Entries Tagged 'Commercial Insurance' ↓

In the U.S., there are more than 280,000 regulated “home daycares” (also known as “family daycares”) that are run out of residences. It seems that in-home daycare is a popular choice for parents . . . and a booming business. Whether you operate a daycare center or simply provide childcare for family or friends, if you receive compensation for it, the operation becomes commercial, with the attendant risks and legal concerns. All childcare providers are potential lawsuit targets, so at minimum, you’ll need liability protection. Here are some facts you should be aware of:

Homeowners insurance: As of 1991, homeowners insurance excludes liability protection related to home-based commercial activities. Furthermore, the majority of homeowners insurance policies specifically exclude liability coverage for claims arising from home childcare businesses. Homeowners insurance endorsements may provide limited protection, but few insurers offer it. When it is available, it’s often restricted, limiting you to the care of three or four.

Coverage: Business liability insurance is the best choice. There are a range of commercial childcare policies, many offering protection for professional liability claims, which homeowners insurance endorsements don’t cover. These policies differ greatly in coverage and exclusions. Usually, there are exclusions for claims dealing with the administration of medicine, field trips, transportation, pets, or “attractive nuisances,” such as pools or trampolines.

As for liability limits, you should have at least $1 million of coverage on a per-claim occurrence.

We often see the phrase “bonded and insured”, but what exactly does it mean? This refers to the process of bonding through surety bonds. Although they are a form of commercial insurance at their core, surety bonds work slightly differently: Generally speaking, they play a different role and fulfil a different objective than other insurance policies by financially guaranteeing that a contract will be fulfilled as originally agreed to by the parties to the contract.

Person(s) bonded will:

• remain compliant with a law, regulation, or contract;
• be honest and forthright;
• act with integrity;
• be financially responsible.

Here are three important bond categories:

Commercial surety bonds: Permit, notary, public official, and license bonds are required by law for certain types of companies.

Fidelity bonds: If you own a business, this helps protect you and your clients/customers from employee theft or any act deemed dishonest that results in a financial loss. For example, if a contractor’s employee steals some of a customer’s belongings while on the job, a fidelity bond would cover his and his customer’s losses.

Contract surety bonds: If you’re a contractor, you may need one or more contract surety bonds (which include performance bonds, bid bonds, payment bonds and maintenance bonds). These bond types guarantee that the contractor will honor contract terms, such as what supplies he or she provides, the price for the job, and the work to be performed.

As a savvy business owner, there’s no doubt that you’ve looked into basic commercial insurance coverage and its cost. So you may recognize the two most common business insurance policies: general liability and property damage.

Depending on the type of business you own, there’s one important thing you may have missed in reviewing the options available. That is, unless your electrical and/or mechanical equipment is damaged by one of the general perils specifically listed on your property damage policy, you won’t be covered if you have to replace or repair it.

A few examples of commonly covered perils are events such as fire, wind, hail, smoke, and civil unrest. However, the average policy usually doesn’t include any coverage for mechanical breakdown. And not having the proper endorsement to properly protect your equipment could shut down your business for days or weeks, during which time your income and profits could all but cease.

Who needs it?

If the extent of your business’s equipment is a small cash register and a phone, and/or if you rent a space where the owner provides maintenance, heat, and air, you may find that you’re not going to need mechanical breakdown coverage as an essential part of your commercial insurance coverage, providing, of course, you have saved up the money towards replacing or repairing your cash register and phone in the event of a non-covered loss.

Those business owners who should be especially concerned about equipment breakdown coverage are companies that have any or all of the following: manufacturing equipment; more than one computer; refrigeration; boiler systems; cooking equipment; generators; motors; fire and security systems.

Equipment breakdown coverage is important whether you own or lease the equipment. To protect themselves, leasing companies will often require you to carry this protection, not unlike an auto lender that insists you carry comprehensive and collision coverage on your auto insurance policy when you’re financing a car.

What’s covered?

This policy will cover labor and other costs of repairing equipment, not just replacing it. There are other residual losses that may occur due to the breakdown that are also covered. For example, if you own a restaurant and your freezer breaks, causing you to lose thousands of dollars’ worth of frozen food, that would be covered.

Clean-up services may also be covered if the breakdown causes a mess. One of its greatest benefits is that it will also cover any loss of business you experience while getting the equipment repaired or replaced.

Some insurance companies will offer equipment breakdown as a separate policy, or it can be added as an endorsement – a special addition – to your existing commercial insurance policy.

Ask your insurance professional if there are differences in the coverage limits and options, so you can make a well-informed decision about which option would be better for you.

