Expert Advice: What Small Business Owners Should Know About Insurance Policies

Millions of lives were disrupted when Superstorm Sandy hit the East Coast in late October. Months later, insurance claims are still trickling through the red-tape process. Even if you were not directly impacted, the storm serves as a grim reminder for all small business professionals to check -- and fully understand -- their insurance policies.

Meg Errickson, regional director of claims for the Marsh & McLennan Agency insurance brokerage firm, shares how small businesses can prepare for the next natural disaster.

LINKEDIN: What are the top three things that small business professionals should double-check in terms of what is covered and what is not?

ERRICKSON: I would recommend coverage limits, covered perils and exclusions. While that seems like a simple answer, the intricacies of insurance are difficult to navigate. All businesses should partner with a competent broker who is willing to review the coverage and perils as well as take the time to explain to a client what is excluded. Insurance is complicated, and each risk has unique features that should be addressed.

Consumers spend a large amount of their budget on insurance costs -- however, they have absolutely no idea what they are purchasing. Most consumers have no understanding of what is covered or uncovered in their policies. Consumers should be educated when the coverage is purchased and put in effect. Asking the questions when a claim occurs is too late. If the coverage is not purchased, then the claim is not covered.

LINKEDIN: What are some common questions -- or regrets -- that come up when a claim is denied?

ERRICKSON: Our approach is somewhat different. When we speak with a client during the initial reporting of a claim, we will position the client and discuss with them about the coverage they have purchased. There are many situations that are not covered, and we prefer to position the client for the expectation that their claim may not be covered. As a broker, we do not have the ability to deny a claim. However, we do let clients know that the particular loss they are experiencing may not be covered.

Many small business owners should consider purchasing flood coverage and check their policy forms to determine if they have coverage for utility interruption service, including overhead transmission lines. They should also review the enhancement endorsements. Many small business owners’ policies (or BOPs are they are referred to in our industry) have enhancements that provide additional coverage over the traditional coverage forms. These should be reviewed with their broker for understanding.

LINKEDIN: What lessons have Superstorm Sandy left behind?

ERRICKSON: Clients should be prepared before a loss occurs. There should be a thorough review of the coverage they have purchased as well as what additional coverage is available that they may need. Unfortunately, many consumers do not take a vested interest in what they are covering until after a loss occurs.

LINKEDIN POLL: Do you understand the fine print of your current business insurance plan?

Photo credit: Michael Fleshman/Flickr

Buyer Beware! Read the contract! Buy what you need! Do not buy on price alone! Ask the agent to explain the coverages! Understand your risk exposures! Become informed! Retain only those risks you can afford! Eliminate risks you can do without! Do not over use insurance! I could go on but why bother... Most people will still buy on low piece without understanding anything about what they are buying and then blame the insurer for their own mistakes... You can only help those who want to listen and learn.

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Andrew Lau

Principal, CFP at Andrew Lau Insurance Agency Inc.

11y

I am an insurance agent. In May 2012 through referral, I visited a prospect's print shop. The owner was very receptive to show me her existing insurance policy. I noticed that the policy provided $350,000 business content coverage. When she showed me around in the shop, I pointed at one big printing machine and asked her how much it would cost to replace in the event of a fire loss. The owner replied that it cost her $1M new, and that was 9 years ago. I asked how much it would cost to buy a similar 9 years old machine at depreciated value. She replied $400,000 if it is available in the market. I showed her that the existing insurance policy has a 90% co-insurance clause; which means she is required to insure at least 90% of all business porperty based on replacement cost. She was materially under-insured. I gave her examples on how a loss would be handled and settled when she was not insuring her business properly. By the way, the owner made a comment that the previous insurance broker/agent did not even tour her print shop. I left without even giving her any insurance rates, because the owner could not even give me a reasonable replacement cost on all her business property to start with. She did not care to call me back. The moral of my story is that "it takes two to tango". Too often, when a loss occurred, people started to point finger at each other. People spent more time researching to buy their TV, than evaluating their insurance policies. You get what you paid for.

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Daneel Lombaard

Managing Director at Olive Insurance Brokers (Pty) Ltd

11y

Brokers should know their clients risks very well. The new TCF act will make it very difficult for the broker to use the principle of utmost good faith against the client.

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sanjay pokala

INSURANCE PRACTIONER

11y

Yes, good advice for small business pople. They should be careful in selcting the company also

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Tom Gilbert

Director of Training, Reporting, & Systems- Leavitt Group Texas Select

11y

Earl, good advice on the business interruption coverage. I do advise one to check the exclusions and covered perils on the business interruption policy. My family had a business interruption policy for our company, but the claim was denied after Hurricane Katrina, as flood was an excluded peril. A city wide or area power outage was also not covered. It's important for the customer to know these things before a loss. I went into the insurance business after Hurricane Katrina, and this misfortune has definitely influenced the way I handle customers.

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