Chances Not Worth Taking

You’re trying to keep premiums at a minimum, but does your business have enough insurance protection?

ChancesNot Worth Taking When did you last check your insurance coverage? Re-evaluate your policy now — before disaster strikes By Gary Fineout

After Hurricane Ivan ripped through Pensacola in 2004, the rebuilding effort in that community may have taken far longer than some people expected.

One large restaurant remained shuttered for 18 months before it was able to finally reopen its doors, recalled Wade Shapiro, an account executive with Brown and Brown Insurance in Tallahassee. The restaurant had purchased a policy meant to cover lost income, but it ran out after one year.

That scenario is a reminder of the balancing act all business owners must deal with when it comes to insurance. You want to keep premiums — and a recurring expense on the bottom line — as low as possible.

But at the same time, do you have the right type of coverage to take care of all the consequences of a disaster, whether it’s a storm or a fire? And do you have coverage for other unforeseen risks — say, if you get sued by a disgruntled former employee?

"People don’t realize until they actually have a loss that they aren’t really covered for what they think they are," Shapiro said.

Some insurance, of course, is mandatory for most businesses, such as worker’s compensation, or commercial automobile coverage if the business owns, leases or operates vehicles. Banks that have lent money for new facilities usually require insurance to cover the building in case of a disaster.

The Florida Department of Financial Services has a consumer guide it offers online for small-business owners that walks through the various types of coverage that can be offered in Florida, whether it’s traditional insurance offered by a state-regulated company or other types of coverage known as surplus lines.

Surplus-lines insurance is insurance that is not usually available from standard insurance companies licensed to do business in Florida. More and more businesses have grown to rely on surplus lines in recent years because Florida’s underlying insurance situation has become volatile in the wake of eight hurricanes that hit the state earlier this decade. But surplus lines can be purchased only if a business owner shows that he or she is unable to get the coverage elsewhere.

"Florida has become the most complicated state to do business in," said Donald McMahon, president of McMahon & Hadder Insurance in Pensacola.

Both McMahon and Shapiro suggest that the best place to start is to review your existing insurance policy with your agent. That way, someone can go over the risks and evaluate the different types of coverage that may be needed.

"It’s the agent’s responsibility to train them on how to manage and administer their insurance plan," McMahon said. "People don’t know these things; a good agent needs to visit them on a regular basis."

That viewpoint is echoed by Tami Torres, director of the Division of Consumer Services for the Department of Financial Services.

"The bottom line as an employer and small-business owner is that you want to protect your property and you want to protect your assets," Torres said. "There’s protecting yourself from a disaster situation and protecting yourself from everyday problems."

Some of the things to consider:

What is the actual value of the policy, and does it cover everything? Sometimes people are underinsured because the value listed in the policy has not kept pace with changes in market values or the cost to rebuild. Or the business owner has purchased expensive new equipment and not included it in the old policy. Most property insurance policies contain a deductible for wind storm damage. And that deductible is based on total value of the property, not the value of the damage. It’s probably a good idea to know before a storm how much you would have to pay in the event of a hurricane.

Is your coverage for the replacement cost or the actual cash value? Actual cash value pays for the cost of damaged goods and property after deducting for depreciation. Replacement cost insurance is generally more expensive to buy, but it’s not the same thing as market value. In other words, the insurer will pay what it costs to rebuild something, not what it may be worth if you had sold the building.

Instead of purchasing just one policy from one company, would it make better sense to have a mix of policies? Some carriers don’t want to cover certain types of activities. Shapiro, for example, notes that many firms steer clear of real estate offices that expand into property management businesses. "Companies are doing things outside their realm of expertise," McMahon said. "Maybe that represents an area their current carrier of insurance doesn’t have an appetite for."

Do you keep a history of your premiums and claims experience? This can help when you go shopping for coverage. It also helps demonstrate to carriers that your business is well run and worth covering. "They are looking to see if it’s well run; those are the accounts they bend over backwards for," McMahon said.

Do you have coverage to cover lost income, and is it sufficient in case of a disaster? In some instances, it’s not just replacing a building that needs to be covered. There’s the money your business will lose if it is unable to get up and running quickly following a disaster. There are different types of coverage in this category, including a policy that covers a set period of time versus one that covers a fixed amount. This is important if you run into snags come rebuilding time.

"When they are thinking about what it takes to rebuild, it’s very different from when I buy a piece of property and build a hotel or office or whatever from scratch to having a damaged piece of property and tearing it down and getting it renovated," Shapiro said.

Other things business owners might consider is whether they should purchase coverage that protects them in the event they get sued by a former or prospective employee. Or they could inquire about an umbrella policy that layers on additional coverage which increases the amount a claim must exceed before the business owner is personally liable.

"It’s like a brick wall between you and the public," Shapiro said.

One other potential type of insurance to consider is what is known as law and ordinance coverage. This could be important if you own an older building. This type of coverage will cover the expense to bring an older structure up to code in the event that a substantial portion is damaged and has to be rebuilt.

"That additional rider will be a major relief," Torres said.

How to researchYour Insurer & Insurance Needs

The Florida Department of Financial Services maintains information on its Web site aimed at helping consumers navigate through the sometimes complicated world of insurance.

Florida Chief Financial Officer Alex Sink says that small-business owners should not only have insurance, but they also need to make sure that they have an overall disaster plan if a catastrophe hits.

"The key to protecting your small business is to consider the coverage you will need to recover from any potential disaster,’’ Sink said. "It’s also critical to have a business disaster plan because, sadly, the majority of businesses impacted by a disaster never recover because they fail to plan."

The main consumer page for learning more about insurance can be found at myfloridacfo.com/Consumers/PurchasingInsurance.htm. It has information that allows a business owner to verify licenses, compare the number of complaints a company has received and has links to other background information.

Another portal found on the same Web site — myfloridacfo.com/Consumers/UnderstandCoverage.htm — has links to consumer guides, including one for small-business owners.