Commercial Insurance Topics
What Extra Coverage Should I be Aware of?
This form of insurance provides you with the funds required to protect your business's financial position if your operations are interrupted by an insured loss such as a fire. Features and costs will vary considerably depending on whether you insure for named perils, a specific timeframe, specific costs or just a portion of the income you lose. This form of insurance is highly customizable and can include coverage for extra business expenses, rental income lost, gross earnings lost, payroll and professional fees.
A consequential loss is not caused directly by damage to property, but is a consequence of other damage. For example, a cold storage facility might experience significant inventory losses if an on-site transformer station failure cuts out electricity supply or a fire damages the refrigerators. A greenhouse operation or a winery might require constant temperature and humidity to be maintained. Consequential loss coverage would insure the resultant damage caused to stock by an insured peril that changes these factors.
Many named perils and broad commercial property insurance policies will exclude coverage of breakdown or damage to highly sensitive or specialized equipment including high-pressure boilers, control systems and computers, diagnostic equipment and more. Special machinery policies can be obtained to cover equipment for sudden and accidental breakdown, which is advisable if loss of use is a significant risk for your business.
Errors and Omissions and Director's and Officer's Liability
It is common practice to protect company directors and senior managers from personal liability for actions that are the responsibility of the company they direct. While insurance does not remove their fiduciary duty, it does provide some financial protection from legal liability for a claim made against them for an alleged or wrongful act. A wrongful act is any error, misstatement, misleading statement, act omission, breach of duty or neglect allegedly committed or attempted. Errors and omissions insurance is usually used in professional services firms such as law, accounting and consulting to protect professional staff from the impact of errors and omissions in their work.
There are as many forms of specialized coverage as there are risks to your business. A broker can help you assess the probability of experiencing a loss and determine whether or not you should purchase specialized coverage. Talk to your broker to see if there is risks unique to your business that require extra protection. For example:
Crime - designed to protect against loss of money or securities, may include theft overnight or on the way to the bank. This also includes employee dishonesty.
Electronic Data Processing Systems - protects your computer and its data.
Sewer Back-up - covers loss or damage caused by the backing up of sewers, sumps, septic tanks or drains.
By-law Coverage - covers additional expenditures resulting from by-laws regulating construction when rebuilding a building after a loss.
These are just a few of the special coverage available for special situations. Your broker can tell you more.
Who Needs Business Insurance?
Every business has unique requirements
Your commercial insurance should be designed to protect against the most prevalent risks, to the assets and capital in your business. Your broker can help you itemize and quantify those risks, and determine the level of coverage you should consider. Risks include:
Insurance against property damage or theft protects the physical assets that support your business including buildings, equipment, vehicle fleets and inventory, as well as intangible assets such as licenses, patents and accounts receivable. To arrange the right level of insurance, you must know your rights and obligations as an owner, tenant, leaseholder, and landlord or mortgage holder. You must also take into account local bylaws on standards for physical repair and reconstruction.
Every business is exposed to liabilities and should be protected against the minor as well as the major ones including personal injury, product failures or negligence.
Group health and benefits insurance can help to improve employee retention and well being thereby reducing the cost of turnover and lost time.
Net income loss.
Some businesses are exposed to specific perils that are beyond their control and that would cause critical damage to the viability of the business.
For example, a food services operation might insure against a major electrical outage that would result in spoilage of their inventory.
Consider the underlying risk drivers in your business
An experienced commercial insurance broker can help you read the risks in your business, advise you on how to reduce some of the more manageable exposures and suggest an insurance mix that takes your risk tolerance and financial situation into account.
The following are examples of common risk drivers:
Let your broker help you plan and arrange the right insurance for your business.
- Heavy reliance on limited sources of income
- Dependence on one or a few people to run the business
- Elaborate and specialized physical assets
- Extensive international operations
- Sensitivity to factors outside your control, such as weather and commodity prices
- Labour unrest
- High levels of inventory
- Large vehicle fleets
- Rudimentary workplace health and safety practices
- Dangerous materials handling
How can I Reduce the Risk in my Business?
An experienced commercial broker knows how to identify and manage many of the risk factors in your business and translate that knowledge into a cost effective risk management program.
There are four key steps:
Your commercial insurance broker has the experience to help you manage the insurance risks in your business.
- Know your risk exposures
The first step is to accurately identify and analyze the risk exposures to your tangible and intangible property, your income, personnel and liabilities. These can be determined in a thorough audit of your office, warehouse or shop floor to identify all perils, probabilities and potential financial consequences.
- Consider the risk management alternatives
Insurance is one form of "financing" your risk, but there are other alternatives to explore. These include eliminating the exposure, loss prevention, loss reduction and contractual transfer of responsibility for losses, for example, when a lessee assumes the liability for damages to leased space. A thorough risk management plan will examine all these alternatives before getting to the issue of insurance. Commercial insurance is the most widely used of all risk financing techniques because of the cost-effective protection it provides. General and specialized policies can cover just about any peril. Another way to manage risk is to be financially prepared for a loss. One way to do this is to accumulate your own capital reserves to cover the loss, but this can tie up large amounts of capital at low rates of return.
- Implement your plan
With loss prevention and reduction plans in place, your broker can help you implement your insurance program with one or multiple insurers.
- Monitor and adapt your plan
Make sure to adapt your plan to match the changes in your business including geographical expansion, physical growth, and new lines of business or increased complexity. Consider an annual review of your needs with the help of your insurance broker.