Key Takeaways
- Businesses need to regularly assess their risks
- Keeping insurance policies updated means better protection
- Update your insurance when you expand, relocate, or change employees
Growth and loss are inevitabilities that exist on two sides of the same coin. Having the right business insurance can help you tip the odds more in your company’s favor. Commercial insurance protects businesses from general and industry-specific risks, but only if it is suitable and up-to-date.
Gaps in coverage can lead to serious issues. Let’s go over how to regularly evaluate your risks and what insurance updates might be beneficial to your business.
Signs It’s Time to Reassess Your Insurance Policies
Business Growth
Expansion of operations: If your business has recently expanded its scope of operations, you are potentially exposing it to new risks.
Increased revenue: If your business revenue significantly increases, you might owe your insurance provider based on how much your business now exceeds the original revenue estimate.
Decreased revenue: If your business sees a big dip in revenue, you might be eligible for a lower insurance premium.
New locations: Opening up new locations means you have to comply with new state laws. More physical assets and property can benefit from higher commercial property coverage limits. Regional risks, such as floods or earthquakes, may also mean you need a natural disaster add-on for your insurance policies.
Changes in Business Operations
New products: Product liability insurance is essential for any company that sells, produces, or distributes products. If your product injures someone, damages their property, or causes death, your company can receive huge lawsuits.
New services: If you’re offering a new professional service, you might need better errors and omissions insurance (AKA professional liability insurance). This protects your business against claims of negligence that cause financial damage to your clients or customers. Certain services require specialized professional liability insurance. For example, healthcare professionals need medical malpractice insurance.
Change in business model: If you change your business model, it’s a good idea to consider whether you need new insurance coverage.
Increase in Workforce
Hiring new employees: If you hire new employees, remember to assess your workers’ compensation coverage and insurance limits across the board.
Seasonal workers: Many companies, especially seasonal businesses, hire seasonal workers during busy seasons.
Contractors: If you’re working with contractors, see whether they have enough liability insurance coverage for their field. Contractors may need general liability insurance, workers’ comp, and other policies based on what work they perform.
Volunteers: Volunteers are not covered by workers’ compensation insurance. This means that you may need to obtain separate volunteer insurance coverage.
Regulatory Changes
New laws and regulations can impact your industry and affect how much insurance is required. Watch out for regulatory changes that affect your business. Here are ways that changes in regulations can impact your business insurance requirements:
- Mandated coverage
- Stricter safety regulations
- New standards for exclusions and limitations
- Penalties for non-compliance
- Insurance industry changes
- Claims process changes
- Dispute resolution adjustments
- Standardized terms and conditions
Significant Investments
Purchase of new equipment: Businesses can benefit from Tools & Equipment Insurance if they purchase valuable, new equipment. Examples of equipment that should be insured include pressure washers, compressors, and other essential gear for business.
New vehicles: Businesses need commercial auto insurance if vehicles are used for business purposes. By purchasing new vehicles, you may need to update your business auto insurance policy.
New technology: If you’re expanding your business to use new cards, consider whether you need new cyber liability insurance or liability insurance. Using new technology may add new digital vulnerabilities to your company.
New property: Expanding your business by securing property means it’s time to protect your new assets with the necessary commercial property insurance policy. Your current property insurance may no longer provide adequate coverage.
Claims History
Your claims history can affect your risk exposure, insurance premiums, and need for coverage. If you have filed any recent commercial insurance claims, expect your insurance premium to go up.
On the other hand, having a long history without filing claims could be a good opportunity for you to negotiate better insurance terms. For example, workers’ compensation premiums tend to be lower if you have not filed injury claims in recent years.
Market Changes
Economic shifts: A volatile market can create financial risks for your business, resulting in a greater need for insurance.
New competitors: If you have any new competitors entering your market or setting up shop near you, you might benefit from additional insurance coverage. Having better liability insurance may be able to increase your chances of obtaining a contract with a business partner.
Changes in customer demand: As hard as it can be to predict customer demand, having the right insurance can mitigate your demand-related risks.
Steps for Updating Coverage to Match Business Growth and Changes
Conduct a Comprehensive Risk Assessment
The first step to updating your insurance coverage is to identify new risks, since these are often the most obvious and notable. Businesses can also use tools and resources for improved risk assessment efficacy.
Next, look at whether there are changes in existing risks. If your business expands locations, increases revenue, or hires new employees, these are good indicators that you might be exposing your company to greater risk. In these cases of increased existing risk, your company may benefit from an insurance policy endorsement or add-on that increases your coverage limit.
Review Current Insurance Policies
Keep a detailed list of the insurance policies your business currently carries. Examine existing coverage, limits, and exclusions.
Are there any gaps or overlaps in insurance coverage? Changing policies, switching, providers, or purchasing add-ons can help fix these problems. A business umbrella insurance policy can help you increase your insurance limits.
Unnecessary policies can be canceled, but make sure to carefully consider whether cancellation is the best option. Not having active coverage at any moment in time means your business is at the mercy of market fluctuations and risk factors.
