So you've been in the insurance-paying game for a while now; you've got comprehensive car insurance, your family's assets are covered when they're in the house and when they aren't – you have all your ducks in a row and you like it. The feeling of security you have as you lock all your doors and make sure your home is protected before you turn in for the night is unparalleled. So business insurance shouldn't be any different, right?
If all insurance essentially works by pooling risk, that is, taking a large group of people and insuring them against particular losses and using the totality of premiums paid into the pool to cover claims at a nominal fee; then shouldn't business insurance work just the same? Surprisingly, the most direct answer is, "No." Even though business insurance works on the same principle, it's different because no single comprehensive cover can insure against all of the potential challenges your business will encounter. If you're thinking of starting a business, you should determine which insurance product is good for you.
There are eight basic insurance products that business owners should look into to try and minimise risk:
- General liability insurance – this form of coverage provides protection for you, your employees, your products and/or services if someone should allege that any of the aforementioned caused bodily harm or damage to property. It's a very specific form of third-party insurance.
- Property insurance – this form of portable asset insurance covers your office equipment, computers, inventory or tools against fire, vandalism, theft, smoke damage etc.
- Business-owner's insurance – also called Business-owner's Policy (BOP), this is one of the most comprehensive insurance products you can get. BOPs usually include business interruption insurance (to protect your earnings in case the business is unable to operate). In South Africa this particular type of insurance is commonly covered by Sasria – a short-term insurance company specialising in covering for damage caused by political risks such as strikes, political riots or terrorism.
You also usually get property insurance (non-specialised), vehicle coverage, liability insurance (non-specialised) and crime insurance. Based on your company's specific needs, you can tailor your BOP to suit you.
- Commercial auto insurance – this form of cover ensures that all of your vehicles are insured. If you have employees using their own cars to do company business, you can get them onto non-owned, auto liability insurance to protect the company in cases where employees don't have their own insurance or adequate cover.
- Worker's compensation insurance –protects your business against the liability caused by employees getting harmed on the job. This type of insurance can provide wage replacement, medical benefits and sometimes legal benefits (in cases where employees are sued or involved in litigation while performing their duties).
- Professional liability insurance –is also known as Errors and Omissions Insurance. It provides protection for professions such as lawyers, accountants, consultants, notaries, real estate agents, insurance agents etc. In professions where a misplaced comma or amendment to a contract can spell losing out on millions, it's important that such coverage is standard within the profession.
- Directors and officers insurance – directly affects the directors and officers who may make decisions which decrease profitability or affect operations negatively. If the director or officer finds him or herself in a legal situation, this can cover the costs or damages as a result of a lawsuit against them.
- Data Breach – is specifically for the data the business deals with, especially if it's private information about employees, clients or third-parties. Since the company is responsible for protecting the information, if a data breach occurs this insurance product will protect against any potential loss.
With all of the information on hand, knowing which insurance products serve which purposes, then you would be shocked to find most people still commit business insurance blunders either as a result of ignorance or because they choose the wrong insurance for the wrong job. The latter is not necessarily ignorance but a mistaken belief that comprehensive insurance includes all of the other specific forms within it. And even though it does, to a level, the nature of the loss and the scope of the comprehensive product will determine the limitations on your insurance claim – if a claim is even possible.
Here are 10 of the common business insurance blunders based on the insurance products mentioned above:
- A business will try and use one insurance provider to cover all its insurance needs. This is a blunder because not only are insurance products not the same, insurance providers don't specialise in the same types of insurance. When it comes to products such as data breach insurance, a company which specialises in workers' compensation insurance will not have the infrastructure or holistic documentation to cover you. You could end up with an inferior product albeit with cheaper premiums because you didn't tailor your insurance to your business.
- In terms of commercial auto insurance, most people who use their own vehicles don't know that using a personal vehicle for business purposes immediately voids whatever claim you would like to lodge. Your car is insured in a personal capacity not a business one.
- Choosing the lower premium to try and cut costs. This is a blunder because premiums are determined by a combination of exposure and coverage, including excesses. Either the premium is low but the excess is high or the cover is lacking.
- Thinking "Getting comprehensive cover is not necessary because my business does not do X, Y, Z." You don't know what could arise as a result of your business operations. Rather make sure that if ever you are at fault and the total loss exceeds your general liability policy, you are able to cover that excess with comprehensive insurance.
- Not understanding your policy. This is a self-explanatory blunder. If you don't know how your claims process works, what you can claim for etc, then you are not getting the best out of your insurance product.
- Flood insurance is only for businesses in high risk areas. Sometimes a flood is not because of natural causes – for example, the levees breaking after Hurricane Katrina. Technically, the flood was caused by the break-down of a man-made structure.
- Thinking your business doesn't need workers' compensation insurance because you have very few employees. In South Africa this is one of the fastest growing areas of litigation for small businesses or corporate entities.
- Delegating business insurance claims to staff. If you are the owner of a small or medium business without a stand-by team of lawyers, don't delegate important insurance issues to staff. No staff member will ever have as holistic an understanding of the business, its assets or how your insurance is structured as you do. Make sure you are involved in any and all claims.
- Believing that whichever insurance product you have is the de facto industry standard. Don't be so sure of this. Continue to shop around for new insurance products at the appropriate moments as you may get a better, more comprehensive deal elsewhere by using the Hippo comparison tool.
- Choosing the wrong insurance for the wrong purpose. This is a big blunder. If you’re a data management warehouse, don't get retail insurance. It doesn't serve your purpose.
If you're in the market for business insurance, you should definitely understand all of the options available to you and the common blunders made by others. It could save you quite the pretty penny.