The Impact of Legal Changes on Business Insurance Requirements

Comply to thrive. Businesses need to meet legal and industry requirements, but it can be hard to keep up with these constantly changing regulations. In recent decades, new laws have impacted what business insurance is necessary.

Let’s dissect the legal changes that have impacted business insurance requirements across different industries.

Recent Legal Changes Affecting Business Insurance

Health Insurance Mandates

Changes in health insurance regulations have resulted in businesses needing to give health insurance benefits to their employees. Failing to comply with these regulations will result in fines and penalties.

Affordable Care Act: The Affordable Care Act (ACA), colloquially known as Obamacare, was enacted in 2010. Along with making healthcare more accessible, it gives consumers subsidies through a premium tax credit. The ACA and recent amendments have also made it mandatory for businesses to provide minimum health benefits to employees.

Cybersecurity and Data Protection Laws

GDPR: Published in 2016, the General Data Protection Regulation (GDPR) is a data privacy regulation of the European Union. This data privacy law is notorious for being the strictest data protection law in the entire world.

CCPA: Published in 2018, the California Consumer Privacy Act (CCPA) is a state statute of California. It enhances privacy rights and protects consumers.

With more robust privacy laws, customers and users are better equipped to file lawsuits against companies that misuse data or suffer data breaches. These data protection laws have spurred companies to purchase better cyber liability insurance. If your business gets sued for a data breach or lack of online privacy, cyber liability insurance can cover the legal defense fees and penalties, protecting your business from what could otherwise be a devastating lawsuit.

Employment Practices and Workers' Compensation

Workers’ compensation insurance financially protects workers when they get injuries and illnesses on the job. Businesses with employees are required to carry workers’ comp in most states. Exact requirements will vary depending on your company size and location.

Employment Practices Liability Insurance (EPLI): If a worker files a claim against you for violating worker’s rights, EPLI insurance helps cover the legal costs. It covers your fees regardless of whether your business is found at fault for employee lawsuits such as:

• Wrongful termination
• Breach of employment contract
• Deprivation of career opportunity
• Mismanagement of employee benefit plans
• Sexual harassment

Environmental Regulations

Pollution and climate change have come under far greater scrutiny in recent years. New environmental compliance requirements and liability issues have been raised. According to the Insurance Information Institute (III), insurance policies were developed in response to federal requirements.

Businesses that handle hazardous materials should obtain environmental insurance. Environmental liability insurance generally covers:

• Chemical spills
• Clean up costs
• Fines and penalties
• Legal defense fees
• Environmental liability claims

Gig Economy and Contractor Laws

Contractors and employees are legally classified as different types of workers, which greatly affects what type of liability and workers’ compensation insurance your business would need. Here are some laws and regulations that have affected the gig economy in recent times.

California Assembly Bill (AB 5): A labor code of California signed in 2019. It reclassifies many gig economy workers and independent contractors as employees. It requires businesses to perform the “ABC” test for Californian workers to see if they should be classified as employees.

COVID-19 Related Legislation

The COVID-19 pandemic caused a tidal wave of global changes, both temporary and permanent. The world is still feeling the aftereffects. According to the National Library of Medicine, states enacted laws to protect businesses with protection against liability claims for coronavirus exposures. However, businesses still had to relearn how to effectively assess and manage risks to avoid gross negligence and willful misconduct.

People have been able to sue for health and safety concerns related to the pandemic, especially as infectious diseases resulted in mask mandates and social distancing. COVID-19 pandemic negligence claims resulted in businesses needing greater insurance protection and safety measures.

Some COVID-19 insurance products do exist, but they are relatively few and typically too expensive for small businesses. Top business insurance policies, such as for the hospitality industry, may offer pandemic coverage as an add-on for a higher premium.

How Legal Changes Influence Business Insurance Policies

Coverage Adjustments

Limit changes: The policy limit refers to the maximum amount of coverage per occurrence and aggregate (per year). It is up to the business to determine its risk tolerance and needs after a legal change. For example, you might want to expand liability insurance coverage if it has become easier for customers to file lawsuits against you.

Policy change: Businesses may need to adopt new, specialized types of commercial insurance policies or drop old ones that have become obsolete as a result of legal changes.

At the end of the day, it is important to ensure comprehensive coverage and compliance whenever new legal requirements are implemented by the government.

Premium Implications

If risks in your industry have increased, insurance providers are likely to raise their premiums after reassessing the risks.

Businesses should update and re-evaluate all of their insurance policies after a legal change. By implementing cost-saving strategies, your business can better manage rising insurance costs. Here are some generally useful strategies for managing higher insurance premiums.

1. Bundle insurance policies

Many business insurers offer discounts to businesses that choose to bundle multiple insurance policies together. When updating your insurance, look into insurance bundles under one provider, which can lower your overall premiums.

