Heath Ritenour, IOA Chairman & CEO, Offers Business Insurance InsightsSeptember 21, 2021
Business growth is the engine that drives the United States economy. Countless entrepreneurs launch small businesses, and other companies add new products and/or expand their operations to new cities or regions. Taken together, thousands of businesses provide products and services to consumers and commercial clients every day. Heath Ritenour, chairman, and CEO of Insurance Office of America understands the complex nature of business operations, risks, and the myriad insurance options to mitigate risks. The insurance expert offers business insurance insights, designed to protect businesses of all types from potential threats.
Numerous Operational Risks
Within a dynamic business environment, companies face a host of operational risks. Sometimes, events can occur that negatively impact a business in some way.
To protect against these losses, knowledgeable business owners obtain targeted business insurance coverage. In addition to shielding a business against property damage, business insurance policies can protect a company from contract disputes and lawsuits.
Some industries are more prone to certain types of civil lawsuits than others. Businesses in the retail, health care, construction, manufacturing, and casino industries should be proactive in obtaining business insurance for these elevated risks.
For perspective, business insurance collectively makes up approximately half of the United States’ property and casualty insurance market. Business-focused insurance policies are called “commercial lines” coverage.
Required Business Insurance
In some circumstances, a business is legally required to obtain a business insurance policy for one or more types of coverage. As the U.S. Small Business Administration states, the federal government mandates that all businesses with employees must carry three types of insurance coverage. These companies must obtain disability insurance, workers’ compensation insurance, and unemployment insurance. Most states also require employers to have a workers’ compensation policy.
In addition, some states require specific types of businesses to obtain industry-specific insurance policies. To illustrate, certified public accountants and attorneys may find it necessary to purchase professional liability insurance.
After a business meets its required insurance obligations, the business owner should obtain targeted policies that protect against additional risks. Heath Ritenour, an insurance expert, states that business owners should purchase policies that cover risks that exceed their available financial resources.
Common Types of Business Insurance
As operating a business entails multiple risk exposures, there are numerous types of business insurance to protect against those hazards. View this selection of common business insurance offerings below. Heath Ritenour notes that Insurance Office of America offers these and other business insurance policies throughout the United States.
Business Owners Policy
Small- and medium-sized business owners frequently purchase a business owners policy or BOP. This policy combines property and liability coverage in a single package. A larger company may choose a customized BOP package to accommodate its specialized risks.
A typical business owners policy includes general liability insurance, commercial property insurance, and business income (or business interruption) insurance. The BOP does not include health insurance, disability insurance, workers compensation insurance, auto insurance, or professional liability insurance.
In addition to the three standard types of coverage, businesses within a specific industry can add coverage for common risks within that industry. This customized package would be a good choice for different-sized companies conducting the same type of operation.
General Liability Insurance
A general liability insurance policy offers protection against incidents that may occur during the normal course of business. The coverage helps to protect the company from a claim that it caused bodily injury to another person (such as a customer who slipped and fell on a retail store’s wet floor).
A customer also could say the business’ actions caused damage to their personal property. In another scenario, the business could be sued for libel or slander due to an advertising error or a claim of copyright infringement.
Finally, a general liability policy helps to provide coverage against rented property damage. This coverage would apply in the event of a covered loss such as a fire, lightning strike, or explosion.
Commercial Property Insurance
A commercial property insurance policy offers coverage for a company’s owned or rented building and equipment if they are used in the business’ operation. The coverage is designed to repair or replace the business property that is damaged or destroyed from a covered loss. Fires and inventory theft are examples of covered losses, among others.
Sometimes called business property insurance, a commercial property policy offers protection for numerous business-related perils. In addition to the building, the policy offers coverage for tools, equipment, inventory, furniture, and computers.
However, a commercial property policy excludes damage from floods and earthquakes. The business owner can purchase separate coverage for those risks.
Business Income Insurance
When a business cannot operate due to damage to covered property, a business income policy will help to replace lost business income. The damage may result from a fire, a windstorm, or theft, among other causes. However, the coverage does not apply if the business owner cannot run their company due to an illness or accident.
Often called business interruption insurance, this coverage is essential for companies that utilize a physical location, equipment, or business-owned property to generate revenue. The claim proceeds can be used toward operations costs such as rent, electric bills, and payroll processing expenses.
When writing a business income policy, the insurance agent considers the industry’s specific needs. Other variables include the company’s size, the number of operating locations, and the number of employees.
Workers Compensation Insurance
If a company has employees, most states require that the employer carry workers’ compensation insurance coverage. Employers who do not comply are subject to penalties, fines, and even criminal charges.
Workers’ compensation coverage provides benefits to employees who experience a work-related illness or injury. The policy covers the employee’s medical care, and it also provides him or her with disability benefits.
