So What’s the Deal with Liability Insurance?

Three basic types of business owners insurance come with a BOP, or Business Owners Policy, and these are liability, property, and business interruption insurance. Liability insurance is likely on the mind of each and every small business owner, as it is a must-have in today’s pretty-much-anything-can-happen business world.

There is a lot of information that is important to know about this form of business owners insurance, liability insurance. When it comes to liability insurance, small to mid-size companies are particularly susceptible to the unforeseen changes in the business owners insurance market conditions, as well as contractual and legal obligations that are placed upon them.

Many small and mid-sized businesses purchase general liability and commercial general liability insurance as part of a standard commercial package policy or business owners policy. This type of insurance can also be purchased separately. Important to note, insurance policies that are issued by various carriers are not guaranteed to utilize the same policy language and/or coverage as their competitors. Instead, the policies are basically designed to provide insurance protection for bodily injury or property damage for which the insured is legally responsible, or liable.

In terms of rates for liability insurance, a lot of sectors are seeing a level of competition that presents itself in the form of potential rate relief and maximized availability.

Insurance companies selling liability insurance commonly evaluate a business based on a variety of factors. These factors include a company’s own claim history, as well as the industry a business operates within. The insurance company will also review the potential for loss and the expected frequency of claims for the particular industry. Certain characteristics come into play, such as length of time in business, business experience, financial stability, laws within your state of business operation, your products or overall operation, sales methodology, and your own analysis and proactive approach to controlling the businesses’ exposure to loss.

Be sure not to overlook risk transference. At the very least, ask any subcontractors to name you on their own policies as additional insured on a primary/non=contributory basis. Also ask the manufacturers of any products you may sell, or suppliers of component parts to do the same. Review all business contracts to confirm you are passing on risk where appropriate and the contracts that you sign are not conferring liability for which your business is unprepared.

All businesses should fully analyze their operations for ways to avoid unreasonable risk. Ask yourself, can one part of my operation be affecting my overall operation negatively? Or can it be outsourced or discontinued in order to benefit the overall company operation? It is important that you understand the total cost of risk to your company, as well as the various means of controlling all exposures.

Premiums for general liability business owners insurance are most often based on sales, payroll, area, or exposures in which they may be flat rated by class. Basically, the higher the risk, the greater the rate. For contractors, their liability insurance premiums are frequently based on payrolls. Also, in most cases, you are entitled to a refund if the sales or payrolls are significantly less than estimated.

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