Starting a business is the dream of many people, but when they consider costs and create that plan to change their life, there is one area that is often overlooked.
“When it comes to insuring a business properly, most people just don’t understand what their needs are,” said Carole Walker, executive director at Rocky Mountain Insurance Information Association. “And insurance is usually the last thing on their list of things to take care of.”
Lack of preparation can often lead to disaster.
“The consequences could cost them their business,” Walker said. “People just don’t understand what to purchase. It’s very common to see people who don’t insure their business properly — or at all.”
John Putnam has worked in the insurance business for 49 years, and still has a few clients, despite being semi-retired.
“My passion is still commercial insurance,” Putnam said. “Most of my agency work was commercial, with a focus on smaller business.”
What would Putnam say to someone who wasn’t planning to insure their business? “You can’t print what I would say to them,” he said.
After the Waldo Canyon and Black Forest fires, Putnam volunteered to help people work through their insurance problems.
“There were people we found that had made the calculated decision — on their own — that they didn’t need insurance,” Putnam said. “History says at some point an event will compromise your livelihood, your business, your assets.”
WORTH THE EXPENSE
Still, even those who purchase insurance for their business don’t always do it properly, he said.
“Everybody looks at price,” Putnam said. “Sometimes a few extra dollars when it comes to insurance coverage could mean the difference whether your business survives or not.”
According to the U.S. Small Business Administration website, insurance coverage is available “for every conceivable risk your business might face.”
Putnam said there are really about four major categories: property, general liability, workers compensation and a business continuity plan. Plus, homeowners insurance does not generally cover losses to a home-based business.
The best solution for many startup businesses is to purchase a Business Owner Policy — known in the industry as a BOP.
“It’s off the shelf,” Walker said. “It’ll cover most things that a business needs.”
Putnam said a BOP “is a very good tool.”
“The beauty of a BOP is it combines areas of coverage. It’s one-stop shopping for property and liability,” he said. “You can’t add workmen’s comp and you can’t add insurance for work vehicles, though, so it’s not the solution for everyone.”
The first step in securing insurance for a business is to find an agent. Word-of-mouth is a good method of finding a reputable agent, but Putnam also said to check their qualifications.
“All insurance agents are not alike,” he said. “First, you have to find someone you trust. But you should also check their education; if they have CPCU [Chartered Property Casualty Underwriter] or CIF [Certified Insurance Counselor] after their name, that’s important.”
It’s not that hard to find help these days, Walker said.
“The good news for folks is there are so many resources, so many ways to find an agent, so many websites to go to and find out information about policies and what you should look for.”
It’s good to have choices, Putnam said.
“Another thing to look for,” he said, “particularly in commercial [insurance], is to have options.”
Putnam, always an independent insurance agent, said an independent agent can sometimes provide better pricing options when purchasing various types of insurance because they can check costs with different companies.
“All insurers are not the same,” he said. “Not everyone can offer workmen’s comp or auto maybe. Sometimes it can be better to get different coverage from different agents.
“I liken it to different physicians. Your doctor might send you to a specialist for something he can’t help you with. But that doctor is still the captain of the ship for you. It can be the same with an insurance agent.”
Walker said it can be helpful to check with several organizations when looking for an agent, such as a local chamber of commerce, the Insurance Institute for Business and Home Safety, the Colorado Division of Insurance and her organization, the Rocky Mountain Insurance Information Association.
“The IBHS website has a whole toolkit in its business section,” Walker said. “You can do a lot of your homework online. The insurance industry has a ton of info out there.”
One place in Colorado Springs to go for guidance is the Pikes Peak Small Business Development Center. Pat Fitzgerald, a volunteer consultant with SBDC, has worked on its disaster team.
“I can tell immediately, depending on their type of business, what products they need,” Fitzgerald said. “Startups can find it hard to get insurance sometimes, though. Insurance companies want some history.”
Many startups will find it easy to purchase insurance, she said.
“Retail would be easy,” she said. “Nothing really happens there. But construction is higher risk. Insurance companies want to know that you have experience in that kind of work. Sending in a resumé can be good.”
She also advises business owners investigating insurance options to meet with at least three agents. “There are alternatives, like maybe you don’t need full coverage on an older work vehicle,” she said. “You have to do the cost-benefit analysis.”
Insurance needs can be vastly different according to what type of business you have, Walker said.
“A restaurant has vastly different needs from a home-based business,” she said. “The key in any kind of policy is liability.”
When it comes to liability insurance, Fitzgerald said, “I always say start with $1 million. Nobody’s going to sue you for $10,000.”
Business interruption is critical to consider, said Walker, who noted that many businesses were affected that way by the Waldo Canyon and Black Forest fires.
“Can you make payroll and stay open if you have to close your business for a while?” she said. “It’s not always about covering your building and your assets.”
Putnam was a small business owner, he said, so he had firsthand experience in guiding clients.
“You need certain professionals on your team when you start a business,” Putnam said. “You need an attorney, an accountant and I think it’s crucial to have an insurance agent. You have to be able to modify or reduce your risk.
“If you’re totally rich and can absorb those losses in the case of a catastrophe, that’s cool. But most people can’t.”
He also echoed Walker’s warning about not insuring enough.
“In many cases, people don’t cover their full needs because they don’t analyze it properly,” Putnam said.
The insurance industry is changing quickly, Putnam said, along with the rest of the world.
“I think there will be more changes in insurance in the next 10 years than there were in the last 50,” he said. “We had the old industrial and now we have the new informational — robotic, cyber, artificial intelligence — that aren’t the traditional areas of insurance. We’ve got drones, autonomous cars, smart homes and a lot of future entrepreneurs are being created.
“I’d tell people just to ask their [potential] agent the hard questions and see how they respond.”
What is Walker’s best piece of advice for any new business owner?
“Put insurance at the top of your business list,” she said, “not at the bottom. It’s what keeps you in business when everything goes wrong.” n CSBJ