If the employee requires continued care (such as physical therapy), the workers’ compensation policy will pay for it. If the employee’s recovery takes time, the policy also replaces much of the employee’s lost income. Finally, if the employee dies from a work-related incident, the policy pays for funeral expenses.
Business owners also benefit from workers’ compensation coverage. If injured workers (or their families) file a lawsuit against the company, the policy will help to pay associated legal costs.
Commercial Auto Insurance
Companies that own, rent, or lease cars and/or trucks should obtain commercial auto insurance coverage. This policy will help to protect the business owner and their employees who drive company-owned vehicles as part of business operations.
To illustrate, assume the business owner or an employee causes an accident with a company-owned vehicle. A commercial auto insurance policy will cover at least part of the related property damage and bodily injury insurance claims. This coverage applies even if a fatal accident occurs.
Commercial auto insurance applies to company-owned passenger cars or work trucks. However, it does not cover anyone’s personal vehicle used for their daily commute. In addition, note that a personal vehicle insurance policy does not cover third-party insurance claims from an accident caused by a company-owned vehicle.
Cyber Liability Insurance
Because of technological advances in diverse industries, many businesses have switched to a digital operating environment. Although computer-based operations enable increased efficiencies, they also are vulnerable to varied types of cyberattacks.
According to security and tech expert Heath Ritenour, some malicious incidents can expose customers’ personal data, such as credit card details from online sales transactions. Other cyber attacks involve assaults on the business’s proprietary computer networks.
If a data breach occurs, a cyber liability policy helps to cover the business’s recovery expenses. Coverage also applies toward costs for contacting affected individuals and execution of an identity theft monitoring program. The policy also helps to cover a targeted public relations campaign.
Finally, a cyber liability policy enables the business to access professional resources that can assist in compliance with relevant laws and regulations. As with other business insurance policies, the most appropriate coverage depends on the company’s risk exposure.
Professional Liability Insurance
Professional service-based businesses, such as accounting and law firms, should purchase professional liability insurance coverage. Also called errors and omissions (E&O) insurance, this policy helps to protect a service provider (and their company) against customer or client lawsuits.
A lawsuit typically arises from the customer’s or client’s claim that the service provider made an error while performing their services. If the error resulted in a financial loss, the professional could face an expensive lawsuit.
Specifically, professional liability insurance assists in covering claims for inaccurate advice, misrepresentation, and negligence. The coverage applies whether or not the professional actually made the error in question. Without this policy in place, the service provider will have to pay for their own legal defense expenses.
Commercial Umbrella Insurance
A commercial umbrella insurance policy increases coverage limits on certain existing liability policies. Examples include a commercial auto insurance policy or general liability insurance policy. As a result, if a claim is beyond the liability policy’s limits, the umbrella policy will help to cover the remaining amount of the claim.
Businesses without commercial umbrella insurance must pay for liability claim amounts that exceed a liability policy’s coverage limits. These often include medical bills, legal costs, and damage to someone else’s property.
Note that a commercial umbrella policy extends the coverage of existing liability insurance such as a general liability policy. Businesses without a primary liability policy cannot obtain commercial umbrella insurance. In addition, commercial umbrella insurance does not cover every type of claim, and it does not increase the limits of certain policy types.
Commercial umbrella coverage is valuable for businesses that frequently interact with clients or customers in person. These scenarios present increased liability risks. If dangerous equipment and/or heavy machinery are involved in normal business operations, liability risks are further magnified.
If employees frequently work on another individual’s property, the business faces higher liability risks. Per Heath Ritenour’s recommendation, businesses with elevated liability risks should obtain commercial umbrella insurance coverage.
Guidelines for Purchasing Business Insurance
With multiple business insurance options from which to choose, putting together the right coverage package requires a methodical thought process. Businesses of all types and sizes can benefit from this straightforward approach.
Determine Industry and Operational Risks
First, business owners should objectively determine their industry risks. If a business is part of a high-risk industry and the company faces financial failure prospects, the business is defined as a high-risk company.
Examples of high-risk industries include tobacco and gambling. Surprisingly, the e-commerce, legal services, and financial services fields also are considered to contain higher operating risks. The health and wellness, hospitality and travel, and software industries also meet the high-risk business criteria.
Businesses also can be subject to varied operational risks. To illustrate, companies in certain geographic areas run the risk of impacts from hurricanes, floods, or wildfires. Other companies may run a higher-than-average risk of lawsuits.
Take Business Growth into Account
Companies that plan to expand their operations and/or perform equipment upgrades will require new or revised coverages to accommodate that growth. A yearly operations review with a knowledgeable commercial insurance advisor, such as Heath Ritenour with Insurance Office of America, is the best course of action.