Prepare and protect the flow of your business to ensure minimal interruption if something or, as sometimes happens, everything breaks down. Your business account (and your personal checking account) will thank you.

If you own a business, you’ve likely heard the phrase, “bonded and insured.” And you may also have wondered what the differences are between being insured and having a surety bond. Many think they’re the same thing, but they’re not. Here are the main differences between being bonded and being insured:

Contract: Insurance is about managing risks. The contract is between the policyholder and the insurer, and essentially “guarantees” that the insured will receive compensation from the insurance company if a loss occurs, providing it is covered under the contract (policy).

A surety bond includes at least three parties: the “surety” or “guarantor” (which is in most cases is an insurance company), the principal (a second party that promises to do contracted work), and the “obligee” (a third party for whom the work is to be done.)

Type of protection: Insurance protects an insured business against certain risks, whereas a surety bond provides protection for the obligee of the bond. For example, if a business hires a bonded contractor to perform office renovations, and the contractor doesn’t fulfill the agreed-upon terms of the contract, the surety would pay the business owner – the obligee. Even if the contractor is insured and bonded, if there is a failure to perform the work, the insurer wouldn’t pay the business owner; the guarantor or surety is responsible.

Premiums: Insurance premiums are paid to cover a potential loss, whereas the premium paid for a bond is for guaranteeing that the person promising to fulfill contractual obligations, does so.

Commercial property owners know that insurance is worth it, despite its cost. However, there are ways to keep insurance costs low, depending on business type and possible discounts. To manage this in a savvy way, here are a few ways to minimize the potential for losses:

• Hire and train quality employees: Employee theft is a leading cause of loss for most retailers. Dead bolts and alarms won’t stop it, but screening potential employees thoroughly may help minimize losses. Also, train your employees and ensure they have appropriate safety gear and a healthy, safe work environment.
• Thoroughly inspect grounds and buildings daily, and identify and correct new hazards immediately. Insurers may deny claims if they believe losses occurred because of unaddressed, ongoing hazards. Always be on the look out for possible hazards such as leaky pipes and unsecured hazardous materials, as well as compromised security measures such as broken locks, and anything that poses a risk of injury to employees or customers.
• Add security features. Monitored alarm systems with video are preferable, but adding any security measures to reduce or avoid theft usually results in an insurance discount. Install dead bolts at every entrance and on additional buildings or storage. Attach tracking or alarm tags to easily stolen or high-value items, and consider keeping them in locked, break-resistant display cases.

For more loss-prevention ideas and discounts, contact my office to help you minimize your risks and your insurance premiums.

You know what they say about assumptions – never make them, particularly if you’re a business owner, and particularly when it comes to insurance.

Too many business owners mistakenly believe commercial insurance policies provide blanket coverage for just about everything. Unfortunately, that’s not the case, and there are a few things you definitely shouldn’t assume about commercial insurance coverage.

Here are three of the biggest misconceptions you need to be aware of:

Misconception 1: Damage from floods is covered.

Similar to homeowners insurance policies, commercial property insurance policies do not cover flood damage at all…ever. Coverage has to be purchased through the National Flood Insurance Program (NFIP).

Too many business owners found this out the hard way during Hurricane Katrina; they assumed their destroyed businesses would be covered under commercial property insurance coverage. In fact, they weren’t and aren’t, and the result was that many businesses never re-opened after Katrina.

Misconception 2: Commercial auto insurance covers any vehicle you drive.

Unfortunately, if you’re driving a rented car or one borrowed from an employee and have an accident, your commercial policy would not pay for any damages – not for the car you were driving nor for another person’s property damage or bodily injury expenses. Note that it doesn’t matter why you were driving the vehicle.

Since commercial auto insurance won’t cover losses arising from accidents you’re involved in when driving a vehicle you don’t own, hired vehicles also won’t be covered. If you rent a car to make a long business trip and have an accident, and have not opted for insurance through the rental car company, you may have been driving uninsured.

If you frequently rent cars or other vehicles for business purposes, add an endorsement for hired or non-owned cars.

Misconception 3: You’re covered worldwide.

So you’re off to Europe on business. Whether or not your commercial insurance policy is folded up in your carry-on bag, you aren’t automatically covered for any losses relating to your business that occur while you’re in Europe. Many people believe they’re covered worldwide under commercial insurance, because they know that in most cases, your homeowners insurance follows you worldwide; if your valuables are stolen while you are away from home, your homeowners insurance would cover your losses.

