Some days, your business is like the proverbial perpetual-motion machine, seemingly running on its own. Other times, it’s like a crowded schoolyard at recess—so much to keep track of, and so much that can get out of hand.
But it’s rare that one can prevent every mishap in a crowded schoolyard. And no business owner—not even the most vigilant and insightful—can prevent those occurrences that may result in costly legal fees or negative public relations, which have the potential to slow down, hamper, or fully disrupt your business.
The following is just a sampling of events that can occur in almost any business—along with a list of the types of insurance that can help protect your business against the consequences of those events.
Please note that all insurance coverage is subject to the terms, conditions, and exclusions of the applicable individual policies. Marsh cannot provide any assurance that insurance can be obtained for any particular client or for any particular risk.
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Occurrence
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Business Consequences
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How to
Protect Yourself
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| Slip and fall by customer |
Company sued for negligence
Legal expenses |
Liability Insurance
Pays legal expenses
Assists in legal action
Pays amounts for which you are found liable |
| Slip and fall by employee |
Company sued for negligence
Legal expenses |
Employers Liability Insurance
Pays legal expenses
Assists in legal action
Pays amounts for which you are found liable |
| Customer injured/ dies using your product/service |
Bad public relations
Company sued for negligence
Legal expenses |
Product Liability Insurance
Pays legal expenses
Assists in legal action
Pays amounts for which you are found liable |
| Property/inventory damage due to natural disaster |
Loss of use of facilities
Loss of income
Loss of buildings and business property |
Property Insurance
Business Interruption Insurance
Pay some/all repair and replacement costs
Covers loss of income |
| Accused of pollution |
Bad public relations
Legal costs |
Pollution Liability Insurance
Pays legal expenses
Assists in legal action
Pays amounts for which you are found liable |
| Employee injured/killed on the job |
Company sued for negligence
Legal expenses |
Workers Compensation Insurance
(Mandatory in most states)
Compensates employee based on existing statute, which often precludes legal action by employee |
| Employee on the job causes accident resulting in injury/death or damage |
Company sued for negligence
Employee is sued for negligence |
Liability Insurance
Pays legal expenses
Assists in legal action
Pays employee defense costs
Pays amounts for which you are found liable |
| Employee steals from your business |
Loss of stolen items |
Employee Dishonesty Insurance
Pays the cost of replacing stolen items |
| Non-employee intentionally damages your business property |
Property loss
Possible business interruption |
Property Insurance
Pays for property loss
Pays for business interruption |
| Allegations of sexual harassment by employee |
Bad public relations
Legal expenses |
Employment Practices Liability Insurance
Pays legal expenses |
| Ongoing business expenses during recovery period after an insured loss |
Must cover expenses despite no revenue |
Business Interruption Insurance
Pays these expenses |
No one insurance plan can cover all the eventualities that may significantly impair or even destroy your business. It may take a lot of legwork to find the insurers that meet all your needs. You should be sure to:
ASSESS your most critical needs and decide which general insurance category they fall into (property, liability, etc.).
DETERMINE which companies provide the types of insurance you need. Some specialize in certain types of insurance but may not provide others. A number of companies claim to be business insurance specialists, but remember: Your business is different, and it has unique requirements.
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Advantages |
Disadvantages |
| One Company |
Minimum or one contact
One place to file a claim
One person familiar with all your needs |
May not provide all the insurance you need
Can arbitrarily set rates
Beholden to its rules |
| Many Companies |
Specialists for insurance you need
Competition |
Too many contacts
Different procedures |
COMPARISON SHOP: Which company provides the insurance your business needs at a price you can afford? Every company’s offerings are different, so be prepared to ask a lot of questions and deal with a number of different agents.
An insurer contracts with you to provide you the cash (after stated deductible) to make up for losses that threaten your business. This service is provided in exchange for a fee called a premium. The policy provides the details of what the insurer covers and any exclusions to that coverage. As your business conditions dictate, elements of coverage may change. These changes are reflected in endorsements to your policy.
To do business in your state, an insurer must be licensed by that state. Generally, companies that insure businesses are licensed to operate in most, if not all, states. No insurer can sell a policy in a state in which it is not licensed. In addition, not all services an insurer offers are available in every state.
Insurers may specialize in types of insurance, such as business or commercial insurance or homeowners insurance, or may be large enough to provide them all. Generally, you will want to do business with a provider that has a good track record in insuring your type of business.
