Ask yourself: How much risk are we prepared to accept for our business? Essentially, anything that you are not prepared to take on needs to be covered by suitable insurance coverage.
To measure the amount of risk in evaluating the insurance needs of your company, there are a number of key areas you need to examine in conjunction with a knowledgeable insurance agent. The primary areas you should re-evaluate annually are:
How much liability protection does your company currently require? The amount of coverage you had previously purchased was probably adequate at the time but remember: your business has changed since then and so has your liability exposure. What was suitable for your needs last year may no longer be sufficient if your company has grown and expanded. The larger your growth, the more you become exposed to potential, increased, and significant liability.
Business property evaluations go up and down as commercial real estate values fluctuate. You could now be paying too little or too much for the necessary coverage. The same applies to your equipment, machinery, and inventory. Adding or subtracting in these three areas, while factoring in appreciation or depreciation, can dramatically affect not only the premiums you pay but also your overall property insurance coverage in the event of a significant loss such as a fire or natural disaster.
The premium you pay is largely dependent on the roles of each and every employee from the shop floor to your managerial staff. If the roles of your personnel have changed relative to how your business has grown, shrunk, or evolved, then you need to re-evaluate these changes relative to the premium rate you pay for each worker. The premium cost changes or differences can be substantial.
Business Interruption Insurance
You might have enough insurance to get your business re-built and your equipment replaced in the event of a disaster, but did you also factor in your business operating expenses? Many companies neglect that part of the equation and fail to develop a disaster recovery plan. Even if your company has a plan, what about the vendors that are key to the survival of your business? Your own business might be fine, but in some other part of the state or country, a key manufacturer or supplier could get nailed. Did you know that you could extend your coverage to cover this circumstance too?
Insurance Protection of Executives
The size of your company doesn’t matter. If you have employees, you can face claims for sexual harassment or wrongful dismissal. You may not have considered the need to purchase employment practices liability insurance before, but if your company has grown that expansion has increased your risk to potential claims.
Similarly, if you sponsor a 401(k) plan for your employees, and its performance has not met expectations or an employee feels the investment was mismanaged, do you have adequate fiduciary, directors, and officers liability to handle such claims?
To safeguard your business from potential risks, an annual insurance audit is a must. You may discover that changes in your business may have exposed you to new risks. Likewise, insurance premiums are a significant expense, and you might find that you are paying too much or covering exposures that are no longer relevant.