Business owners never expect their companies to suffer a disaster, so oftentimes they don’t purchase insurance or enough coverage. Hurricane Katrina is a reminder, however, that damage can happen at any time and can be extensive. Businesses can sustain other kinds of losses, too – theft, wrongful termination suits, accidents in the company car, on-the-job worker injuries and more.
By obtaining business insurance, “You’re transferring the risk to an insurance company for a premium,” said Paul Richied, principal of Hullin & Richied Insurance Group in Reno. Consequently, insurance protects your financial investment in your business, along with your personal assets. “Basically, everybody who owns a business operation needs insurance to some degree,” said Bernie Trujillo, president of McFadden Insurance in Las Vegas.
Earlier this year, Pat Schweigert, broker with ERA Realty in Sparks, had her office broken into, and thieves stole $30,000 worth of equipment, including 14 laptops and several cameras. Numerous businesses have been hit similarly in the past six months in Northern Nevada; police say the thieves want the personal information stored on the electronics. “Everybody is at risk,” Schweigert warned.
Her property insurance covered the loss, minus her deductible. Despite this being her first claim in 25 years, her insurance carrier immediately increased both her deductible and her premiums, she said.
Without insurance, Schweigert would have been stuck covering the entire $30,000 loss. The same is true for all business owners who lack insurance yet experience a loss. In the worst-case scenario the resulting costs could be so high that the owner loses his or her business, and potentially personal assets, too.
In obtaining insurance, your primary objective is to find out what coverage you can get to adequately protect your firm, at an affordable, reasonable and fair price.
Basic Insurance Facts
The four basic types of protection are: property, general liability, workers’ compensation and automobile. Property insurance protects against physical damage or loss resulting from theft or other catastrophes, as in Schweigert’s case. General liability insurance protects against a wide variety of liability exposures. They may include a client dissatisfied with work your business did, an accident on the company premises, and problems with a product your business sold.
Workers’ compensation is a form of liability insurance that protects companies from job-related injury or illness claims. By state law, every business with at least one employee must have this insurance.
Auto insurance protects a company’s assets and revenue when a business-related car accident takes place. Any business that owns, leases or rents vehicles or has employees driving personal vehicles on company business needs auto insurance.
Small businesses can get property and liability insurance along with other coverage in one policy under a Business Owners Package, also known as BOP. It’s much more affordable than purchasing each of the coverage policies separately.
“It’s a catch-all policy,” Trujillo said. “The list of coverages they give you as throw-ins is usually one to two pages long.”
Business owners should also consider whether they need specialized types of policies. Real estate developers, builders, contractors and owners of a building under construction may need some type of construction insurance. For businesses located in a flood zone, such as along the Truckee River in Reno, flood insurance should be investigated.
Employment protection liability (EPL) coverage protects an employer from employment practice violation claims related to, for example, wrongful hiring practices, sexual harassment and discrimination.
For businesses that revolve around one person, key man insurance may be needed. The coverage protects the business if that key individual can’t work. Of course, certain professions require insurance, such as malpractice insurance in the case of lawyers, doctors and architects, and for self-employed professionals, disability coverage is also recommended.
Often referred to as an umbrella policy, excess liability coverage provides additional protection beyond the limits of your existing policies, to whatever dollar amount you purchase, from $1 to hundreds of millions of dollars.
The Broker or Agent’s Role
If this all seems complicated and perhaps overwhelming, don’t worry. It’s your agent or broker’s job to help you determine what kinds of coverage your business needs and then find you the best coverage at the best price. “You should also expect your representative to possess integrity, provide service and be knowledgeable about how insurance and risk management can help your business succeed,” said Jean-Paul Rebillard, head of Marsh, Inc.’s Las Vegas office.
You want someone who understands your business, has the resources to deal with claims and provide loss support, and can grow with your business, he added.
Because there’s no surefire way to ensure your agent or broker is representing your best interests, it boils down to trust, so it’s essential you feel comfortable with that person. Ask for references. Arrange a face-to-face meeting where you can request an insurance proposal or quote. It should detail the type and amounts of insurance, including deductibles, rates, carriers, carrier financial rating, policy numbers and expiration dates. Once that’s provided to you, you’re not obligated to accept the quote or even use that particular agent or broker. You may meet with other brokers and even shop around.
“A good insurance broker should make the process as easy as possible, in terms of the business owner’s time commitment, but also in articulating the value offered,” Rebillard said.
Be sure your agent or broker is licensed and has professional liability insurance, so that if he or she makes a mistake (and it happens), you have an avenue of recovery.
When choosing an insurance representative, consider whether you’ll benefit more from an independent broker or a direct writer (agent). Independent brokers are appointed by multiple carriers and can shop among those companies for a policy or policies for you. A direct writer, or an agent, represents one insurance carrier (for example, Allstate) and every coverage recommended to you would be from that one company.
“If you’re looking for somebody to bring multiple options to you, then you would need to select a broker who can provide that,” Rebillard said. “If you’re interested in obtaining those options for yourself, approaching multiple agents or direct writers would work for you.”
You might want a full-service insurance agency where you can get all your insurance needs in one place – homeowners, business, auto, workers’ compensation, bonds, etc.
Finding a Representative
The ideal way to find an agent or broker is through the owners of businesses similar to yours, even if they’re competitors. Call and ask who their insurance agent is, whether they’re pleased with their service and would recommend them.
Additional information about specific companies, agents and brokers can be obtained from the Nevada Division of Insurance (www.doi.state.nv.us), the Nevada Independent Insurance Agents (www.iiaa.org), the Better Business Bureaus (www.vegasbbb.org and www.reno.bbb.org) and local chambers of commerce. You can learn if an agent or broker has had any problems or complaints lodged against him or her, whether the agency or broker is licensed and whether certain carriers are appointed and authorized to do business in Nevada.
Once you begin using an agent or broker, it’s best to meet with him or her at least once a year, and perhaps more often, depending on the complexity of your insurance situation. To help your representative best assist you, alert him or her to any changes within your business ahead of time and keep the agent or broker apprised regularly of your insurance goals.
After you get your insurance policy, read it. It will explain what’s covered, who is covered, and what is excluded.
Schweigert advises business owners to communicate in writing with their insurance carrier about what their policy covers, and keep a paper trail.
Although insurance can be procured anytime, it is best to make insurance arrangements before your business opens its doors, because it requires preparation. For a smaller business, Trujillo recommends starting the process a couple of months in advance. Huge manufacturing or construction companies should start looking three to six months in advance. Companies planning to do business internationally might want to look into insurance nine months to a year ahead. “You need to start sooner than most people do,” Trujillo said.
If you wait until the last minute, you don’t allow your agent the time necessary to thoroughly research the marketplace. “If you rush into it, then you’re possibly cutting yourself short and not getting what you really need,” Trujillo added.
Currently, the business insurance market in Nevada is soft, which is to the buyer’s advantage. During soft markets, companies want to be competitive and therefore they reduce premiums, open new lines of coverage and improve coverage availability.
Hurricane Katrina affected the market, but not significantly enough to cause the shift from a soft to a hard market. Insurance carriers having to pay out large sums to cover losses might offset those payouts by raising the prices of certain coverage and even discontinuing selected lines of coverage, both of which affect consumers.
“I wouldn’t say broad-ranging, permanent implications arise from any given event, even one of Katrina’s magnitude,” Rebillard said. “The market has a way of sorting itself out.”