Author Archives: daveperez

Why Every Small Business Partnership Needs a Buy-Sell Agreement

When most small business owners think about risk, they tend to consider the things that impact the physical security of the business (fire, flooding, wind damage, etc.) and the financial buy sellsecurity of the business (receivables, demand, professional liability, etc.). Given the immediacy of these risks, it is easy to forget issues relating to business continuation. The reality is that if you buy a business or start one with a partner, you are both at risk for losing everything. Without a buy-sell agreement, Forbes warns you and your partner are facing a world of hurt from the financial and tax problems following “an owner’s death, incapacitation, divorce, bankruptcy, sale or retirement.”

What Is A Buy-Sell Agreement?

A typical buy-sell agreement will protect business owners in the event a co-owner wants out of the business voluntarily or otherwise. A partner may want to retire, to sell his/her shares, or to settle a divorce. On the other hand, the partner may die or become incapacitated and unable to participate. Once a buy-sell agreement sets up a price and terms for a buyout, you have assured the business’s continuation and seamless transition.

Benefits Of A Buy-Sell Agreement

There are several reasons to consider putting a buy-sell agreement in place:

  1. Protect the Business: You and your partner may agree on keeping an unwanted third party from acquiring the business. The contract facilitates a hassle-free shift in control or ownership, it can provide the protocol for fixing or calculating the buy-price to the selling partner or deceased owner’s interest, and it can assure the mandatory arbitration required to settle any arising disputes. Finally, it may define the rights of remaining owners to purchase the interest of the departing owner to resolve or avoid the disputes that often arise among family members.
  2. Structure Tax Treatment: A buy-sell agreement may be used to protect a company’s status as an S-corporation, professional LLC, or professional corporation identity. And, it may want to avoid the termination of its status as a partnership for tax purposes. In addition, under the Internal Revenue Code, there are prohibited shareholders. The IRS will tax the business as a C-corporation if and when a share of the business is transferred to a prohibited shareholder and its status S election will be terminated.
  3. Protect the Remaining Interests: Great peace of mind comes with certainty of the terms enabling you to purchase the departing partner’s interest through a predetermined long-term financing arrangement that allows, for example, payments to be made from the business’s cash flow according to specific formulas. This allows the current owners to fix the price and terms of purchase, thereby reducing or eliminating the personal conflicts that could otherwise arise.
  4. Protect the Withdrawing Partner: The buy-sell protects the deceased partner’s estate from negotiating price and share from a disadvantage. By requiring the surviving partner(s) to buy back the deceased’s interest, it provides a source of income for payment of estate taxes and forestalls disputes with surviving spouses and heirs. In another situation, the agreement guarantees the disabled or retired owner a needed source of cash or a lump sum that fits a financial plan with tax treatment favorable to the withdrawing partner.

Designing Buy-Sell Agreements

There are a variety of ways that a buy-sell agreement can be structured. Typical formats include:

  • A Cross Purchase Agreement works best with four or fewer partners. The owners each own life insurance policies on the lives of each of the others, and in the event one of them dies, the surviving owners use the proceeds of the life insurance policy to buy the deceased owner’s share of the business.
  • A Trusteed Cross-Purchase Agreement creates a revocable or irrevocable trust with a third party owner-administrator and fewer insurance policies. The agreement contractually obligates the trustee to buy the interest of the deceased or departing owner, and the departing owner (or the estate) to sell the interest to the trustee. When using life insurance, the owner(s) can be confident that some or all of the money needed to complete the purchase will be available at the death of an owner.
  • A Partnership Among Shareholders transfers the funding from life insurance policies into a partnership.

It is never wise to enter into a buy-sell agreement without professional advice and assistance. Before you and your partners hang out your “business open” sign, have your lawyers and insurance professionals design the plan that best serves all your interests.

Dave Perez is a risk advisor at Texas Associates Insurors and specializes in property and casualty risk assessments for business owners.

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What is Commercial Umbrella Insurance & Why Do You Need It?

