With all the various types of specialized commercial insurance available to businesses, determining what types of coverage are necessary and how much insurance to carry can be a mind-boggling task.
But commercial insurance industry veterans say there are some general concepts businesses should familiarize themselves with to make sure their liabilities are properly covered.
Must-have coverage
According to local commercial insurance agents, there are several main types of commercial insurance that nearly all businesses should have in place.
General liability, or GL, protects the business against litigation from visitors who may be injured while on the premises, and it is highly recommended.
"GL policies aren't required - but if (companies) don't have those and something happens, they'll get sued," said David Arney, president of Akers & Arney Insurance in Branson.
Property and contents coverage protects a company's building and everything inside.
Commercial vehicle coverage is a necessity, and basic liability coverage for motor vehicles is required by state law.
Beyond that, Arney said having the proper coverage for the way a vehicle is used is crucial to avoiding unforeseen expenses. A painter's truck, for example, should be covered as a commercial vehicle, while a salesperson who transports clients should carry a personal auto policy that covers business use.
"Say Joe the Painter is out on the road, has an accident and two people are killed," Arney said. "He's insured (for) a private passenger auto. He gets sued because of the accident, and the private passenger insurance company says, 'We're not going to cover that claim, because we didn't know it was a commercial truck.' Or they might say, 'We'll pay the claim, but you owe us the past premium you should have paid us for covering a commercial vehicle. And by the way, we're canceling you.'"
Management liability covers policies and actions by company managers. Chris Stack, president of business property and casualty insurer SMI Group in Springfield, said such coverage is a growing trend.
"Management liability really focuses on management decisions that could affect the operation as it relates to a third party," Stack said, as opposed to general liability that covers well-being of customers.
Workers' compensation coverage is the only type of commercial insurance specifically required by state law.
All businesses with five or more employees, along with all construction contractors with any employees, must carry workers' comp insurance to protect themselves - and employees - when a workplace injury occurs.
Aside from these general policy types, Arney noted that there also are specific types of liability insurance coverage for different industries.
Restaurants, for example, usually carry product liability insurance, while professional liability coverage, also called errors and omissions coverage, comes in handy for accountants, lawyers, financial advisers and other professionals.
Doctors, meanwhile, carry medical malpractice insurance.
Million-dollar average
For businesses looking at their insurance coverage, there are two numbers to know: premiums and coverage.
For liability insurance, most experts say the average is $1 million in coverage.
"We won't quote anything under $500,000 in liability, and usually it's $1 million," said Bob Meek, head of commercial lines for PJC Insurance.
How much liability coverage the business carries also is dependent on the business owner's aversion to risk - the greater the fear, the greater the coverage - and requirements of companies with which the insured business may work.
"Contractual requirements that companies enter into might require a $5 million policy, and some might require a $2 million policy," Stack said, adding that the company's total assets also are a consideration. "You have to look at what you're trying to protect - your physical assets, your (potential lost) sales, et cetera."
As for how much to pay for insurance, all three agents said it's difficult to offer a rule of thumb for premiums. There are, however, some general guidelines.
Stack said that workers' compensation premiums are based on the type of business - insuring clerical workers costs about 30 cents per $100 of payroll while insuring roofers costs about $30 per $100, because of the increased chance of job-related injuries.
Reading the market
The agents also said that the current economy makes proper insurance coverage even more crucial.
"As the economy continues to deteriorate, we'll probably see the litigious nature of our society increase," Arney said. "That makes having proper insurance even more important."
That doesn't mean, though, that companies can't look at ways to decrease their insurance expenses.
Meek said that because many businesses have had to lay off workers or reduce hours, many businesses could lower their workers' compensation premiums as a result. He also said businesses can increase the deductibles on auto policies or cut back from full coverage to liability, which would both reduce premiums.
Stack, though, warned against taking the annual approach of shopping with numerous insurance companies to save a few dollars.
"A good policy checkup is important, but starting with your current agent and underwriters is usually the best place to start," Stack said, adding that looking over current policies to make sure a company is not overinsured usually saves more money. "That's usually better than going out and getting 10 new sets of bids each year and moving from company to company every year - that doesn't really solve anything."[[In-content Ad]]
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