If you have any questions about insurance terms, please see our insurance terms glossary. Don't see the answer to your question below? Why not Ask The Expert?
What types of insurance does my business need? How do I find out?
Determining what types of insurance coverage that your business needs is done with an in-depth "risk analysis." This can be completed by an insurance broker who has experience in your industry. Contact us and talk to a Rhodes & Williams insurance broker now.
What is a risk analysis?
A risk analysis looks at a business' risks and determines which ones are significant enough that they should be covered by an insurance policy. It is very important to make sure your main risks are adequately insured (and that you're not insuring risks that are ultimately insignificant).
What is "business insurance"?
Business insurance is no single type of insurance coverage, but a term to describe a variety of different insurance coverages that are particularly relevant to businesses and their exposures to risk. Business insurance also includes coverages that are required by law (unemployment insurance, worker's compensation, etc.).
Do I need errors and omissions insurance coverage?
If your business provides consultation, sales, design or services to clients, you should consider errors and omissions insurance. Errors and omissions insurance, sometimes called "professional liability insurance" or "malpractice insurance," protects you if a client or customer claims you did something wrong. It generally covers important financial costs like attorney fees or possible settlements.
Do I need special insurance coverage?
Every business has unique risks, and whether or not those risks justify specialized insurance coverage (crime, kidnap and ransom, sewer back-up, etc.) can only be determined by an insurance broker with experience in your industry. To find out if you need any type of special insurance coverage, contact us and talk to a Rhodes & Williams insurance broker.
Who needs Employee Dishonesty and how much?
The key to protecting your business from Employee dishonesty is loss control and appropriate limits. Don't think it can happen to you? We have heard clients say that they are not at risk because they are a small company with little petty cash, good controls and long-term, loyal employees. Unfortunately, one of them said this just as they cancelled the coverage... just over a year before they had a loss of over $100,000.
Employee dishonesty risk management starts with checking prior history. Other good steps are outlined in the questions in typical employee dishonesty applications. For example:
- Audits by independent CPA that includes a review of internal controls
- Two signatures required on all checks over a nominal threshold
- Separation of duties and mandatory vacations for accounting/bookkeeping personnel
- Confirmation of statement balance by someone outside the accounts payable unit
- Stamping invoice "paid" when checks are issued
- Joint control of securities by two employees
- Regular inventory of valuable equipment and storing it in secure areas
- Computer controls including:
- Automatic prevention of repeated attempts of unauthorized access
- Exception reports generated for unauthorized sign-in or repeated access attempts
- Segregation of duties between programmers and operators
- Individuals who can authorize checks should not also be able to produce them
The answer to the question of what is an adequate employee dishonesty limit is … more than you think. Because employee dishonesty losses can go on undetected for years, even relatively small businesses can suffer very large losses. The record is probably held by a small Michigan County whose treasurer stole $1.2 million even though the county's annual budget is only a little over $4 million. Incidentally, he stole the money to fund his investment in a Nigerian Internet swindle! A good starting point is 10 percent of annual budget, sales, etc., but note that in the case of the county, the amount stolen was more than 25 percent of one year's budget.
Employee dishonesty is an exposure that gets little respect. It's time that it did!
How do I know what limits of D&O insurance should I buy?
- Several factors come into play when considering what limit of D&O insurance to buy.
- Private companies carry lower limits than public companies because the risk of shareholder suits is lower.
- Premium cost is a consideration as well but during the soft insurance cycle the cost of insurance is low so most companies buy higher limits
- The rising cost of defending and settling a claim is also a factor in purchasing D&O limits
- There has been a transition from buying a minimum of $1M of coverage to $2M. Most companies that have bought $2M in the past are buying $5M
Why do I need Professional Liability (E&O) Insurance?
General Liability policies respond to claims that your product or service has caused a third party bodily injury or property damage. These policies will not respond to claims that your product or service has caused someone a financial injury.
An E&O policy could also respond to breach of contract claims where a client claims that your product does not perform as you said it would.
Most companies purchase the coverage because of a contractual requirement.
If you don’t buy the coverage you will have to fund the defence costs yourself.
Will a higher deductible lower my premium?
The answer depends on whether your company has a claims frequency issue. If you have had a series of claims in a relatively short period of time you may want to increase your deductible to neutralize or minimize any premium increases. Increasing the deductible shows the insurance company that you are serious about risk management and are willing to accept the costs under the higher deductible.
If you do not have a claims frequency problem, there is usually not enough premium savings to warrant a higher deductible. For example if you increase your deductible from $2,500 to $10,000 you would usually not save $7,500 in premium
Why is my insurance premium increasing?
- There are several factors to consider. Increased property values, or increased sales will cause a premium increase because the exposure to loss has increased.
- General Liability and Professional Liability premiums are a function of sales. As sales increase premiums increase even if the rates stay the same. The insurance company uses a rate per $1,000 of revenue or sales to generate the premium. If your sales increase by 20% on an annual basis, your General Liability or Professional Liability premium will increase by 20%
- However during most soft insurance cycles, insurance companies will generally reduce rates to minimize the impact of premium increases.
What are the cycles in the insurance marketplace?
- There are two cycles. A Hard market and a Soft market.
- A soft market occurs when there are many insurance companies vying for the same business. One way an insurance company can win a piece of business is to quote a lower premium than the incumbent insurer. When there is competition for business, insurance companies lower their premiums to write more business.
- Insurance companies make money buy investing premium dollars. When they make money on investments they can make up any decreases in premiums. The more premium they write the more they have to invest.
- A Hard Market occurs when insurance companies have paid out significant claims, and they cannot make money with investment income. The only way to return to profitability is to increase rates and premiums.
- Insurance company consolidation can also be a factor in the cost of insurance. Supply and Demand. Demand is pretty constant from consumers. On the supply side more insurers = more supply = lower premiums. Less insurers = less supply = higher premiums.
- Hard Markets usually last for 12-24 months. Soft markets last for close to 10 years.
- A Hard Market could see rates increasing by 25-50 % or more..
- A Soft Market sees consistent decreases of 10-20% a year for several consecutive years.
If I buy this insurance will it prevent me from getting sued?
- The short answer is no. Nothing can prevent you from being sued. People or companies or organizations can sue you for almost anything. What you buy insurance for is to defend these allegations or actions whether they are frivolous or not.
- As an individual or company you can be proactive & responsible but that still does not prevent you from being sued for bodily injury, property damage, financial injury, environmental injury etc.
- Good business practices will reduce the probability of a suit but unfortunately they will not prevent a suit.