Insurance

General Overview for the State of California:

Business insurance is a complex subject, as diverse as business itself. Selecting an agent or broker experienced in business exposures and the commercial insurance market is extremely important. Interview several agents and ask for referrals. When shopping for coverages, get several quotes or proposals and have these in writing.

Contractual agreements that enable your business to operate, such as leases, merchandising, and finance contracts, may obligate you to insure beyond your immediate concern. Review them, if possible, with your agent.

As you shop for your insurance you will see special terms and concepts unique to business insurance. Ask your agent to explain anything you are not familiar with. Be sure you understand how your insurance premium will be calculated. It may be floor area or, more frequently, payroll or sales income. In any case, your cooperation for access to your books, records, and/or premises is expected.

Policy periods are generally annual. Payment is due when coverage starts or as agreed upon. Premium financing is usually available, but be aware of the interest rate you will be paying, as well as the authority given to the financing organization and how any disruption in your payment will affect your coverage.

1. Workers’ Compensation Insurance:
An employee who has suffered an injury or illness resulting from employment is entitled to worker’s compensation benefits provided at the employer’s expense. California Labor Code Section 3700 requires that every employer in California either buy workers’ compensation insurance from a licensed insurance company, or obtain a certificate of self insurance from the California Department of Industrial Relations. Failure of an employer to secure payment of compensation may result in imposition of both civil and criminal penalties! Because of the elaborate requirements and considerations with this insurance, it is recommended that business owners refer to Worker’s Compensation brochures available from the Department of Insurance and the Department of Industrial Relations.

2. Commercial Auto:
Commercial auto insurance largely parallels private auto insurance. Still, familiarity is recommended. Whenever you transport a client or move property by a motor vehicle, you should have an understanding of how your commercial auto insurance will work. Also, how will “non-owned” autos, newly acquired vehicles, or changes in drivers effect your coverage.

3. Property Insurance:
Business insurance may cover property of all types that you own or that is in your “care, custody, and control”. It may be buildings, improvements, equipment, inventory, goods in transit, earnings, etc. Your contractual obligations may also require you to protect other people’s property as well.

4. Coverages:
Property coverage is addressed from two sides of the same idea. “Named Perils” names each peril to be insured against; such as fire, explosion, aircraft damage, windstorm, etc. Other perils may be added along the way. “All Risks” starts from the other side, assuming all perils are covered except those named in the “Exclusions” of the policy. Obviously, the exclusions are an important part of the All Risk policy. Perils often excluded are: theft, flood, and earthquake. Since the All Risk policy affords better protection, it is more expensive to purchase than the Named Perils policy. The difference between Named Perils and All Risk is a typical example of the kind of thinking and interpretation you must apply to understanding how your insurance policy will cover your business. Remember, your agent is there to help you in understanding your coverages.

Insurance of property is based on its value, however that may be derived. There are “co-insurance” penalties for failing to insure to value. These penalties will be applied to any loss adjustment. Determination of value is also important for calculating the premium and compensating for a loss. Some terms often used are: “actual cash value” meaning market or depreciated value, “replacement cost”, “selling price” for unsold inventory, and the many coverages of “business interruption”.

5. Claims:
Because of deductibles, dollar limits you agree to absorb in the event of a loss, and other ways of sharing the burden of coverage, you should know how the insurer will handle a claim. Large deductibles, although they afford a reduction in premium, can have a critical effect on your cash flow if you are operating on or have access to very little capital. Also, you cannot rely on insurance to always or completely cover your losses. A frequency of claims will have a definite and sometimes harsh effect on the insurer’s willingness to continue to insure your business. Although business-owners generally purchase replacement cost coverage, insurers often limit their initial compensation payment for loss to actual cash value until such time as the owner has replaced the items lost. The policy, itself, will define the time-frame to start the process of replacing items, generally six months. This method of handling claims is prevalent and you should be prepared to make up whatever difference between the value of your loss and what the company legitimately pays. Obviously the best preparation includes taking necessary measure to minimize or eliminate losses in those areas where you have control.

6. California Fair Plan:
If you can’t find business property insurance in your area, consider the California Fair Plan. Although it is not available everywhere in the state, most agents can help you in applying in qualified areas. The California Fair Plan can be reached at 800-252-0089.

7. Liability Insurance:
Good business practice dictates that you take adequate measure to protect other people and/or their property against any damage your company and/or its property may cause. This is the coverage afforded by business liability insurance. It may be required by government statute or by the threat of litigation.

8. Coverages:
Major types of business liability insurance you should be familiar with are: premises/operations, lessor’s risk, contractual, products/completed operations, personal injury, non-owned auto, and professional liability. Discuss these thoroughly with your agent to determine appropriateness and limits for adequate protection.

9. Limits:
Limits of liability are the maximum amount of the money the policy will pay on a single loss. They are generally set somewhere in relation to your assets, as your interest in compensating others diminishes once that compensation has exceeded your resources. Limits may be expressed as a single figure in a “combined single limit” or “split limits” which specify one amount for bodily injury and another for property damage.

10. Claims:
Knowing whether claims are paid on a “per-occurrence” or a “claims made” basis can mean the difference between a covered claim and no coverage. Ask your agent to explain these terms and find out how claims will be handled for your particular policies.

11. Premiums:
Different exposures generate premium in different ways. Offices where no customers visit are one kind of exposure; factories with blast furnaces are another. Some factors that determine premium are: square footage, payroll, sales, expenses for independent contractors, number of employees, etc. You should know how your premium is derived. You should also be aware of how much you are committing to deposit premiums and what effect audits and changes in your business activities will have on your premium. Where possible, get complete explanations of premium terms and coverages in writing.

12. Non-Admitted Insurers:
If you are unable to obtain insurance from an admitted (licensed in California) insurer, you may find yourself considering purchase of “non-admitted” (not licensed in California) insurance. Be aware that non-admitted insurance companies are not subject to the financial solvency regulation and enforcement which applies to California admitted companies, nor are they covered by the California Insurance Guarantee Association in case of insolvency.

Contact the Department of Insurance at 1-800-927-4357 for more details.