Risks In Business

INSURANCE

Choosing the right commercial insurance coverage

By Tracy Barbour

I

t’s a no-brainer that all businesses need some type of insurance, but it is crucial for companies to choose coverage that not only fits their budget but offers ample protection against unforeseen risks and potential financial setbacks. Whether a company is a small startup or a large, well-established entity, understanding the intricacies of commercial insurance is essential for supporting long-term business success.

Every company is unique and faces different risks, so a one-size-fits-all approach will not suffice. The first step is for the company to assess its specific situation and identify risk, according to Christopher Pobieglo, president of Business Insurance Associates in Anchorage. “Most business owners know what their risks are, but what we are talking about is formalizing the process of identifying risks. This will include looking at things like your contacts, leases, and site inspections,” he says. “A lot of times, there are very unique risks that require specific coverage.”

Often businesses allow their risk assessment decisions to be driven by what others dictate, such as coverage required to secure a contract, license, or lease. But external requirements should not be the primary determining factor. “The problem is that those people who are asking you to get insurance are worried about their interests, not yours,” Pobieglo says. “While certain requirements are important, they shouldn’t be the totality of making your insurance decisions.”

There are a wide range of important aspects to consider when assessing risk and selecting coverage, including the industry, business size, location, assets, and legal requirements. There is a huge difference between running a roofing company and a coffee shop. Plus, many specialized carriers and programs are designed around certain business types. “A large Fortune 500 company will be able to get things out of their insurance program that ‘Joe the plumber’ can’t,” Pobieglo says. “In a perfect world, you want to insure everything, but you have to balance the cost versus the amount of coverage. Maybe you choose to self-insure some areas and manage risk around others.”

Tracey Parrish, owner and operator of Alaska Pacific Insurance Agency, also cites risk assessment as the starting point for choosing the right commercial coverage. She emphasizes that owners should set aside long-term aspirations when assessing current risk. “I don’t want to know their ten-year plan,” says Parrish. “I want to know the right-now.” Companies should consider what could disrupt or dissolve the business in the short term.

Parrish uses straightforward, easy-to-understand language to walk businesses through risk identification. For example, if a prospective customer wants to start a tour company, she would ask clarifying questions like: Will you be picking people up, or will they be meeting you there? Will you own the vehicle or rent it? Do you have someone else who will drive the tour van? Will you be going 10 miles or a longer distance? “The customer generally doesn’t know that those things all matter,” Parrish says. “The way you answer those questions determines your risk and insurance rate: you make your risk.”

“Before I give them the cheapest, I want to give them what they need… When they buy just what they need to get their certificate of insurance or license, that may not be the best thing for them.”

Tracey Parrish, Owner/Broker, Alaska Pacific Insurance Agency

Types of Insurance

A variety of insurance options are available and may be relevant to business operations. For instance, businesses with one or more employees in Alaska generally must have workers’ compensation insurance. And all companies need general liability insurance in case someone is injured on their property. “There’s no circumstance that a business can say that they have no general liability exposure,” Pobieglo says.

There are also more specialized forms, depending on the situation. Key examples are commercial auto, even if the business does not own vehicles; property insurance, which is a form of asset protection; business interruption insurance, which provides coverage for loss revenue; and cyber insurance, which is becoming increasingly more pertinent with the escalation of cyberattacks.

Tracey Parrish
Alaska Pacific Insurance Agency

Larger enterprises, which typically have a board of directors, can use directors and officers (D&O) liability insurance to protect the personal assets of individuals serving as a director or officer if they are sued by employees, vendors, competitors, investors, or customers. “D&O insurance can cover breach of fiduciary duty, misrepresentation of company assets, misuse of company funds, fraud, failure to comply with workplace laws, theft of intellectual property, or lack of corporate governance,” says Ross Goble, an account executive with Parker, Smith & Feek.

Also, if a company has an owner, executive, or any individual who is considered critical to the business, it may need a key person life insurance policy if the individual’s death would be financially devastating to the organization.

Another type of insurance that some companies may need—but is often overlooked—is employment practices liability insurance (EPLI). EPLI can provide coverage to a company from lawsuits over how it treats current, former, or prospective employees. “It provides compensation for legal costs and potential settlements should an employee bring a lawsuit against the company for unfair treatment in the workplace,” Goble says. “Typically, EPLI policies cover sexual harassment, retaliation, discrimination, wrongful termination, racism, and failure to hire.”

Securing Professional Help

Navigating the complexities of choosing the right commercial insurance can be a daunting task, but companies can consult with experienced insurance agents or brokers to simplify the process. Independent insurance professionals can provide quotes from multiple carriers, along with guidance on coverage limits, deductibles, and policy terms. They can ensure business owners understand their unique risks and recommend the most suitable policies to protect their operation.

