Risk assessments help companies avoid unexpected costs

In an uncertain economy, the last thing companies need to face is unexpected costs - especially from preventable liability issues.

To stave off those costs, many businesses are turning to their insurance companies for help finding and mitigating potential risks in their operations.

"We perform (company evaluations) every day," said Luke Nixon, president of Nixon & Lindstrom Insurance. "We sit down with a business owner and ask them to (tell) us, from start to finish, about a day in their operation, or in the case of a manufacturer or distributor, we ask them about the flow of products through their company."

David Arney, president and CEO of Akers & Arney Insurance in Branson, said risk assessment services from an insurance company are absolutely necessary because of the complex nature of commercial insurance coverage.

"Most (business owners) don't read through their insurance policy," Arney said. "What we find when we research someone's coverage is that - almost always - there are exclusions or gaps in coverage that people are not aware of."

That was the case for John Joslyn, owner of Cedar Bay Entertainment, which owns the Titanic museum in Branson.

Joslyn had Akers & Arney, through which his company has all of its coverage, perform a risk assessment on Cedar Bay Entertainment in late 2007.

Among the assessment's discoveries were potential gaps in directors' and officers' insurance, which protects company leaders from individual liability for company issues, and fire coverage for the unique building that houses the Titanic museum.

"It was possible, due to a small clause in our policy, that none of my directors or officers would have been covered," Joslyn said, adding that he increased his directors' and officers' coverage to an undisclosed amount and switched underwriters for his building's fire protection as a result of the assessment.

Traveling

Nixon and Arney both said there are several areas in which a company can be unknowingly vulnerable to liability, but one of the most common is in transportation.

"It's the off-premises exposures that affect most businesses," Nixon said.

"The stuff at their location and under their roof is often pretty well-covered, but it's the operations that they engage in away from their office that can be a problem, if their current agent didn't ask them about it, or they have new services and didn't have a review in a timely manner to add in recently added operations to their coverage," he added.

Arney also noted that many companies need "hired and non-owned" automobile coverage. That type of policy, Arney said, protects businesses from liability if their one of their employees injures someone else in an accident while driving on company business.

"The employee's auto insurance covers the employee and their car, but what if in court the other party finds out they were getting the mail for the company on company time? They're going to sue the company," Arney said. "That company needs hired and non-owned auto coverage."

Specialized business operations also can call for specialized coverage, according to Nixon.

He noted international travel, which is becoming more and more common as local companies begin shipping or receiving goods from abroad.

"It may be rare, but nevertheless even smaller companies may have employees or the owners themselves travel out of the country to visit with various vendors or suppliers, and there's some exposure there that a domestic insurance policy is really just not designed to provide coverage for," Nixon said.

Unforeseen expense

Potential gaps in coverage, however, go well beyond transportation issues.

Arney cited the example of an unnamed Branson theater that hosted several events for area nonprofit and civic organizations. After Arney sat down and thoroughly examined the company's insurance coverage, he realized the coverage had an exception: The insurer would not pay for damages or injuries that occurred during nonprofit events.

Arney said it is not uncommon to find exceptions such as those in a policy; he noted that his risk assessors look for nearly 30 different situations that may be exempted from coverage, unless the insured company is willing to pay extra for the additional coverage.

One such exemption is co-insurance. If a company carries a building insurance policy with an 80 percent co-insurance clause, for example, the company must carry a policy worth at least 80 percent of the building's value or face penalties from insurance companies.

In the end, those exemptions can lead to "soft costs" - expenses that may be hard to predict but can take their toll on a company's bottom line.

Arney added that those expenses shouldn't be taken lightly.

For example, if a business burns, the lag in operations would become a soft cost that, depending on exemptions, may not be covered.

"That's where you need business interruption insurance," Arney said. "The customer may say they want to pay what they're paying and take the risk, and that's OK. But I've had many people come back and say, 'I wish I had taken up that extra coverage.'"

Titanic owner Joslyn said he's glad he had a risk assessment performed, particularly with the complicated nature of today's insurance industry.

"It's one thing to just buy insurance, but in today's world, it takes on a whole different dimension," he said.

"You have to have the attorneys involved with it and everything. It's much more complicated buying insurance than in the days of my father."[[In-content Ad]]