Most businesses have a variety of insurance policies to cover things like employment liability, property damage, officers and directors, commercial vehicles, workers compensation, etc. The coverage you purchase should be specific to your business, the industry in which you work, and the unique risks you and your employees face in a typical workday. In theory, your business insurance policies should cover you in the event your business is sued. The reality, however is that the amount of liability protection these policies offer may not provide enough financial protection. This can leave your business open to risk and make your assets vulnerable.

Lawsuits Are On The Rise

Our society is becoming more litigious every day. In fact, recent research shows that 89% of Americans believe lawsuit abuse is a problem. The rise in the number of lawsuits (both legitimate and not) and the size of jury verdicts impose a heavy financial burden on many businesses, large and small. Just consider some recent cases that have hit the courts:

  • Pizza maker Papa Johns is the subject of a $250 million class action lawsuit over text messages it sent to customers offering discounts and coupons on pizza
  • The maker of Nutella, a popular hazelnut spread, agreed to settle a $3 million class action suit that alleged it falsely claimed its product was healthy
  • And who can forget the famous case of Liebeck v. McDonald’s, in which 80-year-old Stella Liebeck spilled a McDonald’s coffee in her lap, causing third-degree burns on her legs, lap, and groin area. Liebeck tried to solicit McDonald’s for a mere $800 to cover the skin grafts required for her injuries, but McDonald’s refused. Ultimately, the jury settled, awarding Liebeck $2.7 million.

Such lawsuits are not restricted to large companies like Papa Johns, Nutella and McDonalds. Take the case of Eric Nordby, who owns several small businesses in Auburn, California. He was the subject of a lawsuit alleging non-compliance with ADA requirements. At the time the suit was filed, the plaintiff in the case was been responsible for filing 140 of the 200 ADA-related cases in the Eastern District of California. Whereas other defendants chose to settle for upwards of $15,000, Nordby chose to fight the suit.

In cases like Nordby’s, there are no guarantees that the outcome will be in the business owner’s favor, and there is a very real possibility that the legal fees incurred, or the settlement, may cause extreme financial hardship for the business. This is because no matter what precautions you have taken, there may be gaps in your business insurance policies.

Why Umbrella Insurance

A commercial umbrella insurance policy can augment your existing business policy with supplementary liability protection against financial losses stemming from lawsuits and accidents. These types of policies are designed to provide increased limits of financial protection to your business from unexpected risks, and best of all, they are surprisingly affordable. That’s because the underlying policy limits are used first and your commercial umbrella coverage limits only kick in after those policies have reached their limits.

For example, if your current policy covers you for $2 million and you are successfully sued for $3 million, your business umbrella policy can pay the outstanding $1,000,000. Without umbrella coverage, this money would have to come out of your business profits.

There are a variety of things that an umbrella policy can cover. Some common examples include:

  • Excess General Liability
  • Excess Commercial Auto Liability
  • Excess Employers’ Liability
  • Excess Product Liability
  • Excess Marine Liability
  • Excess Energy Liability
  • Excess Premises Liability
  • Excess Contractors’ Liability
  • Limited Excess Professional Liability

If you’re not sure whether your business should have a commercial umbrella policy, give us a call. One of our experts will be happy to review your existing policies and identify any potential gaps in coverage that a commercial umbrella policy can address.

Dave Perez is a risk advisor at Texas Associates Insurors and specializes in property and casualty risk assessments for business owners.

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Equipment Breakdown Insurance

What to do when you business equipment breaks down?

equipment breakdown insuranceWe often times take our working business equipment for granted. When something breaks down, however, we find ourselves in a state of panic and work brought to a sudden standstill. There are a number of things that can cause equipment to breakdown, from a power surge damaging your network, to an employee error. Equipment breakdown insurance protects against breakdowns caused by power surges, motor burnout, boiler malfunction, and operator error.

Coverage

Protection provided by equipment breakdown insurance can pay for:

  • The cost to replace spoiled stock or materials
  • Costs associated with the time and labor to repair or replace equipment
  • The cost to repair or replace the damaged equipment
  • Other expenses due to limit loss or speed restoration

Cost

The cost of equipment breakdown insurance depends on how much you buy. When determining the amount and limits of coverage you will need, it’s important to consider all the possible situations that could occur, not just the face value of the equipment being covered. For instance, what if you experience property damage as a result of equipment breakdown? What if your business has to shut down for a certain period of time? You can begin to imagine how breakdown losses can start to add up.

