Understanding Commercial Insurance

What is Commercial Insurance?

• Coverage for businesses and organizations protects against property damage, legal liability, and other operational risks.
• Direct property loss coverage includes fire and theft.
• Indirect losses include loss of income after a disaster.
• Often covers liability claims for bodily injury, property damage, errors and omissions, and employment-related disputes.
• Protects an organization's finances by transferring significant exposures to insurers.
• Encourages loss control through underwriting and policy requirements like safety standards.
• Supports business continuity by providing funds for rebuilding, property replacement, or claim settlements.

Types of Commercial Insurance

• Commercial property insurance covers buildings, equipment, machinery, and physical assets.
• Covers buildings, equipment, machinery, and other physical assets
• Direct losses are exemplified by a fire destroying equipment.
• Indirect losses are exemplified by an inability to operate.
• Coverage can be restricted to listed perils or broadly inclusive except for named exclusions.
• General liability covers claims from premises, operations, products, and completed operations.
• Professional liability, also called errors and omissions, covers service-based industries.
• It includes malpractice for medical professionals, D&O for corporate governance.
• Employer liability addresses workplace risks and areas not covered by workers' compensation.
• Umbrella policies provide additional coverage limits above underlying policies.
• Blanket coverage offers a single limit across multiple locations or properties.
• Multiple-lines insurance combines property and liability into one contract.

Determining Risk Exposures and Managing Risks

• Risk Identification includes operational, financial, environmental, and cyber risks.
• Risk Management involves assessing the likelihood and potential impact of identified risks.
• Avoidance means foregoing activities with unacceptably high risks.
• Loss Control implements safety measures and training programs to reduce loss severity or frequency.
• Retention involves self-funding smaller or predictable losses.
• Transfer/Sharing uses contracts, incorporation, or insurance to shift the financial burden to others.
• Insurance consists of commercial policies customized to protect against large or catastrophic exposures.

Personal Insurance in a Commercial Context

• Key-Person Life Insurance protects against financial losses if a vital employee dies.
• It helps fund recruitment, training, and transitional costs.
• Buy-Sell Agreements ensure continuity in partnerships by funding the purchase of a deceased partner's share.
• Group Life Insurance can improve employee benefits packages.
• Employee-Owned Property may require endorsements to ensure property used for business is adequately covered.
• Standard homeowners' policies often exclude or limit business-related coverage for Home-Based Businesses.
• Business insurance closes these gaps, or commercial riders can be added.
• Bailee or special coverage may be needed for Customer/Visitor Property if a firm stores or repairs customers' items.

Benefits of Commercial Insurance

• Financial Protection covers losses from property damage, lawsuits, theft, and business interruptions.
• Risk Management Support offers risk assessments, safety training, and loss prevention strategies
• Legal & Liability Coverage protects against lawsuits, negligence claims, and employee-related liabilities.

Exclusions and Limitations of Commercial Insurance

• Intentional Misconduct or Fraud: Commercial Insurance does not cover the business or its employee's losses caused by fraud, intentional wrongdoing, or illegal activities.
• Cyber Attacks and Data Breaches: Standard policies typically do not cover cyber-related incidents.
• Businesses are usually required to purchase separate cyber liability insurance.
• Employee-Related Claims: Harassment, discrimination, or wrongful termination claims are not covered under general liability insurance.
• These require employment practices liability insurance (EPLI).

Commercial Insurance Premiums

• The Insurance Premium is the amount of money given to the insurance company for coverage.
• Factors influencing premiums are size of business, risk management practices, business type & industry, coverage limits, location, and claims history.

Commercial Insurance Deductibles

• The deductible is the amount an organization pays before insurance coverage starts.
• Higher deductibles typically equal lower premiums and lower deductibles equal higher premiums.
• A company may select a smaller deductible for faster coverage access when anticipating frequent claims.
• A company may choose to lower premiums by selecting a greater deductible if financially stable and without anticipating many claims.

Surety Bonds

• Surety bonds ensure a company meets its legal or contractual commitments.
• It is a 3-party agreement between the: Principal needing the bond, Surety insurance company or bonding agency, and Obligee requiring the bond.
• Types of Surety bonds include contract, license and permit, court, and public official bonds.
• The surety bond procedure begins with an application, then underwriting, issuance upon approval, and the claim procedure in the event of default.

How Commercial Insurance is Sold

• Commercial insurance is sold through Direct Sales & Brokers, Agents, brokers, and online platforms.
• Brokers compare insurance to determine company needs and provide tailored solutions.
• Combining several policies saves money and to provide complete coverage (such as property and liability).

Malpractice

• Malpractice in commercial insurance refers to professional negligence or misconduct that harms others.
• Examples include Tax Filing Errors by Accountants and Wrong Medication Prescription by a doctor.
• Businesses purchase malpractice insurance, also known as professional liability insurance or errors and omissions (E&O) insurance.

Errors & Omission Insurance

• Errors and Omissions (E&O) insurance, or professional liability insurance, protects businesses and professionals against claims of negligence, mistakes, or inadequate work
• E&O insurance is essential for businesses and professionals providing advice, consulting, or specialized services.

Fidelity Insurance/Employee Dishonesty

• Fidelity insurance, or employee dishonesty/crime insurance, protects businesses from financial losses caused by employees' dishonest acts.
• This coverage is crucial for preventing financial harm from theft, embezzlement, forgery, fraud, or unauthorized transactions.

Big vs Small Businesses

• Apple is a Big Business involved in Technology with a Global Industry presence.
• Apple needs extensive commercial insurance coverage for executive liability, property, international operations, cybersecurity, product liability, etc.
• Apple has a specialized risk management team reducing risks to data privacy, intellectual property, and supply chain.
• Pizza2Go is a Small Business involved in Food and Beverage and is Local in size.
• General Liability Insurance needed to protect against on-site customer accidents or mishaps involving food.
• Property insurance is necessary for covering the restaurant's location, kitchenware, and stock (ovens, freezers, and food items.)
• Workers' compensation needed to cover burns or cuts at work.
• Key risk management strategies include maintaining a clean workplace, food safety, and training to prevent illness.
• Preventing fires and using insurance to pay for losses are also of concern.