Insurance is a droll topic to the vast majority. Imagine how a topic like the history of insurance in the U.S. would be received…
Insurance in America is said to have started in Philadelphia in 1752 by the ‘Philadelphia Contributionship For The Insurance Of Houses From Loss By Fire’ (not quite the savvy agency names we often see toady). It was a mutual company, hence the word ‘Contributionship’, and they are still insuring across the nation to this day. Just like today, insurance in 1752 helped standardize the construction of homes as the company refused to insure anything that was considered a fire hazards. Consider that, in 1752, everything was made out of wood and typically built very closely together in the interest of saving space as settlements grew over time. As a side note, open fire flame was the main/ only source of heat and light. Quite frankly this represents haunting combination in the insurance world. Regardless, the role insurance played in setting standards 265 years ago helped regulate and implement zoning laws and building codes that are still used today. Within a decade, the first Life insurance company would be founded.
Fast-forward 265 years and needless to say the landscape of insurance has changed quite a bit, across all lines of insurance. While the foundation and purpose of insurance has remained the same all this time, the risks that we face in 2017 are vastly different than those in centuries prior. In fact, one of the biggest changes in insurance came on September 11, 2001.
On this date, the best part of the world played witness for the first time to a ‘new’ threat – terrorism.
The Terrorism Exclusion Act was signed into law by George W. Bush on November 26, 2002, which in essence created a federal backstop on insurance claims arising from acts of terrorism. This means that while terrorism coverage is a purchasable product, it is subject to the TRIA’s definition of what constitutes a terrorist act.
The point being that before 9/11, terrorism insurance did not exist in the U.S. Of course, not many small business owners are in need of it, but companies that are on the international stage, making millions/ billions of dollars in revenue, with foreign connections, may see the value of having a policy… subject to a sizable premium.
While unfortunately we see acts of terrorism on almost a weekly basis in today’s world, there are multiple other risks that have developed over the past 20 years that are very applicable to our society; both on a personal and commercial level. But, what are some of the risks that business owners should be paying attention to?
The Digital Age
The internet changed everything. I don’t just mean insurance, I mean everything. All of a sudden we had access to the World Wide Web, an unending expanse of information became available to us right at the click of a mouse. In 2017, anything we need or want to know is carried around in our pockets.
This has created exponential growth, discovery, communication and efficiency. It has also created a new world of crime, fear, paranoia and deceit. This is known as “the dark web”.
Over the past few weeks, the general public has witnessed what a data breach is with the Equifax ordeal. According to Equifax, hackers may have had access to the personal information of over 145 million people. That is, names, addresses, Social Security Numbers, dates of birth, driver’s license numbers and even credit card numbers. Pretty terrifying stuff, really.
Cyber Liability is a product many insurance companies nationwide have began to implement or have already done so. This product, however, is not just for the Equifaxes of the world. On the contrary, there are very few businesses out there today that do not have any need for Cyber Liability coverage.
Let’s say you are a small business owner. You have a nice website that people often visit to learn more about what you do, as well as various social media outlets to create more avenues of advertising. You have some employees, let’s say 8, each with their own payment information they have given to you for their direct deposit. You have many clients that have recurring orders or services with your business and so you have an active account for each of them, or perhaps a client was one-time deal but your protocol is too keep all transactions on file. You as the business owner keep your financials on digital file.
What would happen if someone hacked your system?
Imagine if someone hacked your website, got rid of all your content and replaced it with slanderous or inappropriate content. You could be held liable for damages caused. The same goes for your social media outlets. Imagine if someone got into the payment information of all your employees, wreaked havoc on their accounts and robbed them or destroyed a credit score. Imagine if all your clients’ information, personal or business, was compromised. Imagine if they got hold of your financials.
Without trying to create fear around this, all of the aforementioned scenarios have happened; over and over and over again. And, not just to the big boys.
As is in its name, this is a liability policy. It is designed to protect the policyholder from liability claims stemming from data breaches. Your General Liability policy will not apply here. The lamentable part of this is, Equifax will probably be fine because of their size, but the small business owner could be down and out if victim of a data breach.
Cyber Liability can often be built-in to some policies but many companies can offer it as a stand-alone policy. Either way, consider purchasing one. As it is 2017 and the risk has never been higher, it could be one of the more shrewd and inexpensive investments you make for your business.
The Politically-Correct Age
Lawsuits these days are more common than those beer koozies you get at golf tournaments.
Everyone has a stance on politics whether they know it or not. Everyone has something that offends them more than it should. What’s more is that a lot of what we see in terms of behavior was not happening a few years ago. The sense of entitlement displayed in 2017 was, from what I hear, unfathomable 30 years ago. We all have to be very, very careful as to what we say.