Property Insurance and Warranty

The majority of standard property insurance policies do not provide insurance for equipment breakdown. Likewise, warranties only cover so much.

Warranties are restrictive. They will typically only cover new equipment for a certain amount of time, and only for specific type of breakdowns and failures. Also, warranties will not pay for lost business income or equipment damage due to operator error. Unfortunately, operator error is the cause for many equipment breakdowns.

Whether or not you choose to insure your business equipment is ultimately up to you. Depending on the size of your business and value of your equipment it may be wise to purchase additional equipment breakdown insurance to go along with your property insurance.

If you have questions about equipment breakdown insurance, ask an expert here.

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Protecting Against Online Fraud

While computers have improved the speed and efficiency of how we work, they have also allowed thieves and con artists an easier avenue by which to steal from people and businesses. One of the ways these cyber criminals use computers to steal is through online fraud, one of the fastest-growing crimes today.

Types of Online Fraud

Your company’s intangible assets could be at risk if you or your employees are not mindful of online fraud attempts. Understanding and identifying different types of online fraud could save your company thousands, or even millions of dollars in lost sales, damaged reputation, legal costs, etc.

  • Social engineering is the act of taking advantage of human behavior to commit a crime. Social engineers can gain access to buildings, computer systems and data simply by exploiting the weakest link in a security system—humans. For example, social engineers could steal sensitive documents or place key loggers on employees’ computers at a bank—all while posing as an IT consultant from a well-known company. Social engineers can be tough to spot because they are masters at blending in.
  • Phishing is attempting to acquire information such as usernames, passwords, credit card numbers and other sensitive information by pretending to be a trusted entity in an electronic communication, such as email. One of the more common phishing scams is receiving an email that asks the user to verify his or her account information. A quick check of your email’s Spam folder would likely result in a few examples of phishing.
    • Pagejacking and pharming occurs when a computer user clicks on a link that brings them to an unexpected website. This can happen when a hacker steals part of a real website and uses it in the fake site, causing it to appear on search engines. As a result, users could unknowingly enter personal information or credit card numbers into the fake site, making it easy for a hacker to commit online fraud. Pharming is the name for a hacker’s attack intended to redirect a website’s traffic to a fake site.
    • Vishing is similar to phishing and pharming, except victims of vishing attacks are solicited via telephone or another form of telecommunications. The hacker can easily pose as a representative of a bank or other institution and collect personal information that way.

 

Corporate Identity Theft

It doesn’t matter if you are a Fortune 500 company or a small “ma and pa” shop, cyber thieves are always looking for their next score. It is often assumed that smaller businesses are too small to attract attention from cyber crooks, but according to Verizon Communication’s 2012 Data Breach Investigations Report, 72 percent of the 855 data breaches analyzed were at companies with 100 or fewer employees. No company of any size is completely safe from cyber thieves.

There are many ways a cyber thief can steal a company’s identity in addition to the various types of online fraud listed above:

  • Stealing credit history – A cyber thief could steal and use a company’s credit history for his or her own financial gain, and then use it to set up a dummy corporation, racking up huge debt for the real company.
  • Dumpster diving – All too often, papers with sensitive information are recklessly tossed in the garbage instead of being properly shredded and discarded.
  • Hacking – Having proper security measures in place for your computer system is essential to keep intangible assets safe. Make sure you are using firewalls, routers and other security devices to protect your assets.

 

Prevent Online Fraud

Understanding and being able to identify potential online fraud techniques is the key to keeping your company safe. Use the following tips to protect your intangible assets and ensure protection against a data breach:

  • Never give sensitive information like social security numbers or credit card numbers out over the phone unless you know the person on the other line.
  • Shred all credit reports and other sensitive data before disposal.
  • Educate employees about phishing and pharming scams. Remind them to not click on anything that looks suspicious or seems too good to be true.
  • If your company doesn’t have an IT department, hire an outside company to set up the proper security measures for your computer network.
  • Always monitor credit reports and other financial data for the company. If you see things that don’t belong, investigate.
  • Do not allow employees to write down passwords in the office.
  • Always encrypt sensitive data.

