Tag Archives: commercial insurance

Dec 19 2013
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Business Insurance, Risk Management

How to Effectively Manage Enterprise Risk

According to a recent survey for the Risk & Insurance Management Society, more than half of risk professionals are using enterprise risk management (ERM) programs in their companies. Of nearly 1,100 risk managers, insurance buyers and other risk professionals that featured on the survey, 63% of respondents stated they have ‘fully or partially integrated’ ERM strategies into their risk management programs. Of course, the bigger the business, the bigger the number of risks. However, enterprise risk management is becoming increasingly popular among businesses of all shapes and sizes as it effectively ensures that risks are evaluated and avoided while any credible opportunities to achieve the company’s objectives are seized. But it’s not always easy finding the right ERM strategy for your business. By following these simple steps however, ERM can be made easy.risk reduction strategy

Determining your Objectives & Risk Appetite

Before you can go about identifying potential risks that could threaten your organization, you must address your risk appetite and outline a clear set of objectives. Determining the objectives of your ERM strategy will help you develop a philosophy towards risk management. What determines these objectives will be your organization’s risk appetite. Implementing an effective Enterprise risk management strategy is a process. You won’t be able to make changes over night. Defining your risk appetite and philosophy towards risk management should top your ERM agenda so that you can set about outlining objectives and subsequently identifying what risks you need to be wary ofs.

Identifying risks

In many ways, the identification of risks is exactly what your Risk Management Strategy is designed to do. Risk events that could negatively impact on the company and it’s objectives are the biggest consideration of the enterprise risk management process. These risks, internal and external, must be identified and assessed so that you can prepare for and protect against them. By considering factors such as likelihood and potential impact is surest way of assessing how they should be managed.

Responding to potential risk events

Once you have a clear indication of what risks may negatively impact on your business, you can go about setting out a preventative strategy, aimed at mitigating the possibility of a risk event occurring. The enterprise risk management process should not only be used as a preventative measure however, it should also give businesses the technical know-how of responding to these potential events. Some responsive measures include avoiding, accepting, sharing and reducing risks. Whichever step the company chooses to take depends entirely on the outlined objectives and risk appetite of the company.

Consistency

All of the above steps would be rendered completely useless if the company’s enterprise risk management strategy was not applied at every level of the organization, on a consistent basis. Employees at every level must be trained in on the risk management plan. By applying policies and procedures that allow risk response to be effectively carried out, you can brief your entire staff on company policy with regards ERM. In order to ensure every inch of the operation is under the one roof, a strong communication strategy must exist across a company, at every level.

Once an effective enterprise risk management strategy has been established, changes will occasionally need to be made to keep the plan up to date with the constant changes within the company. Other factors such as emerging risks and reputational risk management may also impact on the ERM strategy so it is important to remain flexible and open to policy changes. First and foremost though, it is important to set out your strategy as outlined above. In doing so, you can easily ensure the protection of your Business and the safety of the brand.

Risk Management can be challenging for businesses, particularly with continuously emerging risks. By getting yourself a free risk assessment, you can protect your business against the challenges that lay ahead.

 

Coy Sunderman is a risk advisor specializing in risk solutions for construction businesses, oil & gas operations, manufacturers and distributors/wholesales. Coy is a Certified Work Comp Advisory and holds his CIC (Certified Insurance Counselor) designation.

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Dec 12 2013
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Business Insurance

What Types of Insurance Do Small Businesses NEED?

????????????????????????????????????????Every year in the United States, 600,000 new businesses are started. There are many reasons people start their own small business, from a desire to be in control of their own destiny, to the passion to pursue a lifelong dream. Regardless of your reasons for starting a small business, protecting that business investment with insurance is an important part of business ownership. The right insurance will minimize the risks you face due to unexpected events, liabilities, and losses.

Types of Small Business Insurance

Liability Insurance 

The most basic type of insurance that any small business requires is liability insurance. The basic idea behind liability insurance is to protect the policy holder against lawsuits or other legal exigencies. Small-business liability insurance covers things like bodily damage or third-party property damage vis-a-vis your staff, products and services. Liability insurance is the bedrock of small business insurance because it protects your most valued assets.