Consult with Insurance Professionals
Insurance professionals, brokers, and agents can help your business find suitable policies for your needs.
When looking for expert assistance, it’s recommended to seek advice specific to your industry and business needs. This is because insurance is often industry-specific due to unique risk factors and business operations.
For example, the construction industry comes with serious liability and injury risks. Finding an insurance broker who is knowledgeable about construction insurance can facilitate your search for the best insurance policies.
Adjust Coverage Limits
Your insurance coverage limit should match the current value of your assets. For example, if your inventory exceeds a million dollars in value, you should maintain enough insurance coverage to protect your business from the loss of these assets.
Ensure your potential liabilities are adequately covered. Liability claims depend on how much damage your business may be found liable for. This takes into account many factors, such as the risks associated with your business operations, price of legal defense fees, and more.
In addition, consider obtaining specialized insurance for high-value assets. For example, if you use expensive manufacturing equipment, you may benefit from special equipment insurance.
Increasing your professional or product liability coverage can be extremely helpful as your business expands. If your company expects to be hit by multiple liability claims in a year, the aggregate insurance coverage limit should be raised.
Consider New Types of Coverage
Businesses should evaluate the need for additional policies. As markets grow and new technology comes out, it is also possible for new types of insurance coverage to be created. Stay up to date with your industry’s insurance standards.
Cyber liability insurance: Covers liability claims related to data breaches and other cyber incidents.
Business interruption insurance: When business continuity is disrupted, business insurance can kick in and cover relevant operating costs for a period of time. This typically includes relocation costs, payroll, rent, and loan payments.
Professional liability insurance: Protects your business from claims of negligence. Certain practices are more vulnerable to high-impact professional mistakes.
Update Employee Information
Take care to keep accurate records of all your company’s employees. This includes part-time and seasonal workers. Having the right type of liability coverage and workers’ compensation ensures that you and your workers will be protected in case of an incident.
Based on your employee information, you can adjust workers' compensation coverage as needed.
Review and Update Policy Terms
The terms and conditions of an insurance policy need to be periodically reviewed. If you no longer meet the conditions or the terms fail to provide adequate protection to your company, you will need to update your insurance.
Businesses can also negotiate better terms if possible. This is best done when you have not filed any recent claims.
Evaluate Premium Costs
Each business insurance policy comes with its own premium, which is the cost of insurance coverage. A policy that is not cost effective may need to be replaced.
Since insurance is essential to the long-term success of a company but also a long-term cost, businesses should compare the premiums from different insurers to find the best value.
Implement Risk Management Strategies
Not all issues can be avoided, but risks can be mitigated so their negative impact is lessened. When businesses adopt preventive measures, they can also potentially lower insurance costs.
As you regularly review and update risk management practices, take your insurance policy premiums into account.
Document Changes and Communicate with Stakeholders
As with other parts of business, communication of changes is important. Keep detailed records of any changes that are made to your business insurance policies and coverage. Stakeholders, partners, and key persons of your company should be kept up to date. This helps avoid miscommunication.
Common Scenarios Requiring Coverage Updates
1. Relocating or Expanding Business Premises
Businesses that relocate or open up new locations often benefit from updating their insurance as soon as possible. Commercial property insurance needs to be adjusted so it covers your new location.
Liability coverage is also important if you open up new locations.
2. Launching New Products or Services
Launching a new product is exciting. It opens up opportunities and sources of revenue. However, every new product line is a potential liability nightmare. If a product injures someone, damages property, or is involved with someone’s death, your business can be sued for liability.
Product liability insurance can cover legal fees and settlement costs if your product is problematic.
Errors and omissions (E&O) insurance, also known as professional liability insurance, covers liability claims in case your company is sued for negligence or professional mistakes. Keep your product liability and professional liability insurance policies updated. This could save your company millions of dollars.
To ensure your business insurance coverage is effective, check your policy terms and conditions. Liability insurance does not cover fraudulent and intentional acts.
3. Entering New Markets
To break into a new market with your business, you will need to meet the regulatory and insurance requirements. Whether that’s due to a state law or an industry regulation, compliance is crucial.
4. Hiring Additional Staff
A common mistake that businesses make is never checking whether their workers’ comp needs to be updated.
Employer liability coverage should also be considered if you hire additional employees.
5. Technology Upgrades
Data protection is essential in today’s digital age. While new technologies enable businesses to work more efficiently, they may expose you to online vulnerabilities that your business is not prepared for.
Cyber insurance can help cover data security issues, cyber attacks, notification costs, and cyber liability. Never underestimate the potential devastation of a cyber incident.
6. Significant Revenue Growth
When a business grows in revenue, insurance is often the last thing on management’s mind. However, it is a key component of any growing business. Commercial insurance acts as a safety net for your business, but only if it is updated to reflect your increased business value and potential liabilities.
Conclusion
Businesses need to regularly assess their risks and update their commercial insurance coverage as needed. This means raising coverage limits, purchasing new insurance types, and changing providers if necessary.
Here are some of the best business insurance providers that can help companies obtain affordable, effective coverage.
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