 

If You are a Victim

It is common to have an “it will never happen to us” philosophy when it comes to fraud. Unfortunately, that thinking can lead to lax security measures and carelessness when it comes to protecting intangible assets. If you become a victim of online fraud:

  • Act quickly. Report the fraud immediately to local law enforcement. Notify important suppliers, vendors and partners.
  • Alert your customers. If there is a data breach involving customers’ personal information, activate your plan to alert them. This information could be incredibly harmful to your customers, so alert them as soon as possible.
  • Do an investigation. If you do not have the resources to do an internal investigation, consult a third party. The quicker the breach can be dealt with, the fewer negative effects your company will endure.
  • Take measures to lessen the chance of a future breach. Fortunately, cases of online fraud can be good learning tools for your company. Analyze why the breach happened and take steps to make sure it doesn’t happen again. 

Count on Our Risk Expertise

A data breach as the result of online fraud could cripple your company, costing you thousands or millions of dollars in lost sales and/or damages. Contact Texas Associates Insurors today to learn more about our resources and ensure you have the proper cyber liability coverage to protect against losses from fraud.

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Responding to a Data Breach

No company, big or small, is immune to a data breach. Many small employers falsely believe they can elude the attention of a hacker, yet studies have shown the opposite is true. According to Verizon Communication’s 2012 Data Breach Investigations Report, 72 percent of the 855 data breaches analyzed were at companies with 100 or fewer employees.

Data breach response policies are essential for organizations of any size.  A response policy should outline how your company will respond in the event of a data breach, and lay out an action plan that will be used to investigate potential breaches to mitigate damage should a breach occur.

Defining a Data Breach

A data breach is an incident where Personal Identifying Information (PII) is accessed and/or stolen by an unauthorized individual. Examples of PII include:

  • Social Security numbers
  • Credit card information (credit card numbers – whole or part; credit card expiration dates; cardholder names; cardholder addresses)
  • Tax identification information numbers (Social Security numbers; business identification numbers; employer identification numbers)
    • Biometric records (fingerprints; DNA; or retinal patterns and other measurements of physical characteristics for use in verifying the identity of individuals)
  • Payroll information (paychecks; paystubs)
  • Medical information for any employee or customer (doctor names and claims; insurance claims; prescriptions; any related personal medical information)
  • Other personal information of a customer, employee or contractor (dates of birth; addresses; phone numbers; maiden names; names; customer numbers)

Data breaches can be costly. According to the Ponemon Institute’s Cost of a Data Breach Survey, the average per record cost of a data breach was $194 in 2011; the average organizational cost of a data breach was $5.5 million.

Internal Responsibilities upon Learning of a Breach

A breach or a suspected breach of PII must be immediately investigated. Since all PII is of a highly confidential nature, only personnel necessary for the data breach investigation should be informed of the breach. The following information must be reported to appropriate management personnel:

  • When (date and time) did the breach happen?
  • How did the breach happen?
  • What types of PII were possibly compromised? (Detailed as possible: name; name and social security; name, account and password; etc.)
  • How many customers may be affected?

Once basic information about the breach has been established, management should make a record of events and people involved, as well as any discoveries made over the course of the investigation to determine whether or not a breach has occurred.

Once a breach has been verified and contained, perform a risk assessment that rates the:

  • Sensitivity of the PII lost (customer contact information alone may present much less of a threat than financial information)
  • Amount of PII lost and number of individuals affected
  • Likelihood PII is usable or may cause harm
  • Likelihood the PII was intentionally targeted (increases chance for fraudulent use)
  • Strength and effectiveness of security technologies protecting PII (e.g. encrypted PII on a stolen laptop, which is technically stolen PII, will be much more difficult for a criminal to access.)
  • Ability of your company to mitigate the risk of harm

Government Regulation

There aren’t many federal regulations regarding cybersecurity, and the few that exist largely cover specific industries. The 1996 Health Insurance Portability and Accountability Act (HIPAA), the 1999 Gramm-Leach-Bliley (GLB) Act and the 2002 Homeland Security Act, which includes the Federal Information Security Management Act (FISMA) mandate that health care organizations, financial institutions and federal agencies, respectively, protect their computer systems and information. The language is generally vague,  so individual states have attempted to create more targeted laws regarding cybersecurity.