Workers’ Compensation

Workers’ compensation is perhaps the second most important form of insurance to protect you and your small business. This type of insurance focuses on wage replacement and employee medical benefits in the unfortunate circumstance that a small-business employee is injured while on the job.

The important thing to bear in mind is that small-business employees, by signing up for workers’ compensation, waive the right to sue the employer for negligence vis-a-vis an injury sustained on the job. Workers’ compensation effectively indemnifies small business owners against huge payouts and/or protracted court appearances. Most states require workers’ compensation for small businesses hiring W2 workers.

Professional Liability Insurance 

Professional liability insurance, also known as errors and omissions coverage, protects small business owners against charges relating to advice given or services rendered by employees. Professional liability insurance can help lower the cost of defending the business against negligence claims in court and/or reduce the monetary damages granted in a civil lawsuit.

Small business owners in the fields of real estate, law, accounting, consulting or myriad other advice-giving professions that hire less than 500 employees should consider professional liability insurance to weather possible negligence claims. This type of insurance coverage goes beyond regular liability insurance.

Business Owner’s Policy 

This brand of small business insurance is a commercial insurance package specifically designed for small to medium-sized businesses. Business owner’s policies couple general liability insurance and property insurance into one bundled insurance coverage package. Small business owners can expect a reduced premium when purchasing business owner’s policy insurance coverage.

That said, although business owner’s policy coverage can be economical for your small business, business owner’s policies often have stringent eligibility conditions. The property insurance portion of a business owner’s policy covers things like fires, explosions and vandalism whereas the general liability side covers third-party injury or dismemberment.

Commercial Auto Insurance 

Commercial auto insurance helps protect all vehicles owned and/or used by a small business. This kind of insurance is especially handy for small businesses that use staff to transmit goods and services. Work cars, trucks and delivery vans are all indemnified against damage and collision under commercial auto insurance policies.

If your small business employees are driving their own vehicles for professional reasons, you may also want to consider non-owned auto liability to insure the company vis-a-vis an uninsured or underinsured employee.

In some instances, non-owned auto liability can be bundled with a business owner’s policy to reduce the overall cost of coverage for cash-strapped small business owners.

Beyond Basic Coverage

Some small business owners may want to consider disability, life and health insurance. While not directly related to small business operations, purchasing one or all three kinds of external coverage could prove prudent in the long run.

Randy Reynolds is the Managing Partner for Texas Associates Insurors. His knowledge and experience extends to the manufacturing and construction industries, as well as to financial services, hospitality and not-for-profit organizations.

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Dec 05 2013
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Business Insurance, Risk Management

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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Nov 30 2013
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Business Insurance, Risk Management

Well It’s Not Like Choosing a Spouse, But Choosing an Insurance Agent Should Not Be Taken Lightly

If you own a business, you should have a commercial insurance policy, and may have other forms of insurance including professional liability, directors and officers coverage, etc. Before choosing an agentpurchasing your insurance policy, you must first select an insurance agent that you would like to work with. On the surface, insurance can seem like a commodity and many insurance agents treat it as though it is by selling policies simply on the basis of price. The reality is that insurance is more than a product – it is a critical tool in any business’s risk management strategy – and crafting a policy that provides adequate protection for your business requires more than a cursory review of your company and the business it is in.

Not all insurance agents are the same. The right insurance agent will approach their relationship with you as a partnership and not simply a sale. How to choose the right insurance agent for your business? Shop around and know what to look for when selecting your partner!

The call is yours

There are literally thousands of insurance agents and insurance companies that would love to have your business. The important thing for you as a purchaser is to know what you need. Are you simply looking to purchase the lowest price policy, or are you interested in reducing your overall business risk and ensuring that you are protected when risk becomes reality? If it’s the latter, a great approach is to seek advice from the lawyers and accountants who helped you open your business. Often, they can recommend the right agent for your needs.

