Do You Have Insurance Blind Spots?

Having insurance is an essential asset in running any successful business. It is an important element in your risk management strategy that allows you to finance and transfer your least manageable risks to third parties. In other words, arranging with a third-party entity, i.e., a captive, an insurance company, a government, or other entities, to guarantee compensation or reimbursement for specified accidental loss and or damages in return for a premium payment.

A Magnifying Glass

In our recent article, “Why Does Your Business Need Insurance?”, we tackled the reasons why businesses need insurance. So, whatever your reasons are for buying insurance, the bottom line is, to have some peace of mind or a level of confidence that when an unexpected event, a loss, or damage, occurs in or to your business, you have the means to recover and get back to business.

Are you buying the right insurance that you need?

Here is the age-old question that plagues even the well prepared. Are you buying the right insurance that you need? Do you have blind spots in the insurance policies that you currently buy? The most popular insurance that small businesses often buy is the business owner’s policy commonly known as BOP.

Business Owner’s Policy

The BOP combines property insurance and general liability insurance into a single policy. The property insurance provides cover for damages to the business’ physical assets such as the building, contents, equipment, inventory, etc., and can also include coverage for loss of business income and extra expenses. The general liability insurance protects the business and its owners from business-related liabilities. It covers claims that result from lawsuits brought against the business in the cause of its operation.

For many single owner/operator small businesses, this can be sufficient for their operation but for most businesses, small or mid-sized ones, it is inadequate to cover all their risk exposures.

Other policies are needed. For instance, professional liability insurance will be a necessary insurance for a professional service provider even if he or she is a single owner and operator of the small business.

Professional Liability Insurance

Service providers such as accountants, agents, architects, brokers, broadcasters, consultants, designers, doctors, engineers, florist, financial advisors, lawyers, media publishers, project managers, technology services providers, and all other service providers can benefit from having a professional liability insurance to appropriately cover their inherent operational risks. In some cases, this policy is a requirement in their business contracts with other third parties. Mistakes can happen in any business and this policy can help.

Professional liability insurance also known as the errors & omissions (E&O) insurance, or the malpractice insurance can be tailored to the specific profession in question. It protects against legal claims alleging negligence, misrepresentation, inaccurate advice, or errors and omissions that results in financial damages or personal injury during the rendering of services by a professional services provider. Such claims can pose significant financial burden to service providers.

If the services provider hires others to operate its business, it will be important to protect these employees with a workers’ compensation insurance.

Workers’ Compensation

Workers’ compensation insurance protects business owners and their businesses from claims by employees who suffer work-related accidents, injuries, illnesses or diseases. Workers' compensation provides cover to employees for medical expenses, a portion of lost wages, disability benefits, death benefits, and costs of rehabilitation.

Workers’ compensation insurance is required by law for all businesses that have hired employees.

Employers have two ways of purchasing the workers’ compensation insurance, except if they are in Ohio, North Dakota, Washington, or Wyoming. These states are considered monopolistic states because employers can only access workers’ compensation insurance from their state’s monopolistic funds. Other states have competitive funds and employers have the option to either purchase the insurance from the state fund or the private insurance market.

Additionally, all states except the monopolistic states have established an assigned risk plan or pool, which is a plan of last resort that allows employers who are unable to secure workers’ compensation insurance from the general insurance market to access it from the assigned risk plan or pool.

It is important to note that, workers’ compensation insurance is required by law for all businesses that have hired employees. The requirements are governed and vary from state to state. It is therefore imperative to consult your state’s department of labor to ensure that you are complying with the state laws that apply to your operation.

Another important insurance that employers forget to purchase which can make a significant difference in managing risks associated with the business operation and hired employees, is the management liability insurance.

Management Liability Insurance

Management liability insurance provides coverage for legal actions brought against businesses and their officers. The policy can be written as a combination of these three policies: the directors' and officers' insurance (D&O), the employment practice liability insurance (EPL), and the fiduciary liability insurance. Note that each of these policies may be purchased separately.

Directors' & Officers' Insurance provides financial protection for managers and business leaders against lawsuits resulting from consequence of actions taken or decisions made in the performance of their duties. This can include actual or alleged “wrongful acts”. Typical risks covered by the policy can include deceptive business practices, anti-trust claims, noncompliance with laws or regulations, errors or misrepresentation. Intentional wrongful acts or fraud are excluded.

Employment Practice Liability can protect against claims from employees related to discrimination, wrongful discipline or termination, sexual harassment, invasion of privacy, false imprisonment, breach of contract, emotional distress, wage law violations, or breach of employment contracts.

Fiduciary liability insurance protects a business and its employees against claims brought against them in relation to their fiduciary responsibilities. For example, employees or anyone responsible for managing benefits, pension plans, or healthcare plans can face personal liability in the event of claims due to their fiduciary responsibilities. This policy can protect their personal liabilities for claims of breach of fiduciary duties.

In some cases, additional coverage such as workplace violence or crime insurance can be added to the fiduciary policy. Let us know if you require these additional coverages.

Insurance is intended to help you hedge against unexpected events.

When unexpected events occur, it does not only damage your physical assets but can have a direct impact on your business income when your business is temporarily out of operation. Business interruption insurance helps keep your business afloat in these instances.

Business Interruption Insurance

Business interruption insurance protects the business’ bottom line in the event of a disruption. Many events — supply chain disruption, fires, equipment failure, severe weather events, natural disasters, theft or vandalism, cyber attacks, civil or military authority denial of access, — can all disrupt a business’ operation and temporarily cause the business to lose income.

Business interruption insurance with appropriate extensions can provide coverage for the temporary loss of income and operating expenses during this period. These operational and extra expenses — cost to relocate, rents, lease payments, mortgage, payroll, taxes, or loan payments — can present an undue burden when income is halted.

It is important to be transparent with your broker or agent when arranging your insurance so that these gaps can be addressed before a loss occurs.

The insurance policies mentioned above are typically for businesses but there is another policy that both businesses and individuals forget to buy until it is too late. This is the flood insurance.

Flood Insurance

While coverage for water damages is available in most property insurance and homeowners’ insurance policies, damages caused by floods are excluded.

Flood can occur anywhere. Evidence has shown that they occur even outside areas that are designated as high flood zone areas. Without the right policy, businesses and homeowners can find themselves with expensive out-of-pocket costs to repair, rebuild to code, remove debris, and all other associated costs that come with the damages caused by the flood.

Flood insurance is available in the private insurance market as well as from FEMA through the federal government’s National Flood Insurance Program (NFIP). We can assist you to obtain quotes from both the private insurers and the NFIP.

This article is not expected to list every possible insurance that is available in the market, mind you, there are insurance for almost every eventuality or project, however, it is intended to highlight common coverage gaps that business owners or officers and homeowners may have when they only purchase the bare minimum insurance or are not aware of them. As businesses grow their risk exposures change and thus gaps in insurance coverage can increase. Use our free business insurance checklist to assist you in identifying your business risk exposures.

The language and coverage of the insurance policies mentioned here can vary by insurer. Talk to us. Let’s help you navigate the insurance buying process and fill your insurance gaps.

At Axios Risk Solutions, LLC., we help small and medium-sized enterprises, families and individuals minimize and manage their business risks through tailored risk management strategies and protect their business and assets through a variety of insurance solutions in the market. To request a quote or speak to a broker, call us at (404) 480-0272.​

Author: Sandra Owusu-Fianko, MS ERM

Sandra Owusu-Fianko, is the Principal and Risk Advisor at Axios Risk Solutions, LLC. She has extensive experience in the insurance industry and is passionate about finding appropriate risk management and insurance solutions for her clients.