California led the way in 2003 by mandating that any company that suffers a data breach must notify its customers of the details of the breach. Today, 46 states and the District of Columbia have data breach notification laws in place. Only Alabama, Kentucky, New Mexico and South Dakota have yet to enact such a law.

While notification laws vary from state to state, all include four basic provisions:

  1. All notification laws put a number on how long companies have to notify customers of a data breach and by what medium the notice will be given (written, email, press release, etc.).
  2. Laws set forth a penalty system (that differs from state-to-state) for failure to notify customers in a timely manner.
  3. Depending on the specifics of the breach, customers can sue the company for its part in the data breach.
  4. All notification laws have exceptions in a range of situations.

Your Notification Responsibilities

Responsibility to notify is based both on the number of individuals affected and the nature of the PII that was accessed. Any information found in the initial risk assessment should be turned over to the legal counsel of your company who will review the situation to determine if, and to what extent, notification is required.  Notification should occur in a manner that ensures the affected individuals will receive actual notice of the incident. Notification should be made in a timely manner, but make sure the facts of the breach are well established before proceeding

In the case that notification must be made:

  • Only those that are legally required to be notified should be informed of the breach. Notifying a broad base when it is not required could cause raise unnecessary concern in those who have not been affected.
  • A physical copy should always be mailed to the affected parties no matter what other notification methods are used (e.g. phone or email).
  • A help line should be established as a resource for those who have additional questions about how the breach will affect them.

The notification letter should include:

  • A brief description of the incident, the nature of the breach and the approximate date it occurred.
  • A description of the type(s) of PII that were involved in the breach (the general types of PII, not an individual’s specific information).
  • Explanation of what your company is doing to investigate the breach, mitigate its negative effects and prevent future incidences.
  • Steps the individual can take to mitigate any potential side effects from the breach.
  • Contact information for a representative from your company who can answer additional questions.

We Can Help You Recover from a Data Breach

At Texas Associates Insurors, we understand the negative effects a data breach can have at your company. Contact us today so we can show you how to recover from a breach and get your company back on its feet.

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Cyber Liability CGL versus Specialized Cyber Liability Coverage

Let’s face it….we live in a world of technology. GOOD technology. The only way to effectively protect the assets of your business is to carry adequate Commercial General Liability (CGL) Insurance coverage. A CGL policy protects your business from damages caused by bodily injury or property damage for which your business is found to be legally liable. CGL is usually triggered first in the event of a loss, so many business owners don’t feel an additional endorsement or stand alone policy is necessary.

A typical CGL policy contains three coverages:

  1. A.    Bodily Injury and Property Damage Liability (BI/PD) – the duty to indemnify and defend the insured for claims made due to bodily injury or property damage.
  2. B.    Personal and Advertising Liability (AI/PI) – same framework as Coverage A, except it insures claims for personal injury and advertising injury.
  3. C.    Medical Payments – insurer promises to pay emergency medical expenses for bodily injury for the uninsured or its employees as a result of an accident on the insured’s premises. It pays regardless of who is at fault.

Coverage B for Intangible Assets

If the threat exists that a) your company could be sued by a competitor for infringement or intellectual property theft, or b) you do not have the funds to cover legal fees associated with defending your patent or trademark, it is vital that you purchase this coverage. Defending infringement litigation can cost hundreds of thousands of dollars, not including the cost of damages and prejudgment interest. In patent infringement cases, attorney’s fees can easily top $1 million. Budgeting and planning for the protection of intellectual property rights may not only save your company a significant amount of capital, it may also help keep your business viable when legal bills accumulate rapidly.

Any act by the insured that somehow violates or infringes on the rights of others (referred to in the policy as an offense) is the subject of personal and advertising injury liability coverage, although only those acts that are specifically listed in the policy are covered. The coverage under the “advertising injury” provision is limited to those injuries that are directly related to the advertisement. Therefore, the policy covers debts owed by the insured party due to claims filed against it.

