Commercial Insurance 101
What is insurance?
Insurance is a contract between you and your insurer. This contract protects you against specific risk or loss. When you pay an insurance premium, your money is placed into a pool of money along with thousands of other consumers. That pool is then used to reimburse the claims of the few who have the misfortune to have an insurance claim.
How Does It Work?
An insurance company collects money, called premiums, from all of its clients and uses that money to reimburse the claims of those clients who have losses.
How are premium costs determined?
Premiums are based on many factors. Basically, the insurance company uses statistics and research to figure out how great the risk is that your business will have a claim. The greater the risk, the higher the premium.
What type of coverage should I have?
No matter how well a business is run there is always a chance that a disaster, natural or otherwise, will put it at risk. A variety of insurance products are available to protect you from those risks. What you need depends on the type of business you do and where you do it. Here are some types to consider:
Directors and Officers - If your company is large enough it may require this type of coverage. Often referred to as D&O, this insures corporate directors and officers against claims alleging financial loss due to company mismanagement. Such claims usually come from stockholders or employees.
Fidelity, Surety and Crime - Fidelity, surety and crime insurance covers your company for one of the most common business risks, the loss of property (including money!). With Internet hackers a fact of life, make sure that your business is covered for computer crimes, as well.
Business Property - This coverage is similar to what you would buy for your home to protect it against loss or damages caused by fire, windstorms, explosions, riots, accidents, and vandalism. This coverage may be mandatory if you lease your premises (check with your landlord). Remember, if you run a home-based business, your homeowner's policy will not cover damage to your business assets. You will need to protect your business assets with separate contents insurance.
Errors and Omissions - This coverage, often called E&O, is especially important for businesses that provide professional services (doctors, lawyers, dentists, and so on). It protects the insured against liability for committing an error or omission in performance of professional duties. Professional liability insurance is mandatory for certain types of professionals.
General Liability - Liability exposures exist all over your company, at every location. As the concept of personal responsibility continues to deteriorate in today’s society, general liability coverage is needed to protect businesses if claims arise from on-premise accidents, or from their business operations. Awards for successful liability claims are rising and the business owner’s personal assets may even be at risk. Your liability coverage should provide for both legal costs and settlements.
Product Liability - If your business manufactures a product you should have insurance to protect you against product failure that may injure your customers. Some products are more prone to risk than others. For example you will need more coverage if you manufacture food than if you manufacture clothing.
Group Health - Although public health-care benefits are available to everyone in Canada, small business owners may want to provide supplementary coverage as an employee benefit. Coverage for prescription costs and dental expenses are welcomed by employees.
Key Person Insurance - Large corporations are set up so that the death or unexpected departure of a major executive will not cripple the organization. Many small businesses are not so lucky. The death or incapacitation of a key member of a small business could seriously jeopardize that business’s future. By making money immediately available, key person insurance preserves your business’s cash flow if an indispensable member of your business team dies suddenly or suffers a disabling illness or injury.
Employment Practices Liability Insurance (EPLI) - This insurance protects a small business against claims by its own workers. While most lawsuits are filed against large corporations, no company is immune to such lawsuits. This coverage might be either an endorsement to an existing business owner’s policy or stand-alone coverage. The number of lawsuits filed by employees against their employers has been rising. Claims include sexual harassment, discrimination, wrongful termination, breach of contract, wrongful discipline, wrongful infliction of emotional distress, and mismanagement of employee benefit plans. A proper EPLI package will help protect your business, your employees, and your business’s reputation. The cost of your coverage will depend on factors including your type of business, the number of employees you have, and various risk factors such as whether your company has been sued over employment practices in the past.
Auto Insurance - If you use your own car for your business, check with your insurance agent/broker to make sure you have the right coverage. You may need commercial coverage. You may qualify for fleet coverage (usually for five or more vehicles).
Workers’ Compensation - Workers’ compensation in Canada is handled by the Worker’s Compensation Board. The board is an independent body that collects premiums from employers and oversees the payment of benefits to claimants. To find out if your business must take part in the program, contact the board or visit its website at http://www.wcb.ab.ca/home
