What is a Business Owner’s Policy?July 11, 2019
In the insurance industry, marketing reps and underwriters from insurance companies sometimes speak in their own language.
If you were to overhear a conversation between an agent and an underwriter, you might hear a question like, “Do you put hotels on a BOP?” Or, perhaps the underwriter may suggest that the agent “BOP it” when referring to a certain account. You might be wondering what on earth they are talking about, but, it really isn’t as strange as it seems at first glance.
A BOP, in commercial insurance terms, is a short way of referring to a “Business Owner’s Policy”. Now, you might be thinking, “Aren’t all commercial insurance policies technically for business owners?”
The easy answer is “yes”, but when an insurance professional refers to a “BOP”, they are talking about the type of policy rather than who the policy is for. Still, if you are a business owner, there might be a good chance that this type of policy is available for your company. If so, it’s a great type of policy that provides a ton of value.
Here is a high-level overview of some of the key features of a BOP that contribute to them being some of the best “deals” in the world of insurance.
What is a Business Owner’s Policy?
A BOP, or Business Owner’s Policy, is a commercial insurance policy that is more standardized that a traditional Commercial Package Policy, or CPP. Insurance companies look at certain industries or types of businesses and are able to determine that there are some homogenous qualities about that marketplace.
Similar to how most homeowners have the same basic risk exposures present in their homes (i.e. fire, wind, lightning, water damage from ruptured pipes, etc.), businesses that are eligible to be insured on a BOP product have enough similarities, across the board, that an insurance company can essentially create a pre-fabricated insurance policy for them. This is based on their calculations of the coverage needs and common risk factors associated within a given industry, type, or size of business.
For this reason, BOPs can be some of the most convenient, and best-priced, insurance policies to buy, as they eliminate much of the cumbersome coverage selection process that can occur during the initial purchase of a policy.
Advantages of BOPs
A BOP is a great insurance product that offers several advantages to businesses that are eligible for it.
1. Streamlined Underwriting and Issuance Process
One of the biggest advantages of BOPs is the streamlined underwriting and issuance process. This means that you can often get quotes back and a policy issued for your business rather quickly.
Most companies have BOP rating systems available to their agents. So, the agent often doesn’t even need to wait for an underwriter to return a quote to them. If the details of your operations fall within the acceptable eligibility criteria that have been predetermined by the insurance company, your agent may well have quoting and binding authority when it comes to your Business Owner’s Policy.
2. Pricing Tends to Be Very Competitive
Since the process is so streamlined for the insurance company, and the types of risks that they will place on a BOP product are typically somewhat limited, the pricing on BOPs is typically very competitive.
Insurance companies structure BOP eligibility in such a way that the businesses that are insured on these types of products inherently have a lot of commonalities. The homogeneity of risk makes future losses across large numbers of similar policies much more predictable for the insurance company.
Because of this, the pricing is able to reflect this actuarial advantage.
3. Tailored to Your Industry
The third, and perhaps most important, advantage of a BOP is that the insurance company has tailored, generally speaking, the product to an industry rather than to an individual policyholder. This means that the BOP product you purchase will have some of the most important coverages for your type of business automatically included and built right into the pricing structure of the policy.
Like a Commercial Package Policy, BOPs provide both property and liability coverages for the business owner. But, different from many standard CPPs, a Business Owner’s Policy will often feature extra coverages like Loss of Business Income on an “Actual Loss Sustained” (ALS) basis.
You may be able to purchase Loss of Business Income (ALS) on a Commercial Package Policy, or you may be limited to a different structuring of Business Income protection. Furthermore, when purchasing this coverage on a CPP, you may be subject to completing a long and complex “Business Income Worksheet”, which helps the agent and underwriter determine just how much Business Income coverage you need to purchase. To add to that, purchasing Loss of Business Income coverage in conjunction with a CPP can sometimes become fairly expensive.
Many BOPs eliminate basically all of those headaches by including Loss of Business Income automatically.
In addition, BOPs usually include other coverages that are often far too easy to overlook. They may provide coverage for data processing equipment, file restoration, outdoor signage, employee tools, and much more.
If the included limits for these types of things don’t offer enough coverage for your business or its assets, most BOP products can be somewhat customized through a “package” type of endorsement. This endorsement often enhances many of your coverages or may provide additional ones and is typically a very affordable add-on.
Drawbacks of BOPs
Even though BOPs are a great product, and it is likely advisable to insure your business with one if it is eligible, they aren’t without some drawbacks.
1. Not as Customizable to Individual Businesses
The first thing that you should understand about BOPs is that due to the nature of the product they are often not as customizable to your individual business as a CPP tends to be. There may be fewer endorsement options available within a BOP product, which allows you fewer options of additional, and often necessary, coverages.
Other times, the coverage you are looking for might be available, but it is packaged within one of those aforementioned enhancement endorsements that could come with other things you don’t really need. Worse yet, the endorsements may not provide enough coverage because they are often subject to sub-limits of insurance.
This means the company has capped the maximum amount of coverage limit they will apply to a certain specific portion of your policy. It might initially sound like an underhanded tactic, but it is a necessary component of the BOP product, its structure, and its pricing.
By limiting their exposure and total loss pertaining to certain aspects of your risk, the company can more effectively judge their maximum possible and maximum probable losses across their entire book of BOP policies.
2. Limited Eligibility
The second drawback of some companies’ BOP programs is that they are often very limited in both the type and size of business that is eligible to purchase this type of policy.
Companies may limit BOP products to a certain premium size or gross sales volume, which essentially caps the size of businesses that are eligible for their BOP product. Then again, other companies may insure some classes of business on BOPs up to $75,000 in premium!
Companies typically do not create BOP products around niche industries. As such, the scope of a business or its type of operations can easily make it ineligible for this policy type. Businesses may also find themselves ineligible for a BOP depending on other factors that are further indications of their size, scope, and scale.
BOPs are traditionally structured around industries that have businesses that share a lot of commonalities, in general. With this type of structuring, eligibility is typically limited in such a way that businesses that qualify for a BOP are small-to-medium in size.
Although there are a few drawbacks, they don’t change the fact that Business Owner’s Policies are a great option for many, if not most, businesses.
They provide an exceptional coverage to price ratio, which is a long way to say that they are a great value in the insurance marketplace. They also have a significant convenience factor associated with them and provide most of the commercial property and liability coverages that small businesses need – all in one quick stop.
If you are looking for a comprehensive insurance plan for your small business and would like to discuss whether a BOP is right for you, give one of our experienced agents a call at 1-800-537-6880 or 717-665-2283 and they can help you determine what options are available!
Disclaimer: Information and claims presented in this content are meant for informative, illustrative purposes and should not be considered legally binding.