Things have changed a bit in business insurance since 1752, the year Benjamin Franklin started the Philadelphia Contributorship, the first property-insurance company in the United States. At that time the main enemy to businesses was fire, and while fire still presents an important risk to businesses, it is hard to imagine that Benjamin Franklin ever anticipated some of the new things businesses need protection from.
From cyberattacks to simple professional mistakes, the field of business insurance has become more important than ever, especially in terms of small businesses. Kevin Kerridge is a director at Hiscox, an international specialist insurance company, and heads up their division focused on serving small businesses in the US. Kevin knows all about the challenges small businesses face and which forms of insurance small businesses need.
"The first step is to make sure you understand what insurance you need depending on your type of business, and this varies widely,” said Kerridge. "It's amazing how many people skip this first step, or don't get the right advice and end up spending more than they need to while not being covered for the most common risks. If you are a small business you need to start by buying the coverage you really need, since your cash flow is king. To a small business, one claim can be crippling. It is not the damages, but rather it is the cost of defense that really hurts businesses."
With that in mind, Kerridge has advice to help small businesses choose the right form of insurance to match their needs and demands. Here are the three kinds of insurance all small businesses need to have, and three which they should consider for the future.
General liability is the old standby for small businesses, covering them against third-party liabilities caused by negligence.
"It covers lawsuits that you are presented with which are driven by damage you cause to somebody else's body or their property," said Kerridge. "If you injure somebody, for example, if you are in someone's office and someone leaves a cable across the floor and that causes a person to trip, that third-party injury would be covered. It also covers property damage. Say, if you spill coffee on somebody's server and it goes into meltdown they might sue you for that damage to their property -- it would be covered."
Thanks to protection offered from things such as bodily harm, property damage, personal injury and advertising damages, this is the most popular insurance initiative for many small businesses. However, there are many reasons, beyond the obvious protection it offers, for why businesses opt for general liability insurance.
"One major reason for a small business to get general liability insurance oftentimes comes if you are renting a location," said Kerridge. "Your client or your landlord will typically, under your contract, require you to have general liability insurance. In fact, a lot of general liability is driven by demand of clients or other vendors."
Errors and Omissions
Errors and omissions, also known as professional liability insurance, helps to protect businesses from a lawsuit which may occur as a result of a professional services breakdown.
"As a professional services business, if you make a mistake in the provision of your services and somebody sues you, errors and omissions covers you," said Kerridge. "It deals with lawsuits connected to professional service if you didn't deliver what was promised."
Businesses in any professional services industry could benefit greatly from having this insurance in the event of a potential mistake. Among Hiscox customers, professional liability is the second most popular form of insurance, accounting for about 40 percent of insurance sales in small businesses.
"An example is, if a client builds a website and the person who the website was built for comes back to them and claimed the website didn't do what the company said it would do, they would be covered in the event that the website isn't fit for purpose," said Kerridge.
Business owner policy (BOP)
Another popular form of insurance for many small businesses to protect their assets is business owner policy insurance. This form of insurance is especially valuable and oftentimes mandatory to businesses looking to insure property and equipment used in the course of business.
"BOP is a property coverage, that allows you to cover your office contents such as your laptop or office furniture against damage that comes from theft, fire and accidental damage," said Kerridge. "The business owner's policy helps you cover your own property against those forms of damage."
BOP insurance is an extension and combination of general liability and property insurance that insures damaged materials for their replacement value. This form of insurance constitutes 10 percent of insurance sales for small businesses at Hiscox.
"One of the main advantages of a BOP policy is that you're able to cover your general liability and property exposures in one policy," said Kerridge. "When you look at the cost of general liability coverage on its own, it usually doesn't cost much more to take the combined business and general liability package and get the extra assurance that your business equipment is covered too."
Keep an eye on
Increased reliance on new technology has also kickstarted new forms of insurance that have popped up in the past few years to specifically deal with previously unforeseen problems caused by these new technologies. These new forms of insurance are not of import to all businesses, but as new technologies dominate the business landscape, these forms of insurance are something businesses should keep their eyes on.
One example is cyberinsurance, which covers businesses in the event they experience a cyberattack.
"If your website is hacked and someone defaces it and there is a cost to restore that website to how it was, cyber would give you that coverage," said Kerridge. "If someone hacks your website and steals your customer database, it gives you specific coverage around those scenarios in terms of reconstituting the database."
For many businesses, though, the cost of this form of insurance may be too much, especially for businesses that do not rely heavily on technology for their business. Even though at this point many small businesses find cyberinsurance to be cost-prohibitive, in the future Kerridge anticipates that insurance companies will integrate protection for cybercrimes into other forms of insurance, much like they already do for tech insurance.
"This is a coverage that not many small businesses would buy; if you are bigger company then you are more likely to be a target of this cybercrime since you have more of an online presence," said Kerridge.
Another form of insurance that businesses need to keep their eye on is technology insurance, which builds upon other insurance forms to offer industry-specific protection to technology companies.
"There is not a lot of difference between tech insurance and professional-liability insurance," said Kerridge. "For a tech company buying errors and omissions insurance, they may do things like add in software-copyright infringement so if they get sued by someone who says that their code was copied there is some coverage for that. In a similar way, for consulting businesses there is a copyright-infringement extension that does things like if you use an image that belongs to someone else and you get sued for that, you are covered."
Marketing and business consultant
Marketing and business consultant insurance, much like tech insurance and cyberinsurance, also builds upon other, more general, policies in an attempt to offer industry-specialized protection to companies. Once again, these forms of insurance are useful for certain businesses depending on the situation.
"Marketing and business consultant insurance are very similar," said Kerridge. "The profile of the product that those businesses buy is very similar to the tech companies. For example, a marketing consultant doesn't need software-copyright infringement coverage because they are not writing code, so we wouldn't include that in the errors and omissions coverage for a marketing consultant, but we would cover more general copyright infringement."
According to Kerridge, the most important protection these forms of insurance offer comes from the copyright and trademark protection they offer businesses. Similarly, business consultants may be interested in a form of insurance that would protect them if methods or recommendations they made do not work in the way they planned. In this case, this form of insurance would be important protection from a potential lawsuit.