Typically, commercial policies only extend coverage through all of the U.S., U.S. territories and Canada. Have no fear, though; you can usually get a worldwide coverage endorsement added to most commercial insurance policies. It will mean paying a little more in premiums, but you’ll undoubtedly enjoy your business in the City of Lights or the home of Buckingham Palace more, knowing that you’re covered should you incur any losses.

In summary:

It likely won’t be the favorite part of your job, but understanding your commercial insurance policy and its coverage is essential for business owners. Without it, you stand to lose everything, including your business. You know what your business needs, so talk to my office about your options and find the protection that best suits you.

Many employers don’t have a clear understanding of what reserves refer to in Workers’ Compensation issues. Reserves are funds allocated by your insurance carrier or claims administrator to pay your claims. If your employee is injured, an adjuster, in addition to managing the medical care, must estimate the total cost to pay the claim from initial treatment through settlement.

If the injury impairs an employee’s future capacity to work, adjusters must also estimate the amount to pay for this impairment early in the life of the claim, as well as the cost of investigating, defending and managing the injury. If vocational rehabilitation is required in your state, your adjuster must assess these costs, as well.

The reserve system includes: medical costs, which pay for doctor visits, prescriptions, and physical therapy; wage replacement costs, which replace wages temporarily, or permanently in cases of partial or total disability; and loss adjustment expenses, which assist in evaluating and defending claims. Vocational rehabilitation, may be included, depending on the jurisdiction of the injury.

Because reserves established on your company’s claims greatly impact your experience modification factor, they should be closely monitored. Review loss runs at least quarterly to watch reserve development. As the client, you should monitor and question the progress of claims.

The reserve system can work for you if you understand how it works, ensure you monitor loss runs on a regular basis, and move claims forward. Talk to your adjuster regularly and make a point of asking questions.

Managing contractual insurance requirements from your vendors and subcontractors is rarely straightforward, but it is an integral part of risk management.

Insurance requirements under any contract can be difficult to administer, because the more complicated the project or service, the more sophisticated vendors’ and subs’ insurance programs may be.

When evaluating deductibles, self-insured retentions (SIRs) or available insurance limits, your organization can take a variety of approaches.

How you approach insurance requirements should depend on at least these four considerations:

• How critical the services the vendor furnishes are to your organization’s mission.
• The size and scope of the contract, including the exposure (what can go wrong that can cost you money or goodwill) your organization faces from the proposed project or service.
• The financial stability of the vendor or supplier, and the financial rating of its insurance carrier.
• Your history with that vendor. A new vendor requires more scrutiny than one you have utilized for years.

Since the vendor or supplier has to pay premiums and will want to pay for less insurance rather than more, deductibles, limits and scope of coverage are all bargaining chips to the vendor. For example, a small contractor who performs routine maintenance at your facility may balk at furnishing $1 million in general liability coverage. For a small project, you may agree to lower that limit.

However, in one particular case that occurred in a Hawaiian hospital, a contractor cut the power to an oxygen line to premature babies. Hospital maintenance responded quickly; however, $1 million in coverage would never have settled this accident if the incident had not ended so well.

SIRs are the loss portion that the insured absorbs before insurance coverage pays. Accepting an SIR requires additional deliberation.

Deductibles are generally paid by the insurance company, which then recovers that amount from its insured. In the event of a loss with an SIR, in most case you will negotiate directly with your contractor to obtain the SIR amount.

The larger the company, the more likely they are to have an SIR as opposed to a deductible. SIRs usually pertain to liability policies, and may apply both to damage payments and expense amounts paid to handle the claim, or only to the damage amounts.

This difference can be tricky, because SIR provisions vary. Reviewing policy provisions and endorsements before a loss occurs is the only sure way to determine how a claim will be handled. You will be more comfortable accepting an SIR in lieu of a deductible, knowing that the vendor’s insurance company would not write coverage with an SIR if the company’s operations, loss history or loss funding were unstable.

Like everything in life, insurance coverage is negotiable. If you have questions on the insurance requirements your company should request, we are here to assist.

Your belief that “my organization is immune to fraud” may cost you thousands of dollars, or even destroy your business.

Fraud is a global problem. According to the Association of Certified Fraud Examiners’ (ACFE) 2012 Report to the Nations, the typical organization loses 5 percent of its revenues to fraud annually. In global terms, that’s $3.5 trillion in 2011 – the most recent information available. The median loss of cases reported to ACFE was $140,000, but more than one-fifth of reported cases had losses exceeding $1 million.