Coverage B policyholders are sometimes covered in cases relating to trademark infringement; however, copyright claims are only successful where they are directly related to advertising, and patent claims are rarely covered under the “advertising injury” provision. The cases which allow for coverage in a patent infringement case are generally limited to instances in which a court finds contributory infringement or inducement to infringe through an advertising medium. Since the “advertising injury” provision in a standard CGL is rather limited, many businesses consider additional coverage to protect their intangible assets.

There are three important exclusions in the AI/PI coverage that outline the need for additional intangible asset coverage:

  1. Excludes AI/PI arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights.
  2. Excludes AI/PI committed by an insured whose business is: (1) Advertising, broadcasting, publishing or telecasting; (2) Designing or determining content of websites for others; or (3) An Internet search, access, content or service provider (ISP).
  3. Excludes AI/PI arising out of an electronic chat room or bulletin board the insured hosts, owns, or over which the insured exercises control.

There will be a large coverage gap in a traditional CGL policy if you are a media company, technology company or any other company that does business predominantly on the Internet.

Specialized Cyber Liability Coverages

Because of the increase in the number of a) intangible assets companies possess and b) the number of companies doing business on the Internet, new types of liability coverages have emerged to meet specific needs.

Errors & Omissions (E&O)

E&O insurance, also known as professional liability insurance (PLI), helps fill gaps in traditional CGL policies by protecting professional advice- and service-providing companies from having to bear the full cost of defending against a negligence claim that a service the company provided did not have the expected or promised results.

An E&O policy can cover intellectual property losses due to copyright infringement and plagiarism while also protecting a business in case of a data breach or identity theft. For example, if an IT specialist at a company makes a mistake with the company firewall and allows malware to spread through the company’s network, an E&O policy would help cover the company’s losses from the exposure.

An E&O policy can be customized with several other coverages, such as:

  • Electronic Data Loss – A fire or virus could lead to a business losing all of its data. An electronic data loss policy covers against this data loss and helps replace any income a business loses as a result of the loss.
  • Data Breach – This coverage is becoming more popular as the number of expensive data breaches increases around the globe. Data breach coverage can help a business cover the costs of customer notifications and any defense costs associated with the breach.
  • Media Liability – This coverage protects media-related firms from claims arising from defamation, invasion of privacy, plagiarism, copyright infringement, etc.

Directors & Officers (D&O)

A D&O policy insures upper management against claims of securities fraud, breach of fiduciary and other types of liability. For example, shareholders of a company could sue a company’s directors and officers for not putting the proper measures in place to stop a data breach.

Claims Made vs. Occurrence Policies

When purchasing CGL and cyber liability coverage, businesses have two primary policy types to choose from—claims made and occurrence. A claims made policy covers claims while the policy is in force, while an occurrence policy provides coverage for when the act occurred. Both types offer distinct advantages and disadvantages, so it is wise to do research to determine the best type of policy for your business.

  • Cost – Claims made policies are generally cheaper than occurrence policies. Premiums for claims made policies start low but increase each year to reflect the increased likelihood for claims in the future. While occurrence policies are generally more expensive, there is only a one-time cost with no additional fees.
  • Selecting coverage – With a claims made policy, coverage limits are easier to choose because they can be increased annually. You run the risk of being underinsured with an occurrence policy because the coverage you selected 10 years ago might not be able to cover expenses from a claim made today.
  • Pre- and post-coverage options – You will need to purchase “nose” and “tail” coverage with a claims made policy because if you are sued in 2006 for services provided in 2004, you will only be covered if your policy has an Extended Reporting Period (ERP), or “tail” coverage. Tail coverage can be expensive, but it is often included for free if you have been insured with the same company for a certain amount of time or it can also be offered as an incentive for switching to another company. Similarly, a “prior acts” endorsement, or “nose” coverage is needed when switching insurers to cover claims that occurred before the new policy was purchased. With an occurrence policy, no nose or tail is needed. It is easier to change insurance companies with an occurrence policy because no pre- or post-coverage endorsements are necessary.
  • Long-term protection – An occurrence policy will give you better long-term protection because you are insured from a claim no matter how long after the event the claim was made. For example, if a software company was sued for a security problem in one of its programs that led to a customer suffering a data breach 5 years after the product was released, the software company would be covered by the occurrence policy in place at the time of the breach.

