Corridor insurers offer tips for making sure your business stays covered as risks evolve
By Dave DeWitte
dave@corridorbusiness.com
Flood, hail, tornado – even sewer backups.
If you’re in business in Iowa, some things are hard to overlook in discussions about insurance. There’s simply too much weather drama to ignore the possible need for big checks to be written down the line.
But what about data breaches, power failures, breakdowns in critical equipment or human factors that could result in lawsuits, or even workplace violence?
Risk management experts say that while some risks remain steady, others are emerging and business coverage needs are constantly changing. That has put the onus on business leaders to look more frequently at their coverage and possible gaps.
“It’s easy to only look at it one time a year,” said Spencer Stephens, risk consultant for Sheets Forrest Draper Insurance in Marion. “But over times, things change. Sales can go up, you’re switching vehicles, you’ve started operations in a different state – you have go to through more than a conversation once a year.”
A high percentage of insured businesses have either a business owner’s policy (BOP) or a commercial package policy (CPP) to cover their major risks. A BOP combines basic property and liability coverage into one package that is typically priced lower than if the insured bought each coverage separately. It tends to include standard coverage, but is not particularly attuned to the needs of the specific business covered. A CPP, by contrast, offers the insured an a la carte menu of coverages they can use to meet their specific business needs.
Data breach and cyber insurance coverages are a good example of the kind of coverage gaps businesses have been addressing more in recent years, according to Matt Evans, practice leader in the Professional Liability Resource Group at TrueNorth Companies in Cedar Rapids. Some of the most affected businesses are data centers.
“We talk to data center operators – they are popping up all over – and their contracts [with clients] are typically requiring them to carry a $20 million umbrella coverage,” Mr. Evans said.
But while cyber coverage is becoming a widely accepted need among companies that sell direct to the public or handle masses of data, even those who once seemed to have little exposure are beginning to take the need seriously. Recent cases have exposed the potential for products ranging from internet-connected televisions to defibrillators to be manipulated by hackers.
Premiums paid for cyber-specific policies by manufacturers rose 89 percent from 2015-2016, according to the insurance consulting firm Advisen Ltd., to $36.9 million.
The evolving world of risk is showing up in the checklists that insurance companies use in their own reviews with clients. TrueNorth, for example, maintains an exhaustive coverage checklist including “hundreds of items,” according to Mr. Evans. Those range from standard hazards like earthquakes and floods to social engineering, an emerging coverage for damages that result from the use of social media or email to capture information used to commit financial fraud.
Developed by TrueNorth Chairman Loren Coppock with help from the University of Iowa, the checklist provides an understanding of how much risk the client wants to outsource and how much they believe they can absorb. A standard benchmark for risks that require coverage are exposures that could bankrupt a company if not addressed, Mr. Evans said.
Mr. Stephens, of Sheets Forrest Draper, is also a heavy user of coverage checklists.
“A lot of what we do starts out from the perspective of each client we visit with,” Mr. Stephens said. “If it’s a gas station or an eye doctor, each one is going to have different exposures based on what their business is.”
Still, Mr. Stephens sees some specific concerns growing among policyholders. They include the areas of employment liability, equipment breakdown and cyber liability. While possibly more predictable than a natural disaster, Mr. Stephens said critical equipment breakdowns can leave businesses in dire financial straits.
In one example he cited, an electric motor on a large rooftop air conditioner for an office building shorted out, causing damage to the motor, main bearings and impeller. Because the unit could not be repaired without a lengthy delay, a temporary air conditioner was installed. The building owner’s equipment breakdown policy paid a claim of $112,206.
Employment practice liability coverage can address a wide variety of risks such as sexual harassment in the workplace, wrongful termination and employment discrimination.
Mr. Stephens cited one example from EMC Insurance of a small restaurant that offered take-out service. A customer of Middle Eastern descent sued the restaurant, claiming that the server had made derogatory remarks about his ethnic clothing and accent. The manager of the restaurant who investigated the claim found that the server had not only made derogatory remarks to that customer, but others. The restaurant settled the lawsuit for $12,000, but had to pay an additional $4,000 in legal fees.
Another growing demand area is in the niche business of driving as an Uber or Lyft contractor. Most drivers believe their existing auto policy will cover them when combined with the coverage ridesharing services provide to drivers when they are carrying passengers, Mr. Sheets said, but a more careful analysis often reveals gaps that could leave the driver exposed to liability.
The more a business addresses a market niche outside the mainstream, the more likely it is to require specialized coverage. Mr. Evans said TrueNorth has had to work with insurance companies to get coverage for medical spas, an emerging business niche that many insurers didn’t feel they initially understood well enough to cover with medical malpractice policies.
Many types of specialized coverage can be included in commercial package policies or other umbrella-type policies. However some risks are so specialized that the providers of those policies don’t write coverage for them, forcing the insured company and their insurance agency to shop for it elsewhere.
“Environmental or pollution is a very specialized area,” Mr. Evans said. “Pollution is pretty much excluded from traditional policies.”
The benefits of review
Frequent coverage reviews using a checklist not only help the insurance company identify potential coverage gaps, but also work with clients on risk management strategies. Those can include initiatives like workplace safety programs, awareness campaigns about sexual harassment and discrimination in the workplace, and programs to review equipment safety.
“We have a specialized safety team that can work with their internal safety team,” Mr. Evans explained.
Coverage reviews also help the insurance agency and client understand what emerging risks they may need to add to their policies, and what their current exposures are.
“Clients vary by risk appetite,” Mr. Evans said. “Think about a 10-year client that has never had a claim for workers’ comp – we have had clients that will take on a $100,000 deductible. If they take safety to an extreme priority, we can start talking about having a $100,000 deductible and how to self-insure for that.”
Insurance agencies typically want the client to read and understand their policy, but realize they may not get through it “unless they’re a person who has a lot of trouble getting to sleep,” as Mr. Evans remarked, tongue in cheek.
An incomplete understanding of what’s covered tends to be an unfortunate side effect of the complexity of insurance. It’s an all-too-familiar feeling.
“You have it, but you don’t know what you have, and when it happens, you don’t have it covered,” is the scenario Mr. Stephens worries about. “The clients we sit down with really want to know what’s not covered.”