Now, I’m not saying that all the controversy surrounding these issues is nonsense, but we are living in the snowflake era. This is a fact. There are human beings that wake up every day with the intent of causing problems, whether directly or indirectly. To quote my guy Michael Caine in ‘The Dark Knight‘, “Some men just want to watch the world burn“.
Say the ‘wrong’ thing and be prepared to get sued. How does this relate to insurance?
Employment Practices Liability insurance is a product that is vital to the protection of all businesses, including smaller ones. This policy provides coverage to employers for claims made by employees on a discriminatory basis, wrongful termination, harassment, extending all the way to things like failure to promote. What many people don’t know is that this applies to interviewing potential candidates as well.
The examples listed are the most prominent by way of claim volume. Let’s use wrongful termination as an example. Usually, the employer and the employee will not be on the same page in a termination situation. As in, it is doubtful an employee will agree with being fired. Even if an employer has all the grounds in the world to fire an employee, by doing so, they can open themselves up to a lawsuit if the employee feels he or she has enough grounds to prove otherwise; lawsuits do not need to have an ounce of truth within them to be filed.
Of course, this should not stop an employer from firing someone they feel needs to go. A lawsuit is uncomfortable, time-consuming and costly, but doing the right thing for your business by terminating a bad employee is always the way to go. The likelihood of this happening is relatively slim given that the job candidate would have to hire a lawyer and go through the same arduous process and almost certainly lose, but what if an employer actually does say/ do something, wrong, inappropriate or offensive? This is where EPLI kicks in.
The problem is we don’t know what offends each person and even if we did, people are offended by something different every day. But, we can all safely agree that racism, sexism, ageism, and all the ‘isms’ should not be tolerated, and employers should face the consequences if they hit the wrong button.
Aside from purchasing a policy, the advice here is to speak with your lawyer on these matters. The nature of small businesses means they will probably not have their own legal department, so having someone on your side (your lawyer and your insurance agent) to explain and advise in great detail would be a good step to take for employers.
The Entrepreneurial Age
Let’s get away from liability and get into something just as unsettling.
When it comes to your business, what do you fear the most? Or, what keeps you up at night?
Again, every business owner has at least one. For some it is the management of employees. Others lay awake thinking about growth. But some think about something much more detrimental, and it’s a question I always make sure to ask; What would you do if your business was gone tomorrow?
I recently worked with a client who’s business makes great money but everything else relative to the business was not really of higher value. Buildings were old and in need of eventual replacement and so were insured to Actual Cash Value. Business Personal Property was at a minimum as everything could be replaced for less dollars than a deductible. The Commercial Auto costs more or less the same as it would if insured on a personal basis. The General Liability wasn’t anything out of the ordinary.
When I took stock of all of this, I thought the package premium would be very small, which is a good thing for the insured.
This business makes almost $1 million per year. In the event the business could not operate due to a covered loss, how do you protect the potential revenue?
First of all, we should remember that companies rate different policies in different ways. They can be based on revenue, payroll, square footage of property, etc. So, using the above example, the utmost importance was to protect the annual revenue of the business.
Business Income/ Extra Expense coverage is designed to do just this. This client could rebuild its facilities for a comparatively small cost if a storm came through and wiped it out. The problem is that rebuilding takes time, sometimes a lot of time depending on what was lost. During this time, the client would be unable to make the money it would otherwise be making normally.
There are various choices to the extent of this coverage; such as time frame limits of three, six, twelve months. This means that if a business owner was able to calculate the maximum amount of time they would be out of business in the event of a loss, they could make an informed decision on the necessary amount of coverage. Beyond that, some companies have the settlement option of ALS (Acutal Loss Sustained), meaning the policy is set up to pay the actual lost amount in dollars. This is a good option to consider as many businesses can fluctuate in revenue, and this will have you covered regardless (although you should always keep your insurance agent in the loop with your revenue at least on an annual basis).
Knowing that if your business was to burn down overnight and you have coverage in place to protect your earnings is quite simply a beautiful thing. To me, this is the ultimate peace of mind but each to their own. But whether you have something more pressing or not, you owe it to yourself, your employees if you have any and the business itself to protect accordingly.
It is the job of business owners to work with their respective agents on making sure coverage is up-to-date. Your agent may call you every once in a while and let you know of a coverage they believe you should consider having. This is not to get more money out of you; this is to make you aware of areas that may be lacking coverage. Your agent works for you and as such has the duty to bring you up to speed with changing times. My ploy to business owners is that they listen to what their agent has to say and then make an informed decision on whether or not they need the coverage. These are a few examples of coverages that I believe every single business should have. Not all businesses need the same coverage, so always be willing to work with your agent to make sure you remain protected on all fronts.