Do some homework

Before meeting with an agent, it is important to have a basic understanding of the types of insurance products you may require. This is another situation where your corporate attorney or accountant may be able to help. With so many forms of insurance on the market, it can be difficult to understand which may be appropriate for your situation.

  • Workers’ compensation is a sophisticated product with subtle ways of determining premium.
  • Life insurance may be the best vehicle for a buy-sell insurance agreement.
  • Businesses with products have needs different than those that provide services.
  • Sole proprietorships need different security than partnerships or corporations.
  • Fire, flood, and others risks mean different things in different locations and different industries.

Before an agent can recommend what types of policies you should purchase, they must first identify and measure the risks to your business. Only then can they determine the best way to manage them. For this reason, you need the agent who has broad and deep experience in all lines of liability. Experienced and reputable professionals pursue continuing education and performance recognition. So, look for the initials after their name: CLCS – Commercial Lines Coverage Specialist, CLU – Chartered Life Underwriter, CRM – Certified Risk Manager, CPCU – Chartered Property Casualty Underwriter, or REBC – Registered Employee Benefits Consultant. There are yet more, but each of these represents years of coursework and testing.

What to value?

The ability to identify and manage risk is the key to a strong partnership with an agent, a holistic approach that reduces costs before they occur. Insurance rates are often based on the number and dollar value of claims, so it stands to reason that, to the extent that you can reduce the incidence and cost of claims, the better off you and your business will be. Look for the agent whose approach involves examining the broader risk management issues facing your business, and whose recommendations include more than simply purchasing insurance.

Accidents will happen, but communication and readiness can improve the odds. When employees and staff are well-informed about risks, their potential consequences, and workable prevention, safety becomes a team event. The agent who can provide material resources in the form of manuals, signage, and training is a personal value to your business. These are the partners you want to sign with.

Choose the agent for whom service is the unique value proposition. Value the commitment and mutual self-interest because it is to your advantage as well as the agent’s to develop and sustain the relationship.

Gary Grissom is a partner and Senior Risk Advisor at Texas Associates Insurors. Gary’s expertise extends to the construction, manufacturing and oil & gas industries where he partners with clients to develop effective cost-reducing risk management strategies.

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Nov 21 2013
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Bond Management

Making Sense of Bonds

In the world of insurance and financial products, surety bonds play a crucial role in helping you avoid a financial loss. Since the 19th century when bonds were first introduced, thousands of Contract-Surety-Bond1bond types have emerged. Like insurance, bonds are a legal contract which binds parties together and guarantee compensation if the purchaser fails in their duties.

The Principal (Obligor)

The individual or business that purchases the bond is known as the principal (also known as the obligor). You may be required to buy a bond for several reasons. If you’re a general contractor, you may need to provide a bid bond to a client, assuring them that your bid was placed in good faith. Or, a janitorial company may ask for an employee theft bond as a condition of hiring.

The Obligee

The obligee is the third party to whom the money is owed. For example, you may hire a contractor to complete work on your home and require that they provide a performance bond to ensure the contract is completed in accordance with the agreed terms. If the contractor fails to meet the terms, the bond would pay your loss up to the limit of the bond.

The Surety

The surety is the entity who promises to pay the obligee should the principal fail to meet their obligations. While the surety is usually an insurance company, it may be a bond company or a bank. Because bonds are meant to prevent a loss, the underwriting process is different than a traditional insurance policy and in lieu of a premium, a fee is collected.

Licensed, Bonded, and Insured

In advertisements, you’ve probably heard the phrase “licensed, bonded, and insured”. Professionals like contractors, tax collectors and notaries are licensed to show that they have passed required exams or met special requirements which provide a level of professional trust. These professionals, while their intentions may be honest, may default on a promise to provide a service. For this reason most states require that they are licensed, carry a bond and are insured as conditions for obtaining a business license.