 

Trust Us to Protect Your Intangibles

Here at Texas Associates Insurors, we know insurance can be complicated and confusing. Contact us today. We can help you navigate the complex cyber liability insurance world and discuss the coverages you need to protect your business from cyber risks.

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5 Business Insurance Resolutions for 2013

January is always a month for resolutions. It’s a time when we all swear to ourselves that we’ll make improvements in our lives. And we usually achieve that change in January. The problems arise in February and March. Business owners often treat insurance in the same way. It’s vital at renewal time, and then it drifts into the background.

But business insurance should always be at the forefront of your thinking, because your business’ survival may rely on it one day. Here are five resolutions every business owner should make to ensure their business remains secure in 2013.

Talk About More than Business Insurance

A common trap a lot of business owners fall into when they talk to their agent is they focus on business insurance. They want to know about coverage, exclusions and deductibles and aren’t interested in discussing their wider business. When you deal with your agent, you should tell them about your business as a whole. Talk about your goals and your strategy; that will give them more opportunities to assess risk and identify areas for improvement.

Focus on Risk not Premiums

With that in mind, it’s also important that you focus your business insurance conversations on risk. Reducing your insurance premiums will save you money, but it won’t protect you if you encounter an unexpected risk. In 2013, make sure you treat insurance as a part of the risk management process, not the target. That’s the way your agent will see it.

Beware Emerging Risks

It’s also important that you remain vigilant throughout the year. New risks emerge all the time and they won’t wait until your next renewal or your next meeting with your agent. You can’t afford to stop thinking about risk.

Keep Monitoring Risk Procedure

And it’s not just new risks that can catch you out. Current risk management procedure needs to remain in place. Too often business owners sign off on business insurance portfolios and risk strategy and then put it aside. For risk management to be effective, it needs to be monitored. All it takes is one employee or department to stop enforcing it for the whole system to fail.

Train and Update Constantly

As well as monitoring your risk procedures, you need to keep your staff up to date on them. That means regular training and refresher courses. It’s your responsibility to ensure your employees have the required knowledge and skills to do their jobs, that includes managing risk.

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Insurance: As the Entrepreneur Grows

It is no surprise that Entrepreneur magazine named Austin as “one of the nation’s most progressive and proactive entrepreneurial centers” in the nation.  As individuals transform their ideas to reality through a business and operations expand, there are several points to consider from an insurance perspective.

First and foremost, it would be extremely wise to carefully review laws, regulations and especially contracts with your attorney and insurance advisor to make sure any insurance requirements are satisfied and your indemnity is protected.  For example, a lending contract may require a $1 million minimum general liability policy.  There may be other federal, local or industry requirements to consider, but the bottom line is to know what is required.  Likewise, it is important to identify all of your risks and exposures to clearly understand what types of coverage you may need, in addition to what is required.  For example, you may have a pollution exposure that you did not consider which can cost you dearly if you do not have the appropriate coverage.  It is imperative to understand what other types of coverage are necessary to protect your assets, employees and/or business income.  The final piece to consider is the amount of coverage you many need.  In today’s litigious environment $1 million general liability limit would not go very far.  Think back to the 1994 Mc Donald’s coffee case when a woman sued McDonald’s over the hot cup of coffee she spilled in her lap.  This $2.86 million product liability lawsuit is a good reminder of why business’ need to understand what amount of insurance coverage is appropriate.

Much like your CPA and your lawyer, professionals are available to help design a risk management and insurance plan for your company.  Your insurance and risk advisor can help identify what is required, what you need and what limits you should have to protect your business, but more importantly, challenge you to consider your business growth goals, identify risk and obstacles along the way, and develop a plan to help you achieve those goals.  If you are expanding your operations and have questions about commercial insurance or employee benefits be sure to contact the insurance professionals at Texas Associates Insurors.

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