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, (brian.smith@mccart.com) a commercial risk management consultant with the McCart Group in greater Atlanta and an InsuranceEdge adviser to American Express OPEN.
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