During the decade since Katrina’s storm surge flooded 80 percent of New Orleans and destroyed homes and businesses along a hundred miles of Gulf of Mexico beaches in Mississippi and Alabama, a string of disasters—natural and manmade—have revisited the region. Starting later in 2005 with Hurricane Rita and including the BP Oil spill, the disasters have hurt small and big businesses alike. Small and local businesses are less likely to survive such a disaster, however. But when it comes to resilience after a disaster—having the most positive impact, quickest—small and local businesses lead the way. This post is part of a series related to small business disaster preparedness we are running to mark the tenth anniversary of the most expensive natural disaster in modern U.S. history.

The National Association of Insurance Commissioners (NAIC) is composed of state insurance regulatory commissions. Here are their recommendations related to the steps you should take to make sure you are fully covered by the types of insurance that can help your business survive most types of disaster. Schedule a meeting with your insurance agent or other business advisor to review your specific needs or situations related to your industry or other factors that may be related to your specific business or location. During your meeting, talk about your current coverage related to the four types of insurance related to disasters.

1. Property Insurance

Your property insurance policy covers you for damage or theft of the physical property and equipment of your small business. If you own the physical structure of your business address, your property insurance should cover both the structure and its other assets. If you lease the space you occupy, you are responsible for insuring your personal property/contents. As a leaseholder, you need to have a contingency plan in case your landlord or your landlord’s insurer is not able to promptly repair the building where your business is located.

There are three types of property insurance—each covering a wider range of perils. Know which form your business has —Basic, Broad or Special—and what perils are covered.

Discuss these issues with your insurance agent or trusted advisor:

  • Check to see if your property will be replaced for the actual cash value (ACV) or replacement cost. ACV reimburses the cost to replace, rebuild or repair damages, taking depreciation into consideration. Depreciation is not a factor in replacement costs.
  • Flood is not a covered peril in a standard business property insurance policy. You can purchase flood coverage from the National Flood Insurance Program (NFIP), administered by FEMA. You generally have to wait 30 days for a flood insurance policy to go into force. If you are worried about damage from flood, find out more about the NFIP at www.floodsmart.gov. If the flood insurance property limits from the NFIP are inadequate to cover your business, check with your insurance agent about coverage options.
  • Consider any improvements to your business or the neighborhood that have been made since your property was last appraised. If there have been changes since the last time your insurance company assessed your property value, it may be time to update your policy.
  • What is your limit of liability or the maximum amount insurance will pay for covered loss?

2. Business Interruption Insurance

Business interruption insurance covers lost earnings due to circumstances stated in your policy—such as fire or hail—that shut down your business for an extended period of time. Business interruption/continuation insurance covers expenses associated with running your business, like your payroll and utility bills, based on your company’s financial records. Business interruption/continuation may also help pay for the extra expenses to keep your business in operation until you recover.

Discuss these issues with your insurance agent or trusted advisor:

  • What perils—or covered occurrences—are listed in your policy?
  • What expenses are covered and is the limit adequate for the amount the policy will pay out?
  • Benefits under this kind of coverage may not be payable for a certain number of days after the business interruption has occurred. Check to see if your policy has a waiting period and make sure you have sufficient funds to tide you over for that time.

3. Liability Insurance

Liability insurance, also called Commercial General Liability (CGL), covers four categories of events for which you could be held responsible:

  • Bodily injury
  • Damage to others’ property
  • Personal injury, including slander and libel
  • False or misleading advertising

There are three types of legal damages people may sue you for that are typically covered by a CGL: policy compensatory damages, general damages and punitive damages.

Discuss these issues with your insurance agent or trusted advisor:

  • Medical payments are typically a separate coverage section of a CGL policy and generally have a separate stated limit. If a customer is hurt on your premises—whether you are responsible for the injuries or not—your medical payment limit is the amount your policy will pay for their immediate care and treatment. Check your medical payment limits and decide if this amount is enough for your needs. If not, you might consider raising your medical payment limits.
  • A commercial umbrella liability policy provides extra protection above a standard CGL policy. This kind of policy will increase the amount of liability paid per incident and sometimes coverages for commercial automobile and workers’ compensation. An umbrella policy will have its own terms and limits, so make sure to review it closely to see when it kicks in over your standard CGL policy. Small business owners may want to consider an umbrella policy if they are worried about protecting their personal assets or the assets of their business from lawsuits.
  • Premiums for your CGL may be impacted by the addition or reduction of employees, clients product offerings or inventory; alterations to your building; or changed state regulations. If any of this has changed, you may want to talk with your insurance agent or company to reevaluate your policy and premiums.

4. Workers’ Compensation Insurance

Workers’ compensation insurance protects a business owner from claims by employees following a work-related injury or illness. It generally covers an employee’s medical expenses, rehabilitation costs and lost wages. Most companies are required to carry workers’ compensation insurance. Check with your state insurance department to see if your small business is required to have this coverage.

Other insurance considerations

Commercial Auto Insurance: If you have a business umbrella policy, be sure to review the policy to see if it has auto coverage. Know your liability limits and check to see if the policy places limitations on the vehicles’ drivers. Typically, commercial auto insurance policies have higher liability limits than a personal auto insurance policy. They also may have provisions that cover rented and other non-owned vehicles, including employees’ cars driven for company business.

  • If you are relying on either a personal auto insurance or personal umbrella liability policy to provide you with protection for your company’s use of vehicles, look closely at the provisions, as business-related liability may be excluded.
  • Is your policy up-to-date on all business vehicles?
  • Does the policy reflect up-to-date information on where you garage the vehicle, who drives it, your liability limits and deductibles?
  • You might want to consider increasing insurance on the vehicles to cover permanently attached items, such as a generator or storage unit that could be damaged or lost in a disaster.

(via:  NAIC.org)

(Photo Wikimedia Commons, Public Domain)


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