August 30, 2018 by Nicki Parr, WEV’s Business Recovery Specialist
There is no question that the subject of insurance can be a confusing one: there are different types, different deductibles, different caps, different premiums…and the most confusing of all, different endorsements. Within California, there are also different legal requirements about the type of insurance a business is required to carry: only Workers Compensation Insurance and Commercial Auto Insurance (for company-owned vehicles) are legally required by the state. If you are a professional services business (such as a medical practice, an architecture firm, a legal firm, etc.), the professional organization that certified you to practice may also require you to hold a specific form of commercial liability insurance in order to stay in business.
Regardless of legal or statutory requirements, unless your business has huge cash reserves and can self-insure (unlikely!), several additional types of commercial insurance are vital to protect your business from unforeseen losses. With insufficient business insurance and low cash reserves, your business may not be able to survive a major loss.
- Commercial Property Insurance – commercial property insurance will insure against damage to the physical space(s) your business occupies, and the inventory and equipment within it, i.e. the physical assets of the business. One important factor to consider is the value of that insurance – does it cover the cash value of the assets (i.e. the depreciated value since acquisition), or the replacement value? The former will likely be less than the latter and, though this could lead to a cheaper cost coverage, in the event of an actual loss, you as the claimant could end up with a lot less money than you were expecting (and potentially not be able to fully rebuild or replace like-for-like lost assets).
- Commercial General Liability Insurance –simply speaking, this type of insurance will protect your business against any losses resulting from being sued by a third-party. This could include for personal injury, physical damage, or contract-related. You may also be required to maintain a minimum dollar amount of coverage by your clients, vendors or professional organization.
One type of commercial insurance that was widely spoken about following the Thomas Fire and Debris Flow was Business Interruption insurance. As its name suggests, this type of insurance provides coverage when a business is forced to close due to circumstances beyond its control, such as a fire. Certain types of business interruption insurance can also protect against disruptions to your supply chain (i.e. key vendors) also.
Fortunately, for small businesses the different types of insurance can often be bundled up into a single comprehensive business owner’s package, which can be more cost-effective than buying them separately.
In assessing your business insurance coverage, you should perform the following steps to ensure you are adequately covered:
- Educate Yourself – familiarize yourself with the different types of business coverage that exist. It can be helpful to ask other business owners in your industry what insurance coverage they have.
- Analyze Your Business – assess your business so that you can describe your operations to others. Prepare a written description of your business, explaining what it does and how it operates. What are the risks to your business? What are the assets? Create a flowchart that describes each step of your operations.
- Choose an Agent or Broker you like and trust –This person should be a licensed professional with a good knowledge of insurance coverages and the insurance market. The more your agent knows about your business, the better he or she will be able to meet your insurance needs.
- Review Your Insurance Coverages Regularly – Your business will grow and change over time and your insurance policiesneed to reflect those changes. You may need to buy additional coverages, or increase or reduce your limits. Meet with your agent or broker once a year, before your policies renew, to assess your coverages.