Every company, no matter if it has one employee or thousands, faces many different types of risk, including operational, reputational, strategic, financial, compliance and other business-related issues. Having a plan in place to reduce these risks and protect your company is essential. One component of protecting your company is business insurance which transfers some of the risk your company faces and helps pay for various types of damages to third parties — from physical injuries sustained from a slip-and-fall accident to property damage or even a damaged reputation.
There are several types of business insurance coverages that may or may not be appropriate for the types of risks your company needs to protect against, and several factors help determine how much that coverage will cost. We’ll uncover the most common types of business insurance and explain how premiums are determined.
General liability (GL) coverage protects your company's assets in the event your operations cause bodily injury or property damage to a third party. There are several common pieces to most GL policies. First, there is usually an Occurrence Limit and an Aggregate Limit. The occurrence limit (e.g., $1 million) would be the most your policy would cover for any one claim and the aggregate limit (e.g., $2 million) would be the most in any given term for multiple claims.
Secondly, there is Products/Completed Operations coverage which protects against damages or injuries sustained to third parties from your products once they leave your possession. This is important if your business manufactures a product (consumer goods), or completes an operation (construction). Third, Personal and Advertising Injury coverage deals with financial damages you cause to another person as a result of libel, slander, defaming competitors’ products or services, or violating rights to privacy. Fourth, there is usually some MedPay coverage. This is a lower limit — usually $5k–$10k — no-fault accident coverage to pay for small medical claims that may arise out of incidents such as a slip and fall injury that occurs on your property.
More and more employers are opting to add EPLI coverage to protect against claims of wrongful termination, sexual harassment, discrimination and other employment-related issues. Even if a company isn’t found at fault, coverage can help pay for litigation costs and other associated expenses.
I don’t know of a company that isn’t concerned about cyber risk; if they’re not, they should be. Unfortunately, there is no standard coverage for cyber liability. Each carrier uses different language and each policy will have varying levels of coverage — from exhaustive to woefully inadequate. For example, a bare bones package might not cover third party damages, so if a hacker accesses customer credit card information, those customers could sue and the policy wouldn’t cover the claim. Make sure you read the fine print.
A quick note about cyber liability: having a policy doesn’t mean you can ignore the risks. You’re still required to have preventative measures in place, such as firewalls, password protection, antivirus software and other security protocols. Most carriers have an application process that asks you to outline the security measures being taken and, if they don’t like what they see, they won’t offer you a policy.
An Umbrella/Excess policy is an additional limit that goes above and beyond what the underlying coverage limits are. For example, let’s say you have an umbrella policy with a $2 million limit and there was a single liability claim for $2.2 million dollars. Your underlying GL policy would pick up the first $1 million of the claim and then your umbrella would cover the additional $1.2 million. Without that umbrella policy, you would be on the hook for additional expenses above your GL occurrence limit. Please note, different umbrella policies cover things differently, so please make sure you pay attention to any exclusions.
To help determine your general liability premiums, the insurance company will assign a specific code or codes to your business that are based on your type of operation(s). Different codes will have different rates based on perceived liability factors. For example, the liability codes and rates will most likely be significantly less expensive for a marketing company than for a dynamite production factory. There will be an audit based on your code(s). Different considerations in an audit might include payroll, sales volume and revenue.
It’s important to remember that determining premiums is all about your risk factors. If you’re a retailer or healthcare facility that holds personal data or credit card information, your cyber liability risk is more significant than a small contractor who doesn’t have a website and only employs two people. Or, a law office that advertises on television and social media may have less bodily injury risk, yet will have a much higher risk for personal and advertising injury. Work with a qualified risk advisor to ensure your company is coded properly and has the right types of coverages and limits for its exposure.
While you can transfer some business risks by purchasing insurance, the ultimate goal should be to reduce the overall risk that your company faces. Clearly, ensuring the safety of guests on your property is a no-brainer, but other measures should be taken, too. Train your employees on how to prevent cyber attacks and protect data; educate everyone on hiring rules and employment laws regarding harassment, discrimination and other practices; follow marketing and advertising best practices; and remain diligent about quality control.
Determining your current liability risks happens through exploration. At McClone, our strategic risk advisors work diligently with you to assess your current protection levels and make coverage recommendations as needed. Just as importantly, we strategize with you to discover ways to improve and drive down your risks. Reach out to us today to review your unique risks.