Banking and Financial Services Sections

A Sound Policy

An Annual Insurance Review Is a Must for Any Business

Corey Murphy

Corey Murphy

Many new business owners carefully consider what steps are needed to ensure the protection and success of their new enterprise. This exercise includes performing due diligence when it comes to obtaining a well-thought-out insurance plan.
As that enterprise evolves, changes, and adjusts to its competitive environment and growth opportunities, that same discipline of conducting timely insurance reviews is, regrettably, not always on the top of the to-do list. All too often, success and longevity can breed complacency when it comes to performing an annual insurance review.
Yet, an annual review is a crucial component to an evolving business. The need for policy updates and evaluations is essential. If you have the same insurance policies from five years ago, you likely are woefully underinsured or carrying insurance coverage that no longer suits your business. Circumstances change, and these changes may require different types of coverage.
With recent disaster experiences in mind, we don’t have to look far to find examples of business people who were crippled by a local disaster — fire, explosion … yes, even a tornado. The aftermath of such a catastrophe is not the time to find out how well your insurance planning has kept pace with your business. There are all too many vivid examples of cases in which some business people got their coverage plans right and others did not.
While the list of specialty insurance policies is lengthy, a thoughtful review will help you anticipate your insurance needs. Business policies can be customized in many different ways, and there are several additional coverages that can be incorporated. It is important that you and your insurance agent spend the time to calculate the right limits and select the correct coverages to build a policy that will financially support you and your business during a crippling disaster.
A critical element of your insurance program should be business-interruption insurance. An insurance program that includes a business-interruption policy could provide the resources for a business to survive the scenario we recently witnessed in our region.
In its simplest description, a business-interruption policy is designed to financially support your business should it be temporarily shut down due to a covered event.
Should a catastrophe shut your business down, it is a sad but true fact that your company’s bills will continue. A business-interruption policy can be structured to cover these bills along with the lost profit that your company is no longer generating. It also may allow your company to continue to meet payroll obligations while your employees are not working. It can be customized to provide reimbursement of above-normal expenses necessary to get the business to normal operations as soon as possible.
Make sure to coordinate a business-interruption policy with your existing property-protection policy.  As an example, check the ‘causes of loss’ covered on your property policy. The interruption segment will respond if the loss occurs as a result of a covered cause of loss listed on the property policy. So you need to make sure to review these policies together. The result of your effective review will ensure that your property coverage will cover the property of your business, while the business-interruption policy covers the operation of your company.
Unlike most insurance policies that have a monetary deductible, the business-income section of the policy has a time deductible; typically the wait period is 72 hours. It is important, when selecting the limit of insurance, to consider your past financial performance, the co-insurance clause on the policy, and your actual potential loss. If the limit of insurance that is purchased does not equal the co-insurance amount of the actual potential exposure, a reduction in the settlement could result. Fortunately, there are optional coverages that could be included to negate the co-insurance clause.
To get it right, take the time and work closely with your agent to find what best works for your circumstance. It is a process of thinking through risk and options, and then ultimately making an informed business decision.
With insurance, it is important to realize that you have to get it right before things happen.

Corey Murphy is a certified insurance counselor and president of First American Insurance Agency in Chicopee; (413) 594-8118; [email protected]

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