5 Common Risk Exposures for Startup Businesses
August 8, 2019Starting a new business is an exciting time that is usually accompanied by a great deal of optimism, as well as a bit of anxiety at times. It can feel like a burden to slow down and think of the often-unpleasant legal ramifications that are associated with becoming a business owner. As such, insurance professional can often come across as the “Debbie-Downers” of the industry. But, it is a good independent agent’s job to consult with business owners about the possible and probable losses that can come along with their operations. This is often referred to as “defining risk exposure”. It’s important to properly identify the risk exposures for startup businesses in order to make sure they are properly covered in case of a loss.
Ultimately, these conversations with your agent serve to confront the perils present and explain the various insurance vehicles available to properly protect your financial interests. These conversations can be aided by your knowledge of the industry and the legal requirements pertaining to it. Online resources are available to help startup businesses and a consultation with an attorney to assist in the evaluation of legal procedures is always advisable. With that in mind, here are a few common risk exposures for startup businesses to consider when insuring your new business:
1. List Property Risk Exposures
Your business property is a good place to start in your evaluation process because you have a pretty good idea of the assets you own. Start out by making a list of the tangible property assets you own and use in your business enterprise. This can include real property, such as an office building, as well as what insurance companies deem as “business personal property” (BPP). This would include items like desks, chairs, equipment, furnishings, and electronics.
Don’t forget to list mobile equipment and vehicles that may be insured on their own separate policies. If you have items that leave the business premises, it is important to identify these so that your independent agent knows how to properly structure your policy to provide the appropriate type of coverage for these items. They will need to be insured differently than the BPP items you list. Also, consider your company’s records and data, and work with an agent to determine the costs of restoration for these types of property.
Finally, don’t forget to consider your Loss of Business Income and Extra Expense exposures. If a vital piece of property was lost, such as your office building and the equipment within it, you need to consider the amount of time your business will be out of commission. You will also need to consider whether you will need to incur additional and uncustomary costs to continue its operations. Loss of Business Income and Extra Expense coverage can provide you with a replacement of your lost revenues along with the financial resources to continue your business pursuits at higher operating costs.
2. Evaluate Liability Risk Exposures
Next, consider the scope and scale of your business. This includes how many customers you currently have and how many you expect to gain in the near future. This part of defining your risk exposures should also include financials, such as your gross receipts or at least a future estimate. You will need to have an honest conversation about the scope of your business operations in terms of how potentially hazardous your business activities or products may be.
These conversations, along with calculations of your asset volume, will help to steer decisions about how much liability insurance you need to purchase. It will also help determine whether or not it is a prudent choice to purchase an Umbrella Liability Policy in order to add additional liability limits above and beyond a basic General Liability policy.
3. Consider Cyber Risk Exposure
When you consider your quantity of customers, also consider how you will conduct your business and receive their payments and personal information. If your business will be reliant on digital forms of communication and record storage, or you have a high number of customers, it’s a good indication that you have established a significant Cyber Liability Exposure. Your insurance agent can help you determine the amount of exposure that is present and facilitate the calculation of what is a typically adequate amount of Cyber Liability Insurance Coverage.
4. Read Your Contracts
Especially in the case of contractors, it is imperative that you read contracts prior to signing them. If you have already signed contracts, it isn’t too late to review them. General contractors will often include language in contracts that require Waivers of Subrogation, or worse, Primary and Non-Contributory wording.
These contract lines probably look like a bunch of legal “mumbo-jumbo”. But, if they are present in your contract, you need to let your insurance agent know. Insurance agents do not provide contract review, as that is a job for an attorney. However, the presence of some of these contractual requirements will let your agent know that they need to endorse your liability policy to account for the assumption of these additional risk exposures.
5. Think About Other Risk Exposures
Consider any other exposures that may be present, or become present, given your business plan. This could include your plans to hire employees, which creates a legal requirement for your business to carry a Worker’s Compensation Policy. Without such a policy in place, you could be personally liable for workplace injuries sustained by one of your employees.
Likewise, if you will utilize a vehicle in your business, consider the exposures associated with it. Then, work with your agent to evaluate if a Personal Auto Policy (PAP) is sufficient or if exclusions for “business use” exist on your PAP. If this is the case, it becomes necessary to purchase a Business Auto Policy to properly insure your business for this vehicular exposure.
The titling of your vehicle or trailers can also affect how they need to be insured or listed on your insurance policy. If you will have employees driving company vehicles, you have a heightened liability exposure and need to properly evaluate the risks associated, so that you can select adequate auto liability limits.
Considering some of these common risk exposures for startup businesses will help keep your new business organized and start it off on the right foot. It will also help you to be better able to choose the insurance products you need in order to assemble a comprehensive insurance portfolio that will be effective in protecting your financial interests. If you need assistance in defining the risk exposures present within your business enterprise, contact one of our experienced commercial insurance agents at 1-800-537-6880 or 717-665-2283.
Disclaimer: Information and claims presented in this content are meant for informative, illustrative purposes and should not be considered legally binding.