Conditions in the insurance market present CPAs a great opportunity to enhance their business insurance coverage as well as to educate their small business clients on key policy renewal strategies. Here are several tips on enhancements to look for and other factors to consider when renewing coverage:
Ask your insurance agent about insurance markets and how they affect your premiums and coverage. Obtain quotes from at least three carriers. Commercial insurance markets are in an extended “soft” period. Underwriters have been able to offer substantial premium savings and/or enhanced coverage because of record cash reserves and low loss ratios. Obtain a variety of pricing options with higher or lower deductibles, higher coverage limits and coverage enhancements.
Weigh insurance needs and premiums against periodic changes in operation and inventory. All changes, subtle to drastic, need to be considered throughout the policy coverage period and at renewal. Some policies may be written to take into account seasonal fluctuations of staffing and inventory. If so, a monthly or quarterly report of these items may be required by the underwriter.
Look for a policy that includes “cyber liability.” Data protection coverage addressing third-party liability is important because of the type, amount and privacy requirements of financial and other private records. General liability coverage typically does not cover the cost of notifying each party potentially affected by a data security breach. Insurance companies offering cyber liability insurance may be able to issue policy endorsements covering government-levied fines and fees for breaches. Highly regulated businesses, such as financial institutions, health care facilities and retail establishments, are most prone to these losses.
Consider risk exposure to electronic business interruption. If your business depends on electronic transactions for revenue, your policy should specifically address business costs of loss of data and electronic capabilities.
Evaluate the business’s responsibility to insure property leased to it. Are the coverage limits mandated in the lease agreement satisfied by the current policy?
Assess the value of office improvements and construction (“betterments and improvements”). Does covered property include building interior “upfit” work done to make the office space suitable for tenant occupancy? If so, check the limits of coverage against a true cost of replacing all interior improvements.
Review general coverage exclusions. Items listed there may surprise you.
Check any coverage exclusions for vacated buildings. Policy clauses can limit or exclude even a temporarily vacant property from coverage. Review the policy and any changes in occupancy of covered buildings.
Consider the replacement value of all business machines and operating equipment. Commercial insurance professionals often use a rough estimate of $10,000 per employee when determining the replacement value of office equipment. Factor in any leased equipment, such as copiers, phone systems and computer equipment that may not be listed as assets on the balance sheet. Consider replacement cost rather than book value when determining insurance limits.
Following these tips and taking the time each year to assess insurance coverage, rather than simply renewing it automatically, will help to keep it aligned with business needs.
—By Brian S. Smith, CIC, ARM, CSP, (firstname.lastname@example.org) a commercial risk management consultant with the McCart Group in greater Atlanta and an InsuranceEdge adviser to American Express OPEN.
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