At the top of the list of those companies most affected by occupational fraud is small business, which, according to the report, suffers the highest median losses. Almost half of the companies who fell victim to fraud in 2011 didn’t recover any of their losses caused by fraud.

What the report doesn’t highlight is the feelings of betrayal on the part of employers who have discovered that a trusted employee has bilked them of their hard-won revenue.

Employees likely to steal

So how can you spot a fraudster in your midst?

They are usually in high-level positions, and the vast majority of those fraudsters known to ACFE worked in the accounting, operations, sales, executive/upper management, customer service, and purchasing departments. More than 80 percent were first-time offenders, and on average, the fraudulent behavior went on for a year-and-a-half or longer.

What contributes to fraud? According to ACFE, most of the companies, particularly small businesses, lacked anti-fraud measures. Those who had 16 of the most effective anti-fraud measures in place had reduced losses from fraud.

Here are several tips to help your organization combat fraud:

Institute a fraud-reporting hotline. Tips from employees, vendors, and customers accounted for 50 percent of detected frauds in 2011.

Don’t expect internal audits to catch every fraud. Only some 16 percent of frauds were identified by audits.

Don’t be lulled by background checks. Fewer than 6 percent had previous fraud convictions, and that number has shrunk over the years.

Watch for lifestyle indicators. The two most common are employees who are experiencing financial difficulties and those living beyond their means. In 36 percent of the study cases, employees were living a lifestyle far above their salaries. Employees who steal are often “control freaks.” They often refuse to allow oversight. Watch for that “Do not question me” attitude or for employees who refuse to take vacations. If you suspect substance abuse or other personal problems, heighten internal controls. Refer such workers to employee assistance programs if your organization offers this benefit.

Prohibit and monitor employees’ vendor relationships. Almost 20 percent of fraudsters had unusually close relationships with vendors or customers. Kickback-type losses can be costly.

Never assume. Don’t think your employees are too loyal or that you treat them too well for them to steal. Most employees are trustworthy. However, one worker with personal problems or a grudge can devastate your business. The best way to prevent fraud is to be aware. Most importantly, bulletproof your business with insurance coverage designed to protect against these types of losses.

One guiding principle in risk management is “Don’t risk a lot for a little.” But how that motto impacts your particular insurance choices isn’t always clear. There is one thing you do need to realize, and that is that juries are often outraged at organizational negligence, especially when those organizations are perceived to have deep pockets.

Assuming your organization won’t ever face a negligence claim isn’t advisable. Instead, consider the factors below and select sufficient coverage to adequately protect your organization.

Your business type

If, for example, you sell hardware to consumers, your risks of being sued are somewhat limited. On the other hand, if you manufacture handguns, your risk factor is considerable. That said, every business, no matter how small, should be aware of today’s million-dollar verdicts; damages awarded can easily range from $1 million to $20 million or more.

Your organizational appetite for risk

Every management team should determine its individual “risk tolerance.” Some companies embrace risk, while others are extremely risk-averse. Either approach is fine; however, if you assume more risk, you should be prepared with sufficient cash or credit reserves to cover any underinsured loss.

Where you operate

Certain legal venues make defending cases highly problematic. Each year, the American Tort Reform Association (ATRA) outlines the worst U.S. venues for civil litigation. However, you don’t have to live in an ATRA “hellhole” to be impacted.

If your organization sells products or operates in those areas, you may still feel the pinch. In ATRA hellholes, you will very likely face an unsympathetic court system if, for example, a product you’ve developed malfunctions and injures someone.

The liability limits of comparable businesses

The insurance industry can assist you in identifying what is happening in your industry, but you need to ask these kinds of questions of your trade associations. You also should keep up to speed yourself by regularly reading trade journals online and following recent verdicts.

For example, the National Law Journal annually lists some 60 of the largest verdicts from the previous year. Some samples: a $64 million award for an age discrimination claim and a $32 million verdict for the death of a sheet metal worker struck by an improperly welded beam.

Insurance premiums fluctuate from year to year depending on many factors, including interest rates on investment income and previous years’ losses in your company and industry.

Resist the temptation to decrease limits when the market “hardens” (that is, when rates increase). Sophisticated insurance buyers who have enough liquidity to pay higher losses may choose to respond to a hard market by retaining more risk, but they will avoid lowering limits just to save money.

In the final analysis, the best advice is this: “Don’t risk a lot for a little.” In other words, saving a few hundred or even thousands of dollars in premium will not seem like such a great idea in retrospect if you suffer a loss or losses that exhaust your coverage limits. My office can help you select the right coverage.