ROLE OF PROPERTY INSURANCE

Insurers are in the unique position of having encyclopedic information about the many different ways your business property could be damaged or destroyed, from fire and flooding to embezzlement. Property is also vulnerable as a result of a variety of other events such as electrical surges, accidental activation of a chemical sprinkler system or a computer virus.

Because insurers know so much about what can go wrong, they can provide your business with the insurance coverages your particular type of enterprise requires. Without appropriate insurance, property losses can easily cause the entire enterprise to fail.

The purpose of property insurance for the small business is to provide critical financial assistance in the event of a loss, so that the enterprise can continue to operate with as little disruption as possible. 

Property insurance alone is seldom enough, however. It should be but one part of an overall risk management and disaster recovery plan. On average, businesses that devote resources to risk reduction and risk control have fewer insurance claims. Firms with a good record on claims generally have more insurers competing for their business, so that they are able to find coverage more easily and often at a lower price than companies that have more losses.

We cover here, in a general way, many of the more common types of property coverage. You can obtain full information about your particular policy by reading the policy itself and discussing your coverage needs with your agent or insurance company.

PROPERTY INSURANCE POLICIES

Insurers offer small businessowners a huge variety of property insurance policies. There are  policies that cover only a single peril, or cause of loss, such as a fire insurance policy, a crime policy or an electronic equipment policy. The particulars of the policies vary from insurer to insurer.
And there are policies that include several different coverages in a single “package.” The majority of small businessowners find it more convenient and economical to purchase a package policy, which provides protection against many types of loss in a single policy. Insurers may create their own insurance policies. Many rely in part on a package policy format from ISO. This policy is generally referred to in the insurance industry as the Businessowners Policy (BOP). The BOP is revised periodically. The discussion here is based on provisions of the 2004 revision to the BOP.

 
Errors and Omissions Liability Coverage/Professional Liability Insurance – If you provide any type of advice, expertise or professional service, you risk being sued by a customer, client or other party who claims he or she was injured due to your negligent act, error or omission. This type of negligence is sometimes referred to as “malpractice.” Professional Liability Insurance, also called Errors and Omissions Liability Insurance, pays the cost of your defense and any damages awarded, up to policy limits. Insurance companies have developed many specialized policy forms that respond to the individual risks characteristic of particular professions and services. 

Small Business Insurance Basics

Insurers often combine a number of insurance coverages into a package that is sold as a single contract. The most common policy for small businesses is the Businessowners Policy (BOP).

The BOP combines coverage for all major property and liability insurance risks as well as many additional coverages into one package policy suitable for most small businesses. The term “BOP” specifically refers to insurance policy language developed (and revised as needed) by experts at ISO. ISO provides sample insurance policy language, research and a variety of other products to insurance companies.

The BOP includes business income insurance, sometimes called business interruption insurance. This compensates a business owner for income lost following a disaster. Disasters typically disrupt operations and may force a business to vacate its premises. Business income insurance also covers the extra expense that may be incurred if a business must operate out of a temporary location.