemental coverages are additional protections that are usually helpful in adjudicating losses for the insured. They’re not so much added benefits as they are helping to smooth the claims process to its completion.

As an example, if a church was maliciously burned to the ground and was destroyed due to arson many times it a typical supplemental coverage would be an arson reward coverage. The amount can range from $5,000 reward leading to conviction or possibly up to $50,000 for an arson reward for conviction of the arsonist. While this particular supplemental coverage does not directly benefit the named insured it does help the insurance company in possibly finding the culprit and getting some of their money back for the losses the insurance company has paid for.

Depending on your type of business just determining how to determine the values can be a daunting task. Therefore most property policies have a provision to provide an additional coverage expense of paying for inventory appraisals to determine the appraised amount of the loss.  The insurance carrier will typically pay for the appraisal but if the insured and the carrier disagree on the amount there is a mechanism within the policy to choose an umpire.

Depending on your location in United States the next supplemental coverage may or may not be of value to you. If you suffer a major loss to your building structure your foundation may also be damaged.  There usually is no coverage for foundations and underground infrastructure for property policies.  In certain parts of the country basements, underground parking, etc. can be a large cost item. So while most of the infrastructure belowground typically is not damaged much when there is a fire aboveground there can be a problem with getting a municipality building permit without also redoing the foundation (which usually is not a covered loss).

The amount for foundations and underground infrastructure varies by carrier but usually this supplement amount can be from a few thousand dollars in coverage up to $500,000.

Depending on your type of industry your inventory and products may or may not be heavily regulated. If your inventory and products are damaged there might be regulations and laws that determine what type of branding, labeling or notices that must be given to clients of these damaged goods or partially damaged goods. Almost always, there is no insurance protection for this unless you have additional coverage or increase the sub limits. Reviewing your sub limits of coverages and analyzing whether or not you need to increase your protection is a prudent thing to do as a small business owner.

 

Small business insurance typically excludes certain perils within the insurance policy. While the exclusions vary by carrier many of these exclusions are very typical in property insurance policies. It would be prudent to know what types perils are usually excluded so that when you do your market analysis for proposals you can be better informed in making your decisions.

 An exclusion that is in every insurance policy unless you buy back the coverage is earthquake, earth movement and/or volcanic eruption coverages. Some parts of the country, such as Florida have sinkhole issues and losses to deal with. Many times sinkholes are included under the earth movement exclusions. Some policies have specific sinkhole exclusions. You need to read the definition of what is earth movement is in order to be certain. It is very common for the insurance carriers to have very broad definitions with regards to earth movement. You can exclude or cover such things as mudslides, landslides, sinkholes, shifting plates of the earth, water runoff et cetera.

The next big exclusion that is in almost all policies is flood. It can be surface waters, rising bodies of waters from rivers, streams, lakes, and/or oceans. Tsunamis that are more wind driven or earthquake driven are typically also excluded under the flood definition. Many times the flood definition expands what types of water losses are not covered. Sometimes below ground swimming pools that burst or leak and create a flood into abasement etc. would not be covered. Water that backs up to the sewers, pipes and drains and then ends up flooding the building are typically not covered and is excluded.

 Riots and civil commotion and the damage done by the offending parties and/or the authorities responding to their civil duty usually are not covered. When authorities block off or close streets because of a riot or commotion the damages from lack of clients to your business is excluded. If there was a fire or something and the civil authorities’ shutdown your place of business for protection from a covered peril sometimes that would be covered under your policy because a fire would be a covered peril.  Loss to power and your utilities such as your electricity, gas, telephone system, lighting etc. is usually excluded under your property policy.

 You can usually buy business interruption, power interruption coverages from your insurance carrier. In almost all cases there is usually a waiting period for this type of coverage to take effect. The most common waiting period is 72 hours. Most utility services are usually up and running within 72 hours. Therefore the coverage is mainly designed for catastrophic events where you are out of business and it has been interrupted for more than 72 hours. These are some of the most common exclusions found in all property insurance policies for businesses.

 

All insurance policies are organized by sections and no matter which insurance company you’ll use there are many similarities in the contract provisions. Knowing what the sections are and what they typically are describing will help you in quickly getting the information you need from these contracts which can sometimes exceed 100 pages.

The first section is usually that of the declarations page or pages. These pages declare exactly the name, address, amounts of coverage, and limits that the insurance carrier is providing for you. It is basically a brief summary that highlights the main components of the risk that the insurance carrier is providing coverage for.

