Submitted by Schmersahl Treloar & Co
Insurance can be complicated, and reading every word of an insurance contract could leave you comatose. That’s where the expertise of insurance professionals comes into play.
A seasoned advisor who understands the risk profile of your business will be invaluable. Before you choose a representative, however, you should know how an insurance agent differs from an insurance broker.
Both agents and brokers connect insurance sellers with insurance buyers. And they are both compensated by sales commissions. The difference is that an agent, by contract, represents the insurance company. In fact, “captive” agents represent only one insurance company, while a broker technically represents the insurance buyer.
That doesn’t mean an agent can’t do a good job for you. Only a short-sighted agent would make recommendations that would harm his or her clients. Still, the distinction is important to keep in mind, since not everybody who’s selling something is looking at the long term. Also, brokers tend to handle more complex insurance needs, and act more as consultants to help businesses assess their risks and how to manage them.
Here’s a rundown of types of insurance you should consider.
Apart from the realm of employee benefits, (which is outside the scope of this article) the most basic kind of insurance is general liability. It covers things like claims for bodily injury (for customers and employees, apart from workers compensation issues) and property damage stemming from business operations.
The classic example is when a customer slips and falls on your shop floor that was slick due to a spill that didn’t get cleaned up. More extreme, a machine explodes injuring customers and employees alike, along with the rented property where you operate your business.
Typically, insurance to protect you against harm or injury caused by a defect in a product you sell — known as product liability insurance — is folded into general liability insurance. This coverage is especially important for companies that sell a product that could potentially harm someone.
A related category is professional liability insurance (also called errors and omissions, or E&O insurance). Sometimes general liability and E&O can be rolled into a single policy, but you might not need it. E&O applies to negligence with regard to a professional service, including law, engineering, consulting, counselors, accountants and architects.
And then there’s property insurance — the business equivalent of homeowners’ insurance. It protects you against the cost of losses due to factors beyond your control, such as fires, floods (including plumbing disasters), and various natural disasters. You may also need auto insurance for company-owned vehicles.
Business interruption insurance could be critical if your business is put on hold by the type of incident that property insurance (mentioned above) would cover. You’ll still be incurring expenses (including insurance premiums) if your building was severely damaged in a fire and you have to suspend operations for weeks or months. Business interruption can help keep you afloat.
Key man insurance is a form of life insurance that you can take out on the life of a business partner (and vice versa). If your partner owns part of the business, key man insurance can be used to buy out his or her share in the event of premature death.
Employment practices liability insurance is yet another category that could be valuable to any company that has employees, regardless of the industry. Typically it covers violations of employee protections covered by the Civil Rights Act. Basic coverage areas include:
• Employment discrimination. This could include basing a hiring or firing decision on race, religion, gender, national origin, age, marital status or sexual orientation.
• Wrongful termination. This can fall under the heading of employment discrimination, but also covers violations of employment contracts.
• Sexual harassment. The typical issue here is whether you, as an employer, neglected to investigate harassment claims appropriately, looked the other way, or fostered a work environment in which sexual harassment flourished.
• Emotional distress. Emotional distress can be the product of threats and extreme bullying. As with sexual harassment, the key issue is whether this is going on in your business and you fail to take necessary remedial action, either proactively or in response to employee complaints.
• Wage and hour violations. This insurance covers failures to comply with the Fair Labor Standards Act, including minimum wage and overtime page requirements.
If you already have these types of insurance in place, that probably indicates you’re in the insurance business yourself and thus highly attuned to business risk. It’s more likely that you have only a few of them lined up. Which ones you need the most, and how much protection to buy within each category, will strictly depend upon factors like your risk tolerance, the perils specific to your business and your ability to afford all of it. But knowing what’s available is essential first step to building a risk management strategy to meet your unique circumstances.