Insurance for Your Business: A Bewildering Landscape of Choices

April 2005

This month we begin a multi-part series looking at insurance needs for the small business. We will detail the various types of insurance you can buy to help manage business risk, investigate how to determine the right level of coverage for your business, and provide some guidelines for how often you should review your insurance portfolio. We will also speak to the role of the insurance broker and what to look for in selecting the right one

Many small business owners view insurance as a type of tax: they see it as a necessary expense that should be kept at a minimum. However, if used correctly, insurance can contribute a great deal to your business success by reducing the risks under which you operate. It can reduce employee turnover, improve your credit rating, fulfill requirements by your bank, make it easier to sell customers on favorable terms, and help your business continue in case an insured peril interrupts operations. The potential benefits of good insurance management make it well worth the time and effort to understand what types of coverage are appropriate for your particular business.

The insurance industry, and the specialized products sold, has become an increasingly complex set of terms, conditions, regulations and alternatives. The level of specialization required to understand the specifics of complex policies requires years experience and continuing education. The legal and regulatory changes themselves have become so complex that working with a registered industry expert has become a requirement

Do I need an Agent or Broker?

Typically, a broker (also called an agent) is a liaison between you and the insurance company. Brokers make a living out of matching businesses up with appropriate insurance. Finding the right broker for your business -- one who looks for low premiums as well as fully understands the risks your company faces -- is a bit of a challenge, but well worth the time spent to make sure you have the proper type and scope of policies. You need someone you can be comfortable with on a long-term basis and who will advise you well so you can spend your time on your business, not worrying about the fine print of the coverage.

How do I select the right person?

Always look for an independent insurance agent, or broker, who is familiar with the industry and your type of business. You have two choices: direct writers (also called exclusive agents), and independent agents. A direct writer sells policies for the insurance company it exclusively represents, while an independent agent represents many insurance companies. A direct writer may get you a better rate, but you will be limited to the specific type of insurance that their company sells. An independent agent can deliver more personalized service and will be able to put together a package that specifically fits your business needs.

An agent should take the time to analyze your operations and coordinate all types of insurance coverage. They should be willing to obtain quotes from several companies to offer you the most affordable coverage possible, and they should make sure that the insurance company offering the policy is solvent.

When selecting an agent, here are some qualities to look for:

Industry Knowledge - The agent should be able to provide you with a list of other clients in your industry and be knowledgeable with issues affecting your business.

Trustworthiness ? As with any business relationship, your insurance agent should be someone you trust. You should feel comfortable communicating with your agent and get answers to your questions in language you can understand. Ask for and call or meet with your agent references

Good Credentials - Find out what kind of professional education and credentials your agent has earned. Some of the most common certifications are:

• Chartered Life Underwriter (CLU)
• Chartered Property/Casualty Underwriter (CPCU)
• Chartered Financial Consultant (ChFC)
• Life Underwriter Training Council Fellow (LUTCF)
• National Association of Insurance and Financial Advisors (NAIFA)

A Risk Management Perspective

There are a variety of risks you may wish to insure yourself against. The table below classifies insurance coverage from a risk management perspective according to the constituent at risk.

Constituent at Risk	Type of Insurance
Customers	- General Liability - Business Owners Policy (BOP)
Business Operations	- Business Interruption Insurance - Key Employee Insurance - Surety Bonds - Employment Practices Liability Insurance - Directors and Officers Liability (D&O) - Errors and Omissions (E&O)
Property & Assets	- Property Insurance - Auto/Marine - Business Owners Policy (BOP)
Employees	- Unemployment Insurance - Workers Compensation Insurance - Health Insurance - Disability Insurance - Key Employee Insurance

This is not intended to be an exhaustive list of insurance types but merely a sample of the most common insurances businesses carry. Other types of insurance may be necessary or unique based upon your particular business. For instance, a book author, physician or consultant may want to carry a policy that will protect them from libel and plagiarism, negligence, or malpractice lawsuits. For these individuals professional liability or malpractice insurance is critical. A professional athlete or world class musician may want to insure their person as it relates to their unique profession in case of injury or inability to perform.

Accidents happen, and lawsuits can put a small business out of business. Having the right types of insurance coverage can protect your business from a number of things that can go wrong. Finding the right insurance broker or agent takes time, but a knowledgeable person who understands the risks of your business and helps protect you against them is invaluable.

Next month we will dive in to the different categories of insurances available to mitigate your business risks and how to go about selecting the right policies for your business.


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