 

Promises Made Daily

For every promise made, for every doubt you may have about a business relationship, there is a surety bond. With thousands of bonds to choose from, many are completely unique to the situation. An electrician may need a permit bond, ensuring that work will comply with local codes or a public official bond guaranteeing that the tax collector will perform their duties to the public. You may even be required to purchase a bond as part of your rental agreement on a home or apartment in lieu of a cleaning deposit. For any situation that requires a promise from one party to another, there is a type of bond to fit that need.

Need More Business Advice? Click Here

 

James Russell is a risk advisor for NewFIrst Insurors, specializing in the development of risk management strategies for the oil and gas industry, construction operations, and offshore risks.

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Nov 14 2013
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Business Insurance

Business Insurance Policies are the Total package

A Business Owner’s Policy (also known as a BOP policy) is a package policy, providing both property and liability coverage geared toward small to mid-size businesses. They are worthwhile because, unlike separate property and liability policies, they are bundled to contain extra coverage at a low price. Many companies now offer specialized BOP policies for home based businesses or specific classes of business, like retail stores and small restaurants. These policies offer more comprehensive coverage to business owners who may not be able to afford purchasing coverage a la carte.

Property Coverage

The property section of a typical BOP policy will include but is not limited to office equipment, furniture, leased or rented equipment, and property belonging to someone else damaged while in your care. This also includes additions to your building and premises that you rent. When deciding on your limit of property insurance, don’t forget to include the cost of your build-out and improvements, equipment used to maintain the building, and permanently attached fixtures. Always consult your lease agreement, if applicable, so you can include any items you are responsible for and confirm that these items are covered.

Liability

Liability coverage under the BOP policy covers Bodily Injury and Property Damage claims that you are liable for. A claim can be filed against you for medical bills and expenses resulting from injury, sickness or death caused when you act negligently. If not covered correctly, these situations can drain your financial resources and can result in thousands of dollars out of your pocket.

The most common example is a slip-and-fall accident. These can result from something as simple as spilled liquids, uneven flooring, or narrow stairs. These accidents account for around 17,000 deaths in the United States each year. They are among the most frequently filed claims against small businesses, making it important to carry liability coverage in the event of such unfortunate accidents.

What’s Not Covered by BOP

Several key coverages are not included in the basic policy but may be added to the policy by endorsement. A few of these coverages are Automobile, Disability, Health, Worker’s Compensation and Professional Liability. Each business has different needs, meaning not all of these coverages may apply to you. When buying a BOP policy, carefully review what coverages are included and what are not.
Worker’s Compensation is required by most states for businesses with more than one employee and you may need to purchase a separate policy for this coverage. Talk to your insurance representative about the Worker’s Compensation laws in your state.

Running a Business is Inherently Risky

Buying the right Business Owner’s Policy is a first step in protecting you from the risks inherent to running a business. Carrying this policy may also be a requirement of your rental agreement or leased equipment agreements. By not carrying the right BOP policy, you may be vulnerable to lawsuits or uncovered damages. It is a low cost alternative to out-of-pocket expenses and is packed with coverages which may otherwise be costly.

Ryan Niles is an insurance advisor for NewFirst Insurors, specializing in the development and implementation of risk management strategies for small- to mid-sized businesses in the Texas Coastal region.

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Nov 07 2013
1 Comment
Risk Management

4 Risk Management Challenges for Small Businesses

Risk events can come in many different shapes and sizes, but regardless of your profession, risk management is something that can give you the edge over potentially damaging risks. For Small Businesses, there are several reasons why Enterprise Risk Management should be implemented. These reasons range from legal obligations to budgetary requirements and below, we highlight four of the foremost reasons for introducing Enterprise Risk Management to your Business.Risk management flow chart on paper

Market Risks

In large companies, market risk covers the risk that the value of the company’s assets will decrease due to a change in the value of external factors. Changes in interest rates, foreign exchange rates and commodity prices can all negatively impact on a company’s assets. Similarly, changing economic and environmental factors can negatively impact on the productivity of small businesses.

