BUSINESS INSURANCE EXPOSURES
BY BY ALAN PLAFKER, PRESIDENT & CEO
MEMBER BROKERAGE SERVICE LLC
A MELROSE CREDIT UNION SERVICE ORGANIZATION
If you have a business to protect there are many exposures EXCLUDED in an average package policy that provides just property and liability coverage. A complete risk management analysis and evaluation by a professional insurance agent should include a discussion of additional exposures not usually covered unless they are addressed, and added to the insurance program. For example, a business may need coverage for Cyber Liability, Fiduciary Liability, Flood Insurance, Professional Liability, Business Interruption, and other recommendations. Here is a brief description of some of these additional exposures that can be covered when needed:
Fiduciary liability—what you need to know
As an employer, you may want to provide those who work for you with the benefits of a retirement plan—a noble goal that will benefit your business with employee loyalty and satisfaction. But be aware, by doing so you may be exposed to risks that come with fiduciary responsibilities outlined in the Employee Retirement Income Security Act.
Many employers think that because they’ve employed a third party to administer such benefits they have protected themselves from associated risks, but fiduciary responsibilities outlined in ERISA include a “functional definition” of fiduciary that can expose those with discretionary control over these plans to a penalty for breach of responsibility.
A number of decisions include establishing a plan and determining what benefit package to include in the plan. Its features and amendments are business decisions you make on behalf of your business, not the plan. Therefore, according to the U.S. Department of Labor Employee Benefits Security Administration, these decisions do not make you a fiduciary subject to regulations. However, when an employer, or someone hired by the employer, takes steps to implement these decisions, that person is acting on behalf of the plan and, in carrying out these actions, may be a fiduciary.
So, the risk goes beyond vendors managing the benefit plan to the company, board of directors, executive officers and human resources departments. And, the risks can be hefty. According to available industry statistics the average award for breach of fiduciary duty against an employer is $994,000 and the average defense costs are $365,000.
If we haven’t made you nervous yet consider that fiduciary risk is not covered by your directors & officers or general liability policy.
We don’t want to deter you from planning for the future for you and your employees—it’s a good thing to do. But, you should discuss the importance of having a fiduciary liability policy if you do. Call your agency today.
More technology, more problems – Cyber Security
We’ve talked about cyber security before, and it’s still one of business’ fastest growing expenses aside from the initial investment in the technology itself. In fact, a recent study indicates that some of those resources are misdirected, and that the usual technological suspects aren’t always the culprits in cyber breaches. According to the Ponemon Institute, smart phones, photocopiers and old computers are bigger risks than you might have thought accounting for 70 percent of security breaches.
Smart phones are one of the more obvious security risks in the list. But the risk they pose is elevated by their growing ubiquity. According to The Neilson Co., sometime in 2011 smartphones, iPhone, BlackBerry and Android phones and their ilk, outnumbered traditional feature phones.
When private individuals use smart phones haphazardly they put themselves at risk for identity theft; when employees do so, they put the business at risk. Think about all the information these phones and their apps have: email, documents, maybe even a remote desktop connection to the office as well as network capabilities. Not only that, but more and more we’re using our phones for financial transactions. Very soon, we’ll be able to swipe our phones just like credit cards.
Copiers aren’t just making copies anymore. Modern photocopiers have internal hard drives on which they record a digital file of everything your office copies. What’s more, most of these devices double as printers and scanners, and, yes, you guessed it, they also record a digital file of everything your office prints or scans. Even if the copy machine is not network connected, the very existence of a hard drive with such contents out in the open office is a risk.
Old computers should be recycled. They contain innumerable heavy metals and other poisonous materials that are hazardous to people and the environment. While you might think that sending a machine off to be scrapped for parts and/or melted down would be enough to ensure data security, it’s not. Data thieves are wise to this practice, and pay unscrupulous recycling plant workers for access to discarded computers’ hard drives. Instead of simply discarding old computers, businesses need to practice data destruction. Data destruction is not just deleting files, it’s overwriting the drives with obliterating 1s and 0s. For any inoperative units that can’t be overwritten, or for removable media such as CDs, DVDs, etc., shredding is appropriate.
Some insurance companies offer cyber security coverage selling it as either a stand alone policy or as an endorsement to a business owner’s insurance policy package. Call your agent today, and make sure you’re covered.
When businesses lose power and business is interrupted
If nothing else, the past year taught us that no matter how well prepared you think you are there’s always something that can dash your best laid plans. First, we had Tropical Storms Irene and Lee in the late summer, then a destructive snow storm in the middle of autumn. The common element in both? Power outages. Losing power might be unpreventable, but there are steps you can take to protect the welfare of your business.
Consider including power outage as a covered event for business interruption on your business owners policy or commercial property policy. Typically, this can be accomplished by adding an endorsement titled Utility Services Time Element. It states: “We will pay for loss of Business Income or Extra Expense at the described premises caused by the interruption of service to the described premises” (emphasis added). The interruption must result from a covered peril (e.g., windstorm) causing damage to generating plants, substations, transformers, transmission lines and other property supplying electricity to your premises.
This endorsement also can cover the loss of water supply and communication services. However, it’s important to note there is a waiting period (72 hours is common) that must be eclipsed before a business income claim will be covered.
