Commercial insurance is often referred to as business insurance, or when bound as a business owners policy. Many within the industry may term them BOP’s. In broad terms, if you own and operate a business, you’ll likely need a commercial insurance policy. Policies are bound in one of two ways.
These policies can be bound in packages or as monoline policies. A package policy would include both property and general liability together. Package policies often include extra coverages not provided in monoline policies. Additional coverage might be hired and non-owned auto, business income and extra expense for example. As a general rule, package policies are preferred. Some businesses however, have exposures that don’t qualify for package policies. In those cases the insured will secure multiple monoline policies.
A restaurant with exceptionally high liquor receipts would be an example of a business that wouldn’t fit into a package policy. The restaurant might then purchase their property, general liability, and liquor liability policies separately.
It is critical when binding commercial coverage that you have an agent that specializes in building these policies. Just as there are no two businesses alike, there are rarely two policies that are alike. The costs of having an incorrectly written policy can devastate a business. Our commercial department will spend the time with you to determine the type of policy that will protect you correctly.
Property coverage provides for the replacement of any property that can be stolen, damaged, burned or lost. There are two primary portions to property coverage, tenant improvements and betterments, and business personal property. It is important to define the differences in the policy as the two components are rated differently. When a business moves into a location, they will often build out the space to fit their needs. Those changes are called tenant improvements and betterments, or TIB. Anything permanently attached to the building would be included in TIB. In the case of a restaurant this might include a kitchen build out, a new bar area, booths, and suspended televisions. Since these items are less likely to be stolen, they are rated lower than the business personal property, known as BPP.
The insured value of the BPP should include, inventory (food, liquor, point of sale systems, cash, bonds, stock,etc.), computer systems (both hardware and software), and anything that can be stolen. The purpose of the property coverage is to replace everything required to bring the business back to full operation in the event of a loss. It is important to note policies can be written as either replacement cost or actual cash value. Actual cash value will take depreciation into account, lowering the value of what is being covered over time. Although this will lower your premium, it will not cover the true replacement cost of the property. Our goal is to educate our clients before there’s a claim. The second component is general liability.
General Liability Insurance
In most cases it is the general liability coverage that generates the highest premium. This policy will cover types of loses that occur due to negligence, either on premises or of products sold. Premises liability would cover slips and falls for instance. Products sold would cover the damage a product might cause due to negligence either on premises or off.
Continuing with the restaurant example, lets assume a patron slips on a wet floor. If negligence is proven, the premises liability coverage would reimburse medical costs up to policy limits. Similarly, imagine if this same restaurant caters a wedding of 500. If all 500 in attendance come down with food poisoning as a result of the catered food, products liability coverage would be used to cover any damages. Accounting for hospital stays and medical attention, it’s easy to see that these types of claims can be rather large. That is why the general liability portion of a commercial insurance policy generates the higher premium.
There are several other types of coverage that can be very important. Mentioned briefly above, hired and non-owned auto coverage is one of them. Lets say for example a bar owner sends his bartender to the grocery store to buy more lemons. If while driving the bartender unintentionally causes a fatal accident, the bar’s insurance policy will be called upon to cover the damages. Since the bartender was performing a work function, the bars hired and non-owned coverage will take affect. Without that coverage the bar has a large uncovered exposure. Mentioned earlier was business income and extra expense coverage.
By having business income coverage with extra expense, the business is protected with coverage that will replace the typical business income stream while repairs are being made following a loss. Many expenses will continue even after a loss, like payroll, leased equipment, and building rent for instance.
Each policy should be specific to the business. Other commercial exposures might be addressed in errors and omissions, cyber risk, directors and officers, environmental, or umbrella insurance policies.
Our commercial department has been underwriting policies for decades. We have the ability to find both the right policy and the right premium with up to 20 different carriers.