By monitoring market influences and assessing other external influences that could impinge on the company’s market presence, you can protect against market risks and ensure the productivity of the business. For small businesses, accounting for market risks can help ensure projected growth patterns and prosperity. By formulating an enterprise risk management plan, employers can effectively address and mitigate unfavourable market forces.

Operational Risks

Operational risk represents the risk of loss from failed internal processes. These risks can arise out of everything from poor or inadequate employee practices to hardware malfunction.  While operational risk is relevant to all categories of profession, many small businesses often overlook or underestimate the possibility of operational risk-related events damaging their business. Operational risks such as internal and external fraud, employment practices, business continuity processes can all negatively affect the overall business process of a small enterprise.

Through in-depth analysis, the identification, measurement, monitoring and managing of operational risk, small businesses can ensure the security and efficiency of the operating process. This involves having well-defined and organized roles, segregating duties and responsibilities, and implementing management review mechanisms that will allow employers to account for operational risks and ensure they don’t threaten the business.

Reputational Risks

Reputation is one of a business’ most important assets, particularly if they operate globally. That said, reputation is everything for small enterprises and start-ups as it represents the extent to which the company is meeting the expectations of its stakeholders, and this can often prove a determining factor in whether or not a small business can take off. While reputation is one of the most important assets of the business, reputational risks are indelibly difficult to protect against. Factors such as negative publicity, whether accurate or not, can compromise the business’ reputation capital while marketing channels such as social media can carry a lot of risk potential.

By defining how you want your business to be perceived, you can begin to clearly identify what risks could negatively impact on the company’s public image. Outlining an enterprise risk management strategy can greatly help a small business to actively monitor the effects of operational incidents on reputation capital and the public perception of the business. This involves an assessment of relationships with consumers, partners and the media as well as assessing the functionality of the business in terms of commitment and quality processes.

Emerging Risks

Emerging risk accounts for any new risk that is in the process of being quantified and understood. Emerging risks have the potential to substantially impact on a business or insurance policy and significantly damage the company’s reputation, reach and overall process. Emerging risks can infiltrate any part of your business or personal life and have a huge impact, and unfortunately, as there tends not to be any resolute method of predicting and protecting against emerging risks, they are considered some of the most potentially damaging risks that businesses face.

Typical emerging risks include Cyber Risks and Social Media Risks, both of which can be reduced greatly through a comprehensive risk management plan, but other emerging risks such as changing economic factors and wholly unpredictable risks like natural disasters can have devastating consequences for unprepared businesses.

Enterprise Risk Management is all about predicting, preparing for and protecting against the occurrence of a risk event. Each of the risks discussed in this post carry the potential to inflict serious damage on a company’s reputation and overall business process. However, if a small business incorporates each of the aforementioned risks into their overall Enterprise Risk Management plan, they can significantly protect themselves against the possibility of a risk event occurring and devastating the business.

Ensure your Risk Management Strategy is up to scratch with a free risk assessment.

 

Lonnie Meadows is a risk advisor for NewFirst Insurors. Lonnie specializes in developing commercial risk management plans for small to mid-sized businesses and focuses on leadership and management relationships to improve his clients’ overall operations.

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Nov 02 2013
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Business Insurance, Personal Insurance

A Casual Look at Property & Casualty Insurance

While shopping for insurance, whether for your home or business, you may have heard the term “property and casualty insurance” used by your agent or insurance representative. When looking at your quote or reviewing your issued policy, you will see lists of coverages such as “personal property” or “general liability”. These coverages fall under either Casualty or Property and make up the essential parts of your policy. Without these, there would be no coverage and no protection for your assets.

But, “what is property and casualty insurance and do I need it?”

Property Coverage

You may find Property coverage more straightforward than its counterpart, Casualty. If you carry any insurance for your building, equipment, furnishings, or your home, car, or personal belongings, then you already have property coverage built into your policy. This coverage protects you against direct damages to your property by covering causes like fire, lightening, and wind.

Property coverage can also apply to loss of income generating ability, as you would find in Business Income coverage. This applies specifically to your ability to generate income in the event of a covered accident or damage that prevents your business from operating. A few days or several weeks could cripple your business and result in closing without this type of property coverage.

