Appropriate insurance vital for startup viability

Developing an insurance program for a start-up operation is often an afterthought. But let's face it, a major uncovered loss in the first few years of a business can end its life very quickly.

When first considering insurance for a startup, there is some information you'll need to compile to help identify your exposures and develop a well-thought-out plan of protection. Some basic information includes resumes on the principals of the business, a copy of the business plan, a financial statement (current and proforma) a list of vehicles, inventory and mobile equipment, a list of other business advisors (banker, CPA, attorney, etc.) and your sales and marketing plan/brochures.

Once some of this basic information is compiled, you'll need to develop and design your plan of insurance protection. Most business owners understand their product and have a well-thought-out plan to market it and manage the business, but they lack the expertise to develop the insurance plan.

If this is the case with your business, you'll need a qualified insurance agent to help you develop the plan. Interviewing several agents who have expertise in your industry, checking their references and understanding the additional services they have to offer is a good start.

Select the agent based on experience, expertise and their design of your business' insurance plan. After that, a competitive product is the easy part. Your CPA, banker or attorney may be able to refer you to one or several agents to interview. Also, other business owners may have experience with a quality agent.

An independent agent represents several different insurance companies, and a captive agent represents one. Agents also may offer services that may be beneficial to your business, such as workers' compensation programs and specialized insurance management programs. The key is finding a qualified agent who will help you develop a solid plan.

Once you have selected an agent or at least have it narrowed down to a preferred short list, it's time to develop your plan of protection. Here's a list of key coverage elements to consider:

Property and business income coverages. This will protect your physical property and income should a loss occur.

General liability and professional liability. General liability protects the business sin the event you're liable for damages for bodily injury or property damage to another. Professional liability will protect the business for an error or omission that causes financial damage to another. Umbrella liability coverage can be purchased for additional protection against major liability claims.

Automobile. This will provide coverage for physical damage to autos and the damage you may cause to others. Even if your business does not own autos, you'll want to consider coverage for driving personal vehicles on company business.

Workers' compensation. This protects employees who are injured on the job. Although the law states it's mandatory for businesses with five employees or more (one or more for contractors) it does not eliminate the employer's responsibility to the injured worker. Even the smallest businesses should consider this coverage.

Employee benefits. Group health insurance, life, dental and pension plans are all great for attracting and retaining employees.

Other coverages. Boiler/machinery, employment practices liability and other ancillary coverages may need to be considered.

After you design your plan, you'll want to explore the marketplace for competitive options from several insurance companies. The agent you've selected may be able to do this for you, allowing you more time to run your business. If more than one agent is looking at the marketplace for you, it's critical that they are all using the same information and plan design. If they want to make recommendations in addition to the basic plan, have them list them separately.

The next step is the management of the plan you select. This will include keeping up with changes in the operation, monitoring claims activity, projecting future costs and proactively addressing current and future concerns. The more growth and change your business experiences, the more time you'll need to spend in this area. Again, a good agent will help with the monitoring and management of the plan.

(Richard Ollis is a commercial insurance specialist with Ollis & Company Insurors.)

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