2. Increase your deductibles

The deductible is how much your business needs to pay before insurance kicks in for covered perils and expenses. If you want to lower your insurance premiums, try to opt for higher deductible policies. This approach is typically better for businesses with enough cash flow to cover relatively minor claims without insurance. If you are a business without stable cash flow, this option might not be ideal for you.

3. Negotiate better terms using risk management best practices

Insurance companies are more willing to grant businesses lower premiums if they can prove that they have worked to mitigate risks. Here are some common risk management best practices for various insurance policies.

Cyber Liability Insurance: Cybersecurity awareness and measures can help you reduce the likelihood of costly claims and data breaches, which can lead to lower cyber insurance premiums.

Commercial Property Insurance: A company can implement anti-theft and other security measures to reduce the number of property claims and minimize your business property insurance premium.

Workers’ Compensation: Avoiding claims for a few years can greatly reduce your premium. A better claims history can improve the way the insurance provider calculates your risk level and premium.

Policy Exclusions and Inclusions

After a new law is signed, insurance policies going forward will change to reflect these legal changes. Be sure to thoroughly review your insurance policies for any new exclusions. Exclusions will not be covered by your insurance policy.

Steps for Staying Compliant with Evolving Regulations

Regular Legal and Risk Assessments

Businesses need to conduct market and risk assessments regularly. This helps identify threats and the potential for liability lawsuits against you. To start with identifying risk, here are some steps to take:

• Research current laws
• Monitor legal changes (subscribing to newsletters, attending webinars, etc.)
• Work with a legal advisor or attorney to interpret laws and ensure compliance

Updating Insurance Policies

When new laws come into effect, it’s time to update your insurance policy. This may mean working with your current insurance providers to customize your coverage, or switching to new business insurance companies for better coverage options. Make sure to comply with any regulations applicable to your business.

Many businesses make the mistake of delaying insurance updates. Any gaps in coverage due to legal changes can lead to costly expenses, especially if your business operates in an industry with frequent lawsuits. Make sure to promptly adjust your insurance policies as needed.

Employee Training and Awareness

As well as the business owners and managers know about new laws and regulations, you can’t ensure compliance unless your employees are trained on the changes. Whenever new regulations are passed, your business should train your employees on the new compliance needs.

Companies should implement procedures that help employees adhere to updated regulations. This may mean wearing new safety gear or filing paperwork a different way.

Consulting Legal and Insurance Professionals

Your business doesn’t have to face legal and insurance changes alone. It’s a good idea for companies to consult with legal advisors and insurance brokers for expert, personalized guidance.

Documentation and Record-Keeping

Companies should maintain thorough records of all compliance efforts and policy changes. Failing to keep the necessary records can lead to compliance issues and penalties.

Your business may be subjected to audits or inspections. Having complete documentation readily available is a good way to show that your company is complying with new laws and regulations.

Case Studies: Business Adaptations to Legal Changes

Case Study 1: Cybersecurity Compliance

When the GDPR came into effect, a mid-size business that sells clothes online had to adapt to the new requirements. On top of strengthening its cybersecurity and data privacy policy, the business also decided to update its cyber liability coverage. The business was aware that if they failed to comply with GDPR’s guidelines on data collection and usage, they could face severe and costly penalties.

Case Study 2: Health Insurance Mandates

With the Affordable Care Act amendment of January 2014, a company with over 50 employees realized they would need to make certain adjustments to their health benefits. The employer contacted a legal expert to ensure that the company complied with the new health insurance regulations.

Thanks to the company’s proactive measures, it was able to readily comply with the new ACA requirements. The company provided all full-time employees with affordable health coverage before the deadline of 2016, successfully avoiding penalties and boosting morale.

Case Study 3: Workers' Compensation Adjustments

A construction company that often does contract work has expanded to work in California. The company needed to adjust its workers’ compensation coverage due to California law allowing employees to seek compensation for disabilities and psychological stress as a result of the job.

The construction company knew that it would have to expand its workers’ compensation coverage. It also looked into liability insurance in case any employees sought the lawsuit route instead of workers’ comp.

In the next few years, having workers’ comp and liability insurance helped the company cover injury claims that would have otherwise been very expensive for the business.

Future Trends and Proactive Strategies

Anticipating Regulatory Trends

It’s hard to predict market changes, but legal changes can be more predictable. Businesses should stay informed when it comes to legal trends that might impact their industry and insurance needs. Here are some methods that can help with forecasting regulatory trends.

• Proactive risk management
• Regular assessments
• Consultations with legal and insurance experts

Building a Compliance Culture

The company culture can play a large role in whether your employees work towards compliance. To foster a compliance culture, your company can:

• Provide training about regulations and the need for compliance
• Encourage the prompt reporting of injuries and problems without punishing it
• Emphasize the importance of adapting to regulatory changes

Conclusion

• Recap of the importance of staying informed about legal changes and their impact on business insurance.
• Final thoughts on the value of proactive compliance and regular policy updates.
• Encouragement for businesses to work closely with legal and insurance professionals to ensure comprehensive protection.

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