Casualty Coverage

Casualty can be difficult to define but it typically refers to the liability coverage found in business and personal policies. The term casualty is not applied to Life, Health or Property policies where liability is not a factor. You will probably hear most often that casualty is insurance covering injury or property damage to others “for which you are legally liable”.  In simpler terms, it is coverage for damages caused by you due to your negligence.

Accidents happen both at home and on the job all the time which can result in injuries.  A friend visiting your house could be seriously hurt because the deck you built collapsed.  Or, a customer at your salon might slip-and-fall because of an unsecured mat and suffer serious fractures. These types of accidents are not anticipated but because of our potentially negligent acts, could result in thousands of dollars in medical bills and legal fees.

Why Do I Need It?

If you own anything of value that you could not replace out-of-pocket in the unfortunate event of disaster, then chances are that you need Property and Casualty insurance.

If you have ever been careless while driving, at home, or at your place of business, you need Property and Casualty insurance.

For all the savings you may have or for all the planning you’ve done, nothing can prepare you for an unexpected event like a fire. The cost to repair and replace your belongings and cleanup the damage in the aftermath could total in the thousands. The best and most effective plan for protecting yourself and your family from financial crisis is insurance.

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Nov 01 2013
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Business Insurance, Risk Management

Taking the Risk Out of Building

As the U.S. home market slowly recovers, builders are seeing a boost in construction contracts. New commercial buildings are being built at a rapid pace. With these surges in construction, specialized policies like Builder’s Risk provide important protection against exposures that are unique to the building trade.

The Basics of Builder’s Risk

The Builder’s Risk policy provides protection for homes or commercial buildings under construction, while being remodeled, or undergoing renovation. The policy covers materials like concrete, lumber, and fixtures as well as machinery and equipment used to maintain the building. The policy also covers the cost to remove debris caused by a covered accident, like a fire or lightning strike.

In most cases, a Builder’s Risk policy is required for buildings under construction and purchased when the home or building is at least 30% complete. The limit of insurance is based on the estimated value of the project once its complete. Because the value will increase as glass, framing, and other materials are added, the limit should also be increased. Once the project is done, coverage will end when the building has been taken over by the owner, the work has been complete for 90 days, or the builder has abandoned the project.

Pitfalls and Perils

Accidents happen and by their nature, they’re never anticipated. An accident can stall or completely stop a building project. To avoid the pitfalls of damage, there are three types of perils coverage to choose from: Limited Perils, Specified Perils, or Special Perils.
Each has their own unique advantages but the most inclusive is Special Peril, which covers accidental losses that are not specifically excluded. While this type of coverage is the most attractive, it is also the most expensive. Though the cost may be more than its counterparts, the broad coverage pays for itself in the event of a large loss that might otherwise have been excluded.
Valuing Your Property

It’s a common misconception that all property policies replace damaged items based on their original replacement value. While many companies sell enhanced policies with special endorsements, like Replacement Cost, a great majority of policies come with Actual Cash Value.

In the event of covered damage to your property, claims are paid on an Actual Cash Value basis by default. This means only the depreciated cost to repair or replace will be paid. This can leave the project with a shortfall in funds and possibly halt further construction. To avoid this common mistake, check the policy and endorsements to ensure that Replacement Cost coverage is included.

Policy Limitations

While the coverage provided is vital to most building projects, limitations apply. Builder’s Risk does not cover Earthquake, Flood, Steam Boiler, or intentional acts of damage. Because policies vary by company, coverage for materials in transit, equipment such as scaffolding and trailers, or theft of materials may be limited or excluded. For an additional premium, separate policies or endorsements can be added to ensure coverage is in place where it is needed.

Coy Sunderman is a risk advisor specializing in risk solutions for construction businesses, oil & gas operations, manufacturers and distributors/wholesales. Coy is a Certified Work Comp Advisory and holds his CIC (Certified Insurance Counselor) designation.

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Oct 24 2013
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Business Insurance

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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