Businesses of all sizes across industries face various risks that can lead to significant financial losses. To mitigate these exposures, business owners secure insurance for their operations. Several considerations go into building an insurance portfolio, and when doing so, business leaders must be mindful of policy specifics.
Failure to adequately address a business’s insurance needs can result in costly insurance or coverage “gaps” that can be detrimental to a business and its stakeholders. Such gaps can cause financial damage; organizations often pay out-of-pocket expenses when current policies don’t adequately cover a loss. This can also negatively impact a business’s reputation, resulting in a decline in trust and difficulty securing financing. Coverage gaps can arise due to many reasons, including:
- Misunderstanding policy exclusions that eliminate coverage for certain risks, leaving the business vulnerable
- Not reviewing and updating policies to meet their evolving insurance needs
- Relying on personal insurance, which often doesn’t cover business activities
To avoid insurance gaps, business owners should take the following steps to identify and close them:
- Conduct a comprehensive risk assessment to evaluate potential risks specific to their business and industry.
- Review and update insurance policies regularly to ensure coverage after changes to the business.
- Work with an experienced insurance agent or broker who can provide valuable advice on the coverage the business needs.
- Understand policy exclusions and endorsements by thoroughly reading all policies and understanding their exclusions.
- Ensure adequate limits and proper deductibles are in place to avoid underinsurance and large, unexpected expenses.
Additionally, to ensure adequate insurance is in place, business owners should ask detailed questions and seek clarification from their insurers or brokers about what is covered in specific policies. They can also consider industry-specific insurance policies that address the unique risks of their operations and bundle policies to reduce costs and avoid gaps between separate policies. Lastly, business owners should be mindful of the types of coverage that are often overlooked. These include business interruption insurance, cyber liability insurance, errors and omissions insurance, employment practices liability insurance and commercial liability insurance.
By reviewing their insurance needs, becoming familiar with available policies and working with trusted insurance professionals, businesses can secure comprehensive insurance policies that cover their exposures and best suit their needs.