Usually the insuring agreement section follows next. This is the contractual legal verbiage that connects the insurance carrier and you as the insured into a binding legal contractual agreement. The two most common forms of insuring agreements are whereby the carrier agrees to pay on behalf of the insured or whereby the carrier agrees to indemnify the insured for covered claims and losses.

There is always a section regarding definitions of words, terms, and clauses. Most of these definitions and terms have been adjudicated in the court systems throughout the United States and the courts have already determined based upon case law what these definitions mean in an insurance contract.

There’s always an exclusions provision section which details the coverages and claims that the insurance carrier does not desire to provide coverage for. While there are generic exclusions that are almost always included in every insurance contract, depending upon your classification of your business there might be specific exclusions for your industry that they carrier in imposes upon you.

The conditions section is also a part of the insurance contract. The conditions usually has to do with the duties of the insurance carrier and the duties of the insured as to what you were required to do before during and after a claim.

Sometimes there is a specific premium section provision page that outlines how the premiums are promulgated. Some carriers are very transparent and there rates in premiums whereas most of the carriers do not clearly defined how the premiums are determined except in a generic sense.

Towards the end of the insurance policy there are categories for special endorsements or manuscript forms that are included within the contract. These are special provisions in verbiage based upon your unique business.

Finally there’s always some kind of miscellaneous provisions section where everything that does not fit cleanly into one of the other categories listed above can be categorized. By having a familiarity of how an insurance contract is laid out can help you when you are searching for specific information within your contract or when comparing other insurance proposals and their specific contracts.

There are alternative risk management techniques that an organization can use in confronting their exposures to risk of loss. Self-insurance is one of those alternative risk management techniques that can be used. Basically this is where the organization retains the risk themselves versus transferring the risk.

The retention that the organization retains can be planned or unplanned depending upon the exposures to loss. While these plans can result in reduced cost of risk, there are risk management services that must now be provided internally versus through the transfer process. An organization that goes the self-insured route must provide lost control and engineering services. Along those lines would also entail inspections, surveys and safety audits. Claims handling, claims payments, and auditing the entire claims process would also be of service that the organization would have to take on in order to be self-insured. Finally, the funding to pay for the retention losses that need to be paid needs to be adequately funded.

There are advantages and disadvantages of going to the self-insured route with regards to insuring your exposures to loss.

• An organization typically will see their cost of insuring their risk via self-insuring, is lower and improves the cash flow but if there are catastrophic losses it very well could put the organization in a financial bind.
• A self-insured organization that must now take on the loss control and engineering services may find renewed interest in safety, loss prevention, and loss reduction attitudes within the organization.
• That renewed safety interest can be very positive and have a great effect on the company but it also takes a great deal of time, effort and resources to put those services in place.
• Doing risk management services internally can distract from the core focus and mission of the organization.
• If the organization is too small they might not have the expertise to manage and run this type of alternative risk management strategy.
• One way to deal with all these added services that must be maintained in a self-insured program would be to outsource them. You could have a third party administrator (TPA), that could administer and/or perform all services that are needed for this program.

The bottom line is that if all things are equal, what the organization is saving by going to a self-insured plan versus a fully insured plan is that they are not paying for the insurance carriers profits nor for any commissions that are payable in that transaction. It varies from industry to industry and from carrier to carrier but typically you’re looking at about 25 basis points, or 25%, that represents the carriers profit and/or any commissions that are paid. One of the main points to keep in mind is that by the time you internalize all these processes, services, and administration systems that need to be in place for self-insured program if you’re not realizing the 25% savings you might be better off staying in a fully insured program. In a fully insured program all of the claims, auditing, actuarial accounting, audit team, lost control, etc. services are included within the insurance premium for no additional charge. There are also tax ramifications in a self-insured program. Payments for insurance premiums are tax deductible as they are paid whereas self-insured plans are not tax-deductible until a loss or claim is paid. Many things need to be considered before the organization jumps from a fully insured program to a self-insured program.

Liability
insurance
is the foundational insurance policy for every small business
owner. Most business owners are primarily concerned with protecting their
assets from fire theft vandalism etc… Liability insurance will directly and
indirectly protect these assets as well as most all of your assets from losses
from lawsuits and claims. The commercial general liability insurance policy is
typically the name of the type of insurance policy used countrywide for both
large and small businesses.

