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Risk Management: Survival and Affordability
By Mark E Battersby
Can any sign shop or business withstand the financial hit of a fire that results in a two-month shutdown of operations? What about a customer who suffers a heart attack after slipping on a wet floor? Can it survive an employee who embezzles sizeable amounts from the business?
Obviously, man-made events can also drastically affect the business where it hurts - its pocketbook. Natural disasters can teach every business owner an invaluable lesson. Years after Hurricane Katrina devastated New Orleans and the Gulf Coast, the courts are filled with cases between insurance companies and property owners over whether damages resulted from Katrina’s winds or the rising waters flood damage rarely covered by traditional insurance policies.
Selecting the right type of insurance for the sign business is only one factor every sign shop owner or manager must consider. Finding an insurance company willing to insure the business almost renders the question of cost irrelevant. How then can any sign business owner or manager hope to find an insurance company, select the right types of insurance needed for his or her unique operation and, most importantly, afford those steadily increasing insurance expenses?
Before anything else, it is necessary to take a close look at the operation to evaluate its property, equipment, products and employee-related exposure to risk. Carefully review the various parts of the business, looking for places where the operation is exposed to loss.
Obvious areas that are vulnerable to physical harm include the building, equipment, automobiles and people. Obviously, every business has its own exposure to loss, depending on the nature of its operations. Perhaps, as one example, fire suppression devices have not been upgraded to reflect technological advances. Your sign shop may have a poorly lit entryway. Either scenario could cause injury to employees or visitors, resulting in serious financial loss.
Planning = Savings
A comprehensive plan can help the business recover quickly from any type of loss in a cost-effective and efficient way. That is important in today’s highly competitive business environment, where closing the operation’s doors can erode its customer base - and its competitive edge.
Managing risks creates a safer work environment, which aids in attracting and retaining good employees. Effective loss prevention can also enhance the quality of your products/services. By reducing the threat of third-party claims, it can also help the business avoid the embarrassment of negative publicity.
Basic insurance basics
According to many experts, basic business insurance coverage should consist of four fundamental types of insurance: workers’ compensation, general liability, auto and property/casualty - plus an added layer of protection over these, often called an umbrella policy.
Every business must have workmen’s compensation insurance to protect injured workers and the business from employee lawsuits. Whether obtained through the state or from a private insurance company, it is the law. A good accident prevention program or a more comprehensive plan for managing workmen’s compensation claims, and go a long way toward keeping these costs manageable.
General liability is the most confusing and misunderstood type of insurance coverage. Overall, commercial general liability coverage insures a business against accidents and injury that might happen on its premises, as well as risk exposure related to its services.
The best strategy with general liability is to determine the amount of coverage needed. The old rule was that you should buy general liability insurance equal to the business’s net worth. Unfortunately, that does not work anymore because people now sue for the amount of the policy - and the owner’s net worth.
Two strategies the owner of a sign business might want to consider. The first, the so-called “empty pockets” approach is to buy little or no insurance so as not to become a target of lawsuits. The other approach is to buy $2 million to $3 million of liability insurance generally, all that is needed.
Much like workers’ compensation, auto insurance is fairly, straightforward. Even saving money is routine: simply increase the amount of the deductible. Good driving records for those allowed behind the wheel of the business’s vehicles also helps.
When it comes to protecting the sign operation’s property, most property insurance is written on an “all risks” basis as opposed to a “named peril” basis. The latter offers coverage for specific perils spelled out in the policy. If a loss occurs from a peril not named, then it is not covered.
For starters, make sure the sign shop operation is protected by an “all risks” policy. Then, go the extra step and carefully review the policy’s exclusions. Many policies cover loss by fire; but what about such casualties such as floods, hailstorms or explosions? Many businesses purchase coverage for all of these risks.
Whenever possible, “replacement cost” insurance should be purchased. This will replace the damaged property at today’s prices, regardless of the cost when you bought the equipment or property. It’s protection against inflation. Naturally, total replacements should not exceed the policy cap.
In addition to the four basic types of insurance, many insurance professionals recommend an additional layer of protection, called an “umbrella policy.” This protects you from payments in excess of your existing coverage or for liabilities not covered under your other policies.
Many small businesses are protected with “package” insurance policies that cover the major property and liability exposures as well as loss of income. Generally, these packages, often called the business owners’ policy (BOP), provide the small sign business owner more complete coverage at a lower price than separate policies for each type of insurance needed. Naturally, additional coverage for property, liability or perils or conditions otherwise excluded (e.g. flood protection) can be purchased as endorsements to a standard policy or as a separate, second policy called a difference-in-conditions policy.
Keeping costs manageable
All insurance premiums are based on the risks involved. Safety is also paramount when it comes to qualifying as an insurable sign business. Consider a few of the steps that can help qualify for lower insurance rates:
Consider using the services of a risk manager. These outside consultants can render advice about safety or environmental regulations that might have been overlooked.
Shopping for an economical professional
Agents offering only the policies of one insurance company are called “captive agents,” because the company they represent does not allow them to offer their customers competitive alternatives. On the other hand, agents offering the policies of more than one insurance company are “independent agents,” or “brokers,” because they can shop around for the best insurance values among a variety of competing companies.
The bottom-line, however, is determining the risks faced by your sign business, develop strategies to minimize those potential risks and find someone to share those risks. Doing so, at an affordable cost, is far easier with a plan in place.
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