Commercial Insurance: What You Need to Know
What is Commercial Insurance?
Commercial Insurance is a general term that is used to describe a category of insurance primarily used by businesses, professionals, sole proprietors, and sometimes contract workers.
Falling under the commercial insurance header are subcategories of insurance covering everything for which a business might need insurance from employee health insurance pools and workers comp, to insurance on inventory and property or rental insurance.
Essentially, nearly every conceivable category for which insurance exists can fall under the domain of commercial insurance if that insurance is being used to protect against liabilities and risk exposure encountered in the course of doing business.
What Does Commercial Insurance Cover?
Commercial insurance encompasses an incredibly broad scope of insurance offerings, but in general it can be broken down into two categories: the insuring of assets and insuring against liabilities incurred in the course of business that could negatively affect the course of business.
Several types of assets require insurance, including physical assets, intangible assets, and human capital assets.
Some examples of physical assets requiring insurance are real estate, vehicle fleets, and inventory – which each require unique types of commercial insurance protection (e.g. fire & flood, collision, loss/damage).
Examples of intangible assets are brand/trademark value, proprietary secrets, or some kind of competitive advantage - which can all be so integral to a company’s success that insurance against damage or infringement to those intangible assets is necessary to properly manage such a significant risk.
Human capital assets are a hybrid of physical and intangible assets in a sense, covering everything from employee health insurance to protecting against the loss of particularly valuable star employees.
Unlike insuring assets, which primarily provides protection against future loss or damage to things of existing value to the businesses, insuring liabilities protects against events future loss or damage caused by the business to things that have value to other parties - potentially including coverage both for liabilities created by actions of the company as well as liabilities that are passively caused.
Actively created liabilities include both mistakes and events brought about through the normal operations of the business.
In the case of mistakes, businesses or professionals may be negligent, commit malpractice, or make some other kind of error or omission that causes harm to another party, such as a client, customer, or supplier.
Some examples of these kind of mistakes could include a wedding planner who ordered the wrong color flowers, a surgeon who misplaces a sponge, or a CPA who forgets to mail a client’s taxes on time, not only incurring fines on behalf of his client but also undermining a financing prospect that was dependent upon promptly filed returns.
In addition to mistakes which definitionally manifest as some aberration from standard business operational practices, liabilities can potentially also be created simply by conducting business as usual and inadvertently causing some form of harm or otherwise putting the company on the receiving end of potential legal action.
Some examples could include a car mechanic who does additional damage to a vehicle in the normal diagnostic process, or a commercial developer whose excavation blasting is near certain to create foundational issues for the building next door, or a swimming pool operator being sued by a lifeguard with skin cancer for not providing umbrellas in the lifeguard stands despite no law or policy requiring them.
In these cases, wrongdoing or a mistake having been made is not necessarily as important as causation in determining fault, and claims do not necessarily need to have merit in order to expose a defendant to significant legal expense, at the very least.
In addition to actively created liabilities, businesses are often exposed to passively created liabilities.
Unlike the actively created liabilities that come about as the result of normal business operations, passive liabilities come about through no direct action of the client and are often the result of outside forces that disrupt normal operations thereby causing harm to other parties or the business itself.
Some examples of outside forces disrupting normal operations and causing harm to other parties include a house painter working on a windy day whose paint spray gets carried on the breeze onto the car next door, or a product wholesaler who fails to meet fulfillment orders because a civil war has broken out in the country where the product is manufactured.
Some examples of outside forces disrupting normal operations and causing harm to the business itself include a tornado destroying a company’s distribution hub, or hackers denying service to the company network halting productivity for two week, or the unforeseen retirement of a brand’s figurehead marketing engine.
It should be noted that in many of these examples, there are arguably more than one cause and more than one party harmed as a result.
What Kinds of Commercial Insurance Do You Need and How Do You Get it?
Businesses seeking to better manage their risk have a wide variety of commercial insurance policies and coverage area options. The key to making sure that you have at least the minimum advisable amount of coverage is to know your business inside and out and to thoroughly consider the scenarios most likely to expose you to liability.
The first step is to minimize that liability exposure by taking proactive measures not only to prevent scenarios that might cause harm but also to shore up your business’s resilience in the case some harm befalls it.
The next step is contacting a business insurance broker or agent with experience in your industry who can help you determine the best fit coverage for the specific liabilities to which you and your business are most exposed.
As the commercial insurance market has become increasingly complex with each new policy variation and coverage option, brokers and agents have become more and more specialized. Searching by knowledge areas as well as other factors like location can be accomplished fairly easily through the use of large databases.
On Mployer Advisor, you can easily search for and compare top-rated insurance brokers near you. Start your search today.
About Mployer Advisor
At Mployer Advisor, our focus is creating transparency in the insurance and insurance broker, consultant and advisor space to the advantage of the employer. Analytics is our core and we will bring to light new information, tools and resources to aid employers in making more cost-effective decisions. As a phase I, we are here to help employers find the right broker or consultant and the right insurance company for them. Giving choice and initial transparency is a first step in creating an employer centric insurance marketplace.