 

Sometimes this coverage can be within a package to policy
which covers liability, property, loss of income coverage, Worker’s
Compensation, and other coverage. This policy can also be written standalone,
meaning it can be the only coverage that you purchased. Specifically this
policy covers you and your business from bodily injury and property damage
claims from third persons. These claims must be of an accidental nature and not
intentional, as intentional acts are not covered. At a bare minimum this policy
will cover your liability claims for premises only. This is very basic coverage
and is usually not in your best interest to have premises only liability
coverage. It is much more prudent to also expand the coverage for your products
and/or completed operations exposures. These latter coverage can be on or off
premises depending on the services that you are providing and the products that
you are selling. If the industry that you are in tends to be more of a high
risk industry from an insurance underwriting standpoint, many times the
underwriter will only issue a liability policy for premises only. While this is
better than nothing, it will more often than not leave gaping holes in your
insurance coverage.

 

Typically the liability
insurance
policy is written with an occurrence limit of let’s say $1
million and an aggregate limit of $2 million. Usually whatever limit you pick
for the occurrence is doubled for the aggregate limit. Underwriters will
sometimes issue your policy with the same occurrence limit as you have for the
aggregate limit. The danger in doing that is that if you have one dollar of
claims paid out you will no longer have the million dollar coverage. The
aggregate limit represents the total amount of coverage that is available in
your policy year. Any claims that are paid out during that year reduce the
aggregate. So if your aggregate limit is the same as your occurrence limit any
claims that are paid start reducing not just your aggregate limit but also your
occurrence limit. This can cause havoc with your certificate holders as if you
have any agreements promised to have certain insurance limits they will be
reduced if you have any claims paid. Liability insurance is just the start of
building your insurance portfolio. It is the primary building block for
crafting a comprehensive and complete insurance portfolio for your small
business. There are many enhancements and additional coverage that can be
added to this policy as appropriate for your exposures to loss. We have further
articles explaining these enhanced coverage on our website.

It is important to be clear and concise as to exactly what you are trying to build within your insurance portfolio. There are many venues in facilitating effective communications with your insurance broker. The traditional brick and mortar approach is that of face-to-face meetings. While this is by far the most popular mode of communicating your insurance needs and desires they can also be the most time-consuming and least effective.

Dialing for quotes on the telephone is probably the second most popular way about obtaining proposals for your general liability insurance. This too can be time consuming and a lot of effort that has to be put into it to coordinate the calls callbacks and the passing of information.

Another communication tool that you might consider in your toolbox is that of communicating your insurance needs and desires via the Internet. If you can hook up with an insurance broker on the Internet that has specific templates for you to complete that can quickly return accurate proposals to you that can be a tremendous timesaver as well as put money back into your pocket. What tends to happen in face-to-face meetings and in telephone conversations is that the communication is usually random and not focused and organized to get the job done. A   commercial insurance proposal website that is template driven and user-friendly takes the subjectivity and randomness out of the communication. Since you as the business owner are in putting in the data you know very clearly and accurately what you need and want. There is less chance for error if you are inputting the data versus trusting somebody on the other side of the conversation to accurately transcribe your conversation. Once you have a detailed proposal in writing, then would be the appropriate time to have telephone conversations with the broker fine-tuning the proposal. Although if you’re dealing with a responsive Internet insurance broker this can easily be done via e-mails versus telephone conversations. Probably one of the biggest advantages of procuring your insurance over the Internet is that you can do it on your time and not at the whims of some broker’s timetable. So as you are considering going out into the marketplace and obtaining insurance proposals, it would behoove you to expand your   communication toolbox to also encompass an Internet commercial insurance quote.

Once you have decided to expand your search to the Internet it will make your search much easier if you have in mind what type of Internet broker you’re looking for. Almost all of the brick-and-mortar insurance brokers have a presence on the web. That does not mean that they are an Internet broker and have the expertise in doing business electronically solely over the Internet. Seeking out an Internet broker that is fastsecure… and easy in the insurance quoting process will probably suit most small business owners. So as you decide to add other communication tools into your insurance quoting toolbox having specific goals as to what kind of Internet broker you’re looking for will make the process very smooth and very profitable for you.

Almost every business no matter the size should have the appropriate business insurance in place. While the cost of insurance and the breath of coverage of insurance can vary depending on your company size, the basics of procuring insurance are pretty standard across the board.