While most providers insure most standard business perils, new risks associated with new types of businesses (hi-tech, for example) may not have become mainstream enough for those providers. Other providers might insure a certain peril for a large business, but may not insure the same peril for a smaller business. If they do, it may cost you more.
Your business may have particular coverage needs, but it’s likely that some needs are common to owners of similar businesses. A customized insurance package called program business can identify perils common to a particular industry, such as bed-and-breakfasts or bicycle shops, and be offered to owners of those businesses. In this way, the business owners can be grouped into a risk pool, which can lower their costs of being insured. This type of coverage may not be available from every type of insurance provider.
Because such program business frequently involves products and services from more than one insurer, a program administrator usually is called upon to manage it. Generally, this licensed entity performs the administrative details an insurance provider would handle, including providing insurance quotes, taking care of premium billing and collection, and advocating on behalf of the insured, as well as other functions. Experienced program administrators may be large companies that have worked with many insurance providers over the years.
Insurance representatives are licensed to sell you coverage on behalf of an insurance provider. They must be licensed in the states in which they do business. Most states and most insurers require representatives to undergo a certification process before they are allowed to operate. This process and its requirements vary by state. Don’t be afraid to ask your prospective representative about his or her particular certification.
An insurance agent represents an insurance provider. He or she may be directly employed by a particular company, or may work alone and be able to procure insurance from a number of companies. There are several different types of agents.
Captive agents: These agents (also known as direct writers) work exclusively for a single insurance provider and receive either a salary or wage from that provider, a commission from that provider for each policy sold, or both. Buying from this type of representative has been compared to buying from a manufacturer’s outlet store, since you are purchasing directly from the company that originated the plan.
Main Advantage: The cost may be lower, since you’re eliminating the middleman.
Main Disadvantage: You as a business owner must do the legwork, including shopping around for the right insurer and fit for your unique needs.
Independent Agents: These representatives often work with a limited number of insurers based on which insurers “appoint” them. In turn, they represent those insurers and are usually compensated by those insurers via commissions and contingent income, which is based on their business volume or profitability. Some agents deal with a variety of coverages, both residential and business. Others specialize only in business coverage.
Main Advantage: Generally offer a variety of plans from a variety of insurers and can compare them for you.
Main Disadvantage: While independent agents have more coverage and insurer options than a direct writer, their options are still limited.
Brokers represent the business entity or individual in the insurance transaction and, for the most part, are not “appointed” by the companies with which they work. However, brokers are not tied to the insurers. Their income is derived through fees they charge their clients, or commissions from the insurer, and sometimes a combination of the two. A well-established broker, like a well-established financial advisor, should be able to have access to a network of representatives in the insurance industry as well as other business support services.
Main Advantage: The flexibility in insurer options is substantially greater.
Main Disadvantage: Access by brokers and their firms to companies and brokers’ knowledge of the business is dependent upon the companies’ and brokers’ experience, size, and institutional resources.
In today’s world, you can enjoy access to an insurance agent from any location—via phone, Internet, fax, or videoconferencing, as well as the traditional Main Street location.
However you interface with your insurance representative, above all, you should be confident this person can enable your business to continue in the event of a catastrophe. You should be sure this person has a firm grasp on the nature of your business and its insurance needs.
A good representative may ask you to fill out a questionnaire specifying your business property, inventory, employees, and financial situation. The more thorough this questionnaire, the better. Before an insurance representative can serve you, he or she must understand your business needs.
After a representative has had a chance to learn about your business, you should schedule a follow-up discussion. Make sure that he or she speaks in plain language with a minimum of jargon. You and your prospective insurance representative should be prepared to discuss these questions:
What types of insurance do you provide?
The best agents or brokers will provide an array of plans and services. Beware of a candidate who keeps coming back with options from a single source.
What is my cost?
Seldom will you be able to secure the perfect insurance package. You and your agent or broker should strive to put together the insurance package that meets your needs at a competitive price.
What are my payment options?
Your business insurance may well be one of your largest expenses. A good representative will work with you to develop payment arrangements that are matched to your cash flow. Flexibility is one key you should look for in seeking out an insurance representative.
Does your insurance expressly cover _______________?
Only you know what can uniquely go wrong with your business, no matter how bizarre. Don’t be afraid to broach these concerns.
What can I expect from you after I place my order?
A good representative will be proactive in monitoring your coverage continuously throughout the term of your policy. This includes making sure the insurer you have been placed with maintains the market security standards as defined by A.M. Best ratings of A- or above. Should your insurer fall below these standards, your coverage should be moved to another provider so that your assets are covered by a financially solvent insurer.
What will you earn from