Phil Rosenbloom:
612.436.5614
prosenbloom@bearence.com
www.bearence.com
Questions to ask your
insurance agent and
risk management advisers.
IF YOU OWN a business, you are at risk.
Economic conditions, natural disasters, accidents, illness, lawsuits or dishonesty can threaten the enterprise you’ve worked hard to build. It may not come naturally, but playing the “what if” game is a necessary part of due diligence for every entrepreneur.
Many entrepreneurs believe that if they buy an insurance policy and add a dash of optimism, they have covered all of the potential risks in their business and personal life.
However, the risk profile of a company is more complex than that, and it is always changing over time. You may not realize new risk exposures that develop when you add and adjust employment, when laws change, or when you add new products, benefits, partners or processes – until something happens.
In the course of our business, we’ve noted some common risk exposures that many entrepreneurs tend to overlook. Ask these questions the next time you visit with your insurance agent and risk management advisers.
Coordinate contracts
1. What are all of the contracts and agreements that need to be coordinated with your insurance policies?
Leases, mortgages, purchase orders, vendor agreements, construction contracts and a whole host of other legal documents come into play when you make a claim against an insurance policy. If these agreements are not coordinated with your insurance program to protect you, you may end up with results that you did not expect.
For example, if a landlord pays for improvements to a leased space, the lease must stipulate who is responsible if damages occur. Tenant insurance policies will not cover damages unless the lease states that tenants are responsible.
2. What do you own and where is it located through the course of business?
All business owners have assets that may be in someone else’s possession for short periods of time. They could include vehicles, products and materials that are stored or assembled off site, products in transport, and even critical data. If these assets are lost while under someone else’s supervision, clarify who is responsible for their replacement.
If you purchase products from a vendor, for example, you should know whether you take possession once the products arrive at your door or once they are shipped. Be clear on what protections vendors provide as well as what protections you will guarantee for your customers. Assets that move or are offsite are covered differently than assets that stay at your place of business.
3. What are your risks associated with customer satisfaction?
Anyone who sells a product or service carries the risk that someone will be upset with that product or service. Often when there is a problem your customer ends up dealing with an insurance person to resolve that problem.
The performance of an agent or insurance company with your customers reflects on you. Understand that you are buying a service team and not just an insurance policy when you select advisers.
Virus protection
4. What are your risks associated with intellectual property?
One of the newest risk exposures for businesses is the Internet. Risks related to the information provided by (or written about) a company online are still evolving. Copyright infringement is a constant battle. Companies are also worried about their vulnerability to viruses, data mining, and hackers.
In addition to IT security measures that can protect your data, there is now an emerging insurance market available for coverage to protect against errors and omissions, intellectual property and security liabilities.
This coverage can prove quite valuable in the face of allegations that you did not adequately protect sensitive data that was pirated by hackers, or that you launched a virus into a customer’s computer system that caused a severe crash.
5. Who is responsible if someone gets hurt?
Most business owners are aware of workers’ compensation insurance, but few truly understand how it works and the potential consequences of a workplace injury. As you grow and add employees, your company’s responsibility for their safety and livelihood also grows.
Review your responsibility for independent contractors, leased workers, subcontractors, outsourced employees and inactive shareholders, among others, with a competent workers’ compensation expert. This should be reviewed annually to make sure that all potential risks are addressed.
Driving is one of the biggest dangers faced by many employers. If anyone uses vehicles for your business, review this risk exposure. For example, some business owners will lease a vehicle in their name, but run the lease payments and other expenses through the business, including insurance coverage.
They may not realize that the name on the lease does not match the name on the insurance policy. This difference can create coverage problems if the owner is in an accident, or if a family member is hurt in the process.
6. Who is responsible if someone loses money?
In harder financial times, employers are increasingly vulnerable to claims of fiduciary mismanagement. There are clear rules and responsibilities required of any employer that offers retirement benefits and other compensation. This includes how the money is deducted from payroll, how the funds are invested and how employees are informed of those investments.
Employers can outsource these responsibilities in order to mitigate their risk. At a minimum, they should work closely with their CPA, benefits provider and other financial advisers to make sure that the benefits are properly structured, managed and monitored.
Don’t ignore personal
7. How are you protecting yourself outside the business?
Often the risks of owning a business are thoroughly reviewed, while the personal liabilities of the business owner are ignored. A personal risk assessment is essential to the total risk management of an entrepreneur.
Your agent should review home, life, disability, long-term care and auto policies. Each should be structured to protect you and your family in the event of an unforeseen loss.
Not every risk needs insurance protection or management by outsourced consultants. Every risk does need to be identified and understood. Bring your advisers to the table annually, discuss the changes in your business and educate yourself on ways to reduce, transfer or accept the risks of entrepreneurship.