Ross Goble
Parker, Smith & Feek

For instance, Parker, Smith & Feek—which is a majority employee-owned company—has a compensation model that incentivizes its employees to collaborate to best serve its clients, according to Goble. This leads to its clients having access to not just the local broker they work with directly but also with some of the most knowledgeable insurance professionals in the world. “These professionals are spread throughout our numerous Practice Groups that include but aren’t limited to construction, energy, healthcare, real estate, marine, and transportation,” he says. “Our government contracting and mergers and acquisitions Practice Groups are two of our fastest-growing groups and can help serve Alaska Native corporations.”

In addition, Goble says, Parker, Smith & Feek clients have a dedicated claims advocate to expertly guide them through the claims process at no additional cost. The firm also has in-house loss control specialists who can identify potential future losses for clients and offer advice to prevent them. They also assist if the insurance company requires excessive loss control measures and offer alternative solutions—and their services are available to clients at no additional cost.

Alaska Pacific Insurance Agency is an independent agency that sells “everything” insurance in twenty-five states. The firm, which has been in business for nearly twenty-five years, offers one-stop shopping to meet customers’ comprehensive needs. “We have access to different insurance companies, so you have more choices,” Parrish says.

“A large Fortune 500 company will be able to get things out of their insurance program that ‘Joe the plumber’ can’t… In a perfect world, you want to insure everything, but you have to balance the cost versus the amount of coverage.”

Christopher Pobieglo, President, Business Insurance Associates

Many of the agency’s employees have been with the company for a decade or longer, which enables its clients to build a long-term relationship that can benefit their business. “We are personal advisers and consultants for a lifetime,” Parrish says. “As you grow, we grow. We start with you at the beginning and roll with you until the end.”

Business Insurance Associates is also an independent agency with access to numerous carriers. The firm works with 125 different insurance companies and can offer a variety of coverage at different fees. It also guides businesses through the critical tasks of assessing risk, comparing coverages and quotes, and identifying the most suitable insurance products. “You have to understand that you will never be an insurance or risk management expert,” says Pobieglo, an insurance industry veteran of twenty-plus years. “That puts you in a place where you need a trusted relationship with someone who can help you. In the long run, they will save you an unbelievable amount of time.”

Common Mistakes

Pobieglo says one of the most common mistakes businesses make when securing insurance is not allowing enough time to put the best product in place. Taking a week or even longer—instead of just a few days—to get a commercial insurance program together can enable them to find a preferred carrier with better pricing and coverage.

Another error Pobieglo sees is businesses focusing on price instead of value. An experienced insurance broker can help clients obtain coverage that is adequate and fits within their financial parameters. “We understand that you have a budget, and it is my duty to find you the best pricing and coverage,” he says.

Independent insurance professionals can provide quotes from multiple carriers, along with guidance on coverage limits, deductibles, and policy terms. They can ensure business owners understand their unique risks and recommend the most suitable policies to protect their operation.

Similarly, Parrish says businesses often request the least costly option, but that could be a mistake. “I do want to give them the cheapest,” she says. “But before I give them the cheapest, I want to give them what they need… When they buy just what they need to get their certificate of insurance or license, that may not be the best thing for them. That’s why people should pick an experienced agent—and we are experienced. We are not money-motivated because we are not a commission-driven company with our employees, so we are going to take care of you.”

Christopher Pobieglo
Business Insurance Associates

Goble has noticed that policyholders often misunderstand the complexities of building insurance. Typically, they are unaware that many insurance companies have a “coinsurance” clause that requires the policyholder to have limits of no less than 80 percent of the replacement cost value of the building. “If the policyholder has limits under 80 percent of the replacement cost value, in the event of a partial loss claim, the insurance company will not pay for the entire claim but will use the formula (current limits divided by required limits) multiplied by the claim amount, minus the deductible,” he explains. “Many policyholders mistakenly use the tax assessed value, how much they could sell the building for, or how much it cost them to build the building (which could have been thirty-plus years ago) to determine the limit used for the building.”

Once companies consult with a professional and determine their insurance needs, they can collect and compare quotes from multiple insurers. In doing so, they should not only examine the costs but also the coverage limits, deductibles, and policy terms to ensure their insurance meets their business needs.

Best Practices for Purchasing Insurance

As soon as you think you want to start a business, call an insurance agent.
Get referrals, interview multiple agents, and tell them you are shopping for quotes.
Choose a good broker, work with them, and let them do the hard work for you.
Be honest when answering an insurance agent’s questions so that you do not waste anyone’s time and the agent can figure out what is best for you.
Understand what your policy might exclude.
Do not put the insurance agent in charge of everything; do your own due diligence.

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