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How to scale your insurance

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There’s no reward without risk, but you still have to manage those risks. As your business grows, your insurance needs will grow, too. If you’re not careful, you may end up with major losses that aren’t covered, and that could put the future of your company in jeopardy. It’s therefore important to have the right insurance strategies for business growth.

Small Business Insurance Needs

FEMA says that around 25 percent of businesses do not reopen after a disaster. An emergency plan can help businesses survive, and that plan should include appropriate insurance coverage.

Even small businesses need insurance. In a way, insurance can be even more important for small businesses because they often lack the resources needed to deal with unexpected expenses. Because of this, a single lawsuit or natural disaster could be devastating.

Small businesses should consider several types of insurance coverage, including:

  • Commercial Property Insurance
  • Business Interruption Insurance
  • Commercial Auto Insurance
  • General Liability Insurance
  • Professional Liability Insurance
  • Workers’ Compensation Insurance
  • Employment Practices Liability Insurance
  • Cyber Insurance
  • Employee Benefits

Depending on the industry, equipment breakdown coverage, builder’s risk insurance, inland marine and other coverage types may also make sense.

Many small business owners qualify and opt for a business owner’s policy, which combines property and liability coverages. However, even with this insurance package, other coverage types may be needed.

Growth Strategies Should Include Insurance

Many businesses are focused on growth. Growth strategies could include gaining new clients, selling more products and expanding into new areas. All of these strategies can help businesses achieve profitable growth.

However, these plans can also involve new risks. For example, expanding into new areas might require new properties and pieces of equipment. Businesses may also have to hire on more workers, adding employment practices risks to operations. When businesses decide to go public, they take on a host of new risks and increased scrutiny. All these exposures require proper risk management strategies, including appropriate insurance coverage.

Larger companies may be seen as having “deep pockets,” which could make them targets for high-cost lawsuits. Nuclear verdicts – jury awards of $10 million or more – have been a growing concern, especially in commercial transportation. According to CNBC, the CEO of US Xpress said that verdict sizes for comparable accidents have increased by as much as 10 times in the last few years. Large verdicts are getting even larger, and the American Transportation Research Institute says that the average size of verdicts over $1 million increased by nearly 1,000 percent between 2010 and 2018.

All of this means that scaling insurance coverage needs to be part of your business model and growth strategy.

How Your Insurance Needs Change as Your Business Grows

No two businesses are exactly alike, and these variations can impact insurance needs. However, there are several common issues that businesses should consider as they focus on growth. These issues usually fall into one of three categories:

  1. Limits
  2. Coverage Types
  3. Insurance Strategies

Adjusting Insurance Limits as Your Company Grows

As your company grows, you may need to increase your limits. For example, if you produce a product, you can benefit from the protection provided by product liability insurance. If your production volume increases, the potential costs associated with defects may also increase, so you may need to increase your product liability limits.

It’s important to consider both occurrence-based and aggregate limits. Your occurrence-based limits apply separately to each claim, but your aggregate limits apply to all claims combined in a period. As your company grows, you may see more claims. This means you could reach your aggregate insurance limits faster than before.

If your business growth plans involve new properties, vehicles or equipment, you will need to make sure you have sufficient insurance coverage. For example, if you purchase expensive new equipment, you may need to adjust your property insurance to make sure you’re covered. Renovations to your properties may also require additional coverage.

Adding New Coverage Types

In addition to increasing your limits on existing policies, you may need to add additional coverage types as your business growth leads to new exposures. This could entail adding new endorsements to your existing policies or purchasing entirely new types of policies.

For example, a business that hires employees for the first time may need workers’ compensation coverage depending on the states of operation. Depending on the size of the employer, various employee benefits may also become necessary or, at the very least, a good way to compete for talent.

It’s important to think about both the company and the workers. Directors and Officers (D&O) insurance can help protect a company’s directors and officers. This can be useful for both private and public companies, but it becomes especially important when companies are looking for investors, going through a merger or preparing for an IPO.

Exploring New Insurance Strategies

As your company grows, the insurance strategies that used to work may no longer be adequate. For example, you might find that you have outgrown your business owner’s policy and need a more complex business insurance strategy.

You may also find that traditional insurance programs no longer fit all your needs. In some cases, self-insurance or captive insurance options may help you take control of your total cost of risk.

Navigating the Insurance Market with Insurance Industry Assistance

If your business is growing rapidly, your insurance needs can change just as fast. The coverage that worked well for you just a year ago may no longer suit your needs.

It can be difficult to keep track of your insurance needs as you focus on growing your business. There are a lot of priorities competing for your attention, and you may not even realize that you no longer have sufficient insurance coverage.

At the same time, you don’t want to let insurance slip through the cracks. The worst time to find out you don’t have sufficient coverage is when you already have a claim. You can avoid that situation by working with a business insurance broker.

  • Review your coverage both annually and whenever there are major changes in your business. Discuss whether your coverage terms and limits are still adequate for your risks. You may find that your risks have grown and your coverage has not kept up.
  • Discuss your business growth plans with your insurance broker. For example, if you’re planning to buy new equipment, lease a new property, offer additional services or hire on new employees, talk about the risks involved and what insurance coverages might help.
  • Consider risk management strategies that can help you reduce your losses and keep your insurance costs down. As your coverage needs increase, your costs may also increase. However, solid risk management strategies can help you control these costs and improve your loss ratios. This is especially important now while we’re in a hardening insurance market. Rate are going up and underwriters are becoming increasingly selective. Allow ample time for your broker to shop the market and find the best options.

Higginbotham can help you develop strong insurance strategies for business growth. We have smart coverage options for businesses in most industries. Learn more.

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