Usually the foundational pillars for business insurance would be that of providing coverage for   liability, loss of income, property, and protecting your employees. The small business owner might only need the liability coverage if they have a home based business. When you go into the marketplace to solicit your business insurance quote you might as well address the four pillars of insurance upfront so that you can plan your budget accordingly. If you decide that you only need the one pillar of liability insurance you at least know the cost for the other basics of insurance as your business expands in the future.

One of the many caveats in procuring business insurance is that you should not assume that the broker understands the nuances of your industry and/or your specific business. Many small business owners are under the incorrect assumption that by not disclosing all of their exposures that they will have coverage for those exposures in the future. It is generally true that the less exposures your company has the premium will be less; it will not necessarily be in your best interest to fail to disclose all of those exposures. Failure to disclose and/or to conceal those exposures could void your contract or at the minimum not provide the coverage that you are seeking in the future. Identifying all of your exposures to risk within the four insurance pillars of liability, property, loss of income and protecting your employees is tantamount in crafting the proper business insurance quote for your company.

As we indicated at the beginning of this article while premiums and coverage can vary greatly for small and large businesses that procuring the insurance is basically the same process for all size companies. If you are a small business owner, resist the urge to only get a general liability insurance quote. Getting quotes for the four main areas of insurance exposures might protect the entirety of your assets in the long run. If you start out with a more complete insurance portfolio proposal, you can always pair down the coverage for just the general liability coverage. There are at least two advantages of getting a broader insurance portfolio proposal in the beginning. The first advantage is that it helps you as the owner think about what you’re putting at risk by not insuring all aspects of your business. The second advantage of getting a broader proposal is that it will force your broker to assess the totality of your exposures and place your coverage with the appropriate carrier. This can pay big dividends for you in the future because if you’re placed with the wrong carrier in the beginning, and as you expand, the carrier might not be able to expand with you in your growth. Knowing the process can help you obtain the best possible premiums for your business.

Having an effective risk control or better known as lost control program in place can help you get the best small business insurance pricing in the marketplace. The goal of risk control and/or lost control is simply to reduce and/or eliminate the frequency and severity of claims and losses the company might be facing. Sometimes small business insurance packages include underwriting requirements that demand that frequency and severity exposures are under control. This can take on many forms such as requiring the insured to have safety devices in place, safety plans formally written and in place and a follow-up claims inspection review process in place. When seeking to provide lost control programs in place engineering designs must be at the forefront in designing a safe work environment. The implementation of safe workflow procedures requires comprehensive education of all employees that are involved in the operations. Identifying the hazards and increased liability conditions is the first step.

Management at all levels must be involved in the loss control process.

Once the typical hazards are identified within an organization, communicating those hazards to operators and employees is crucial to loss control safety. Reviewing and analyzing past claims and lost history for your company and for other companies within your industry can be helpful in identifying industry norms. The communication process in the loss control plan must flow both from the top and from the bottom to top of an organization. If upper management does not take suggestions, comments and/or complaints from front line workers, the lost control plan is doomed at the get-go. Even though small business insurance packages tend not to be complex contracts it is still important to have a behind-the-scenes risk control loss prevention plan in place where appropriate for your business and industry. Motivating both upper management middle management and the frontline workers can and will be your biggest challenge. Besides the identification of the hazards to potential losses and having a plan to deal with those potential losses, the follow-up to any and all claims also needs to be a part of the risk control plan.

In order for you to receive the most competitive price for your best small business insurance portfolio, the formal, detailed risk control plan must be in place. Submitting this document along with your application will ensure the best pricing available for you. Before an insurance company releases a price for a new small business insurance potential client, the underwriter most certainly will be looking for lost control systems that are in place before they will give their best pricing.

In summary some of the key risk control characteristics that we have looked at include: engineered design operations and workflows for safety; education for management and employees at all levels with regards to the risk control plan; effective communication systems in place that allow information to flow from top to bottom and bottom to top within the organization. Finally, motivating all people within the organization to follow through on the risk control plan is essential.

There was an interesting article in the Harvard business review about stress testing in the financial sector. The article’s main point was that stress testing is going to spread into many other industries besides financial services. That made me think about the average small-business owners commercial general liability insurance coverage as to whether or not it could stand a stress test. Small business insurance packages are just that, template packages. The general liability insurance coverage that you purchase may or may not respond to the stress of a claim. The insight for today is to do some worst case scenarios to stress your current insurance portfolio to see if they can withstand a major claim.

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