Company leaders face difficult decisions when purchasing business insurance. The business insurance market is highly complex, with multiple types of insurance and policies that include complicated language and varying exclusions, limits, and deductibles. Given that business leaders are often juggling multiple responsibilities and are generally not experts in insurance, it’s not surprising that many small and midsized companies make mistakes when purchasing insurance. Below are five of the most common insurance-related errors businesses make.
Failing to adequately assess risks
Every business has unique risks, and one of the most common mistakes business leaders make is failing to accurately assess their risks. A business’s insurance needs are dictated by many factors, including company size, industry, assets, value, and the types of products and services provided. Businesses generally need general commercial liability (GCL) insurance, which guards against third-party claims of bodily injury, property damage, and often personal injury. Other common business insurance needs include commercial property insurance, which reimburses businesses for losses to their own property, and business interruption insurance, which is often an add-on to a property insurance policy that covers lost income and day-to-day expenses if the business is forced to close temporarily due to a covered peril under their property insurance. Businesses that provide professional services typically need errors and omissions (E&O) insurance, which is also called professional liability insurance. Many companies need directors and officers (D&O) liability insurance to protect their officers and directors from third-party lawsuits over their management of company affairs. In today’s litigious society, more companies are realizing they need employment practices liability insurance (EPLI) to guard against lawsuits brought by employees for sexual harassment, discrimination, or wrongful termination. Cyber insurance policies have also multiplied in recent years, as cyber attacks have become increasingly ubiquitous and costly to businesses in diverse industries. It is important for a business to have the right mix of insurance products to avoid potentially costly gaps in coverage.
Underinsuring (or over-insuring) the business
Beyond failing to protect their business from all the categories of risks they face, many business owners struggle to choose the right coverage amounts. If you underinsure your business, you won’t be able to fully recoup your losses in the event of a disaster or a major lawsuit or lawsuits. If you over-insure your business, you will be paying a lot of extra money unnecessarily. Coverage limits should be based on an analysis of many factors, including industry, company size, value of assets, and risk exposure. For certain industries, there are standard liability coverage recommendations that can be used as a guide.
Choosing coverage based solely on price
Insurance is expensive, and businesses do not have unlimited budgets for insurance expenditures. But choosing a policy based on price alone is a mistake. Every policy is different, with varying deductibles, coverage limits and exclusions. When shopping around for price, it’s important to make sure you’re comparing apples to apples. Lower-priced policies tend to have higher deductibles and exclude more perils, which could leave your business without adequate protection. Further, the providers of budget policies generally offer poorer customer service, making it more difficult to file claims or receive timely assistance.
Failing to read the fine print
Many business owners assume their insurance policies will provide them with broad coverage. They are therefore often shocked to discover that an event they thought would be covered is, in fact, excluded. For instance, commercial property insurance typically bars coverage for damage that results from flooding or mold. Commercial liability policies generally exclude coverage for bodily injury or property damage caused by intentional or wrongful acts, such as assault and battery. And while E&O liability policies cover negligent acts, errors and omissions, they typically exclude claims arising from intentional wrongdoing or fraudulent acts. Further, a policy’s fine print often includes instructions and deadlines for filing a claim, and failure to follow these rules could lead to claim denial. Confounding the problem is that the fine print in a policy is typically filled with intentionally ambiguous language, which leads many policyholders to misunderstand their rights and responsibilities under the policy.
Failing to review and update your policy periodically
Many businesses mistakenly renew their policies annually without reassessing their evolving insurance needs. Your business may have grown or contracted over the last year, and it’s important to carefully determine whether your policy still provides the right protection for the way your business is now. If you are in growth mode, you may have hired more employees, acquired new assets, or expanded into new product or service lines, creating incremental liability. Your insurance coverage, therefore, needs to reflect these changes if you want to avoid gaps in protection. Similarly, if your business is smaller and has fewer assets and potential liability than in the past, you may not need as much coverage.
You can avoid many of these pitfalls by working with a reputable insurance broker who understands your business, your industry, and the risks you face. A good insurance broker can guide you in choosing the best insurance products to fit your needs and budget.
If you are involved in a dispute with your business insurance company, contact Schwartz, Conroy and Hack, PC for assistance. We have the expertise and tenacity to make insurance companies keep the promises they make to you and your business.