Without this endorsement a business only would have business interruption coverage if the outage was caused by direct damage to property on the premises when such equipment does not involve the supply of electricity off those premises.
If you have further questions, or if you’d like to add this option to your policy as part of your business’s emergency preparedness plan, please contact your Insurance Agent.
Ordinance and law coverage
While recovering from damage and rebuilding your place of business a lot of unforeseen obstacles arise. A particularly maddening example of this is when local laws and ordinances passed after the building was erected prevent you from restoring the structure to its predamaged state.
For example, your office building is situated 15 feet from the street which was legal at the time it was constructed, but since that time an ordinance was passed to require at least 20 feet between the structure and the street. Therefore, the building can’t simply be rebuilt as it was. Much more extensive construction must take place to bring the office back to code, and with it much, much more money must be spent. Another instance would be if your building was required to install a ramp to provide handicapped access. Building and zoning laws are forever changing.
Ordinance and law coverage protects you from taking the hit in situations like this. With this coverage your insurer will pay the costs of the renovations to make your building compliant with area regulations. Your agent can help you decide whether this coverage is in your best interest. Like all insurance policies, an ounce of preparation today can prevent a pound of trouble tomorrow.
Insure Your Business Against Flood Damage
The hurricanes last year were an unfortunate wake up call to many business owners in the Northeast. Most of the damage to structures was a result of flooding. Floods can strike anywhere at any time and with almost no warning.
For financial protection from floods, businesses should consider buying a flood insurance policy from the National Flood Insurance Program. The NFIP, a federal program administered by the Federal Emergency Management Association, offers flood insurance in communities that have agreed to adopt and enforce minimum floodplain management standards. More than 20,000 communities participate in the NFIP. Since 1973, NFIP has paid nearly $40 billion dollars in flood insurance claims that have helped hundreds of thousands of families and businesses recover from flood events.
While most floods affect homes and commercial properties near water, locations away from the water are not always safe from flooding. FEMA reports that 25 percent of flood insurance claims come from areas with a low to moderate risk of flooding. In these areas, flooding can result from torrential rainfalls, rapid melting of heavy snows, and breakage of water mains or dams. Standard commercial property insurance policies do not provide coverage for losses caused by water.
Typically, a 30 day waiting period applies from the date the business buys the policy before coverage can begin. Businesses can buy coverage through our agency, however, the cost of coverage varies by the risk. Physical damage to a building that is directly caused by a flood generally are covered by flood insurance also personal possessions that are damaged can be covered as well. For example, damage caused by a sewer backup is covered if the backup is a direct result of flooding. However, if the backup is caused by some other problem the damages are not covered through the flood policy.
Every business should consider purchasing flood insurance. No location is immune to the risk and the cost of coverage is much less than the cost of paying for repairs out of pocket. Because the damage can be devastating the risk of flooding is something no business can afford to ignore. Give your agency a call today before the spring flooding season begins.
Business owners - Prep the office before you head off on vacation
FACT: Business owners are allowed to take vacations.
FACT: You don’t need to be nervous about spending time away from the office.
FACT: Your independent insurance agent can help you find peace of mind.
There are steps you can do to make your time away from the office less stressful on your employees, your customers and yourself.
Don’t forget about insurance. Before you leave make sure all your business insurance policies are accurate and up to date. These policies protect your building and its contents and offer business interruption insurance and liability protection which are vital coverages for any business.
Consider purchasing key person life insurance to protect your business from the untimely death or disability of a key member of the management team. Rather than an insurance policy that provides coverages to an individual, the beneficiary of this type of policy is the business. Coverages and policies vary depending on the type and size of the business.
Before you leave on vacation:
If you are unsure about how your business will function when you are away take a test run. Schedule a few days away from the office, but stay close. If things run smoothly while you’re out you can plan to go away for a longer period of time at a more distant location.
These insurance coverages and tips can offer you peace of mind whether you are at home or away. However, each insurance policy has its own nuances. Your agent can help make sure you have the right coverages to protect your business.
The benefits of using an agent
By using an independent insurance agent to purchase insurance, you, as the policyholder, will receive more personal service. An agent with whom you have direct contact can be vital when purchasing a product and absolutely necessary when filing a claim. Your local, independent agent is able to deliver quality insurance with competitive pricing and local personalized service.
Whether it's for your car, home, boat or any other special need you may have, they work with you to select the level of protection you need. Their staff of personal insurance specialists will help you choose programs designed to fit your goals, budget and lifestyle. Give them a call today!
For more information, talk to your financial professional, legal advisor, or the author of this article.
Your Professional Insurance Agent …
We want you to know about the insurance you’re buying.
Alan Plafker is President of Member Brokerage Service LLC, a Melrose Credit Union Service Organization. He is a licensed Insurance Broker and serves as Vice President on the Board of Directors the PIANY (Professional Insurance Agents Association of NY), serves on the Board of CIBGNY (Council of Insurance Brokers of Greater NY), and was appointed to the New York Independent Livery Driver Benefit Fund Board of Directors. His Agency insures thousands of polices for TLC Insurance as well as many policies for all types of insurance. You can reach him in his Briarwood, Queens office at (718) 523-1300 ext. 1082, or visit the website at: www.MemberBrokerage.com