Business Insurance Must-Haves
Protecting companies from risks
Insurance is an essential component of operating a business, according to Alaska’s commercial insurance experts. Some types of coverage are mandated by law, while others are necessitated by industry, financing, and other standards.
Commercial insurance should be an integral part of every business’s operating plan, says Timothy Maudsley, president of Alaska USA Insurance Brokers, Alaska’s largest full-service insurance agency. “Insurance plays a large role in protecting a company’s bottom line by ensuring critical assets, including its physical property, as well as human capital, are covered,” he says.
Or as Kathy Martin, a sales executive for Wells Fargo Insurance Services, puts it: “It’s the only way the insured can protect the assets of their company.”
Coverage Mandated by Law
Must-have types of insurance that are mandated by state and federal laws include commercial auto, workers’ compensation, and health insurance. Commercial auto insurance generally covers cars, vans, trucks, and other vehicles owned by the company, as well as employee-owned vehicles in certain cases. For example, Alaska USA Insurance Brokers—a subsidiary of Alaska USA Federal Credit Union—offers commercial auto insurance for business vehicles and employee vehicles being used for business-related activities. The company provides coverage for liability, cargo, limousine, bus/motorcoach, garage liability, and occupational accident.
The Alaska Workers’ Compensation Act requires each employer having one or more employees in Alaska to obtain workers’ compensation insurance, unless the employer has been approved as a self-insurer, according to the Alaska Department of Labor and Workforce Development’s website.
However, there are some exceptions to those who must be covered. In general, a workers’ compensation policy isn’t mandatory for sole proprietors in a sole proprietorship; general partners in a partnership; executive officers in a nonprofit corporation; and members in a member managed limited liability company. Exceptions are also made for part-time baby-sitters, cleaning staff (non-commercial), harvest help and similar part-time/transient help, sports officials for amateur events, contract entertainers, and commercial fishers.
Health insurance is another important type of coverage that is legally required—for some businesses. Under the Affordable Care Act (ACA), employers of fifty or more full–time equivalent employees (FTE) must offer minimum essential coverage, according to Eric Deeg, a vice president with Wells Fargo Insurance Services. And that coverage must be “affordable,” with employee cost for single coverage not to exceed 9.5 percent of the worker’s modified adjusted gross household income, as defined by the ACA. “Small employers of two to forty-nine can choose whether or not they want to offer group coverage, but are not required to offer group coverage,” Deeg says. “If they do offer a group plan, it must cover essential health benefits, as defined by the ACA.”
As far as benefits for small employers go, Deeg adds, groups with two to twenty-four employees can qualify for some additional tax credits if they offer a plan through the Small Business Health Options Program (SHOP). However, the SHOP Exchange is delayed until 2015.
Today, many small businesses are concerned about the employer shared responsibility penalty, also known as the pay-or-play penalty. This piece of the law has been delayed until 2015 and only impacts employers with fifty or more FTEs. However, Maudsley says, entrepreneurs who own multiple businesses, due to “common ownership,” could get snared by these penalties, since the law aggregates all employees working for a combined total of a common owner’s businesses.
Penalties for the “pay-or-play” rules range from $2,000 per full-time employee, minus the first thirty full-time employees, to $3,000 for each employee that receives subsidized coverage through the Marketplace. There is no tax penalty for businesses that do not offer coverage and have fewer than fifty FTEs. “The best advice for Alaska businesses is to seek a knowledgeable benefits broker to advise you with this complex and ever-changing law,” Maudsley says.
Requirements by Lender and Industry
Beyond the kind of must-have insurance that is legally required, businesses can purchase a variety of other policies to minimize their risks. Certain coverage is dictated by lenders, industry standards, and the specific needs of the business, according to Shattuck and Grummett Insurance President Stacy Grummett. The family-owned firm, founded in 1898, is based in Juneau and operates throughout the state of Alaska.
For instance, a company seeking a loan from a financial institution may be required to purchase general liability, professional liability, or an umbrella policy. Licensed general or specialty contractors are required by the state to carry a surety bond and general liability coverage to perform on public and private construction projects. Contractors engaging in excavation work may elect to add pollution liability insurance.
On the other hand, businesses in the fishing industry could benefit from hull coverage for vessels. A tourism company offering shuttle services would need a commercial auto policy. And companies entering into legal contracts or service agreements generally need special endorsements such as additional insured status or primary/non-contributory wording added to their liability insurance.
Other more specialized forms of commercial insurance that can help businesses protect themselves include directors and officer’s liability, key man life insurance to protect the business should there be a death or disability of someone who is critical in management or ownership, and crime insurance for protection against robbery or embezzlement. “The purpose of insurance is to protect the business’s financial interest from the possibility of catastrophic loss, and there are many different ways to do that,” Grummett says.
Popular Types of Insurance
Insurance agencies in Alaska are experiencing a higher demand for certain kinds of business insurance. Wells Fargo Insurance Services, for example, is selling considerably more earthquake insurance. “Ten years ago, I couldn’t sell quake [insurance] to any of my clients,” Martin says. “Today, because costs are declining, they are more apt to purchase coverage for earthquake.”
Employment practices and cyber insurance are also hot commodities in Alaska and nationwide, according to Adrienne Little, who is also a sales executive for Wells Fargo Insurance Services. Employment practices liability insurance covers risk such as wrongful termination, discrimination, and sexual harassment. Cyber insurance can mitigate losses from a variety of threats, including network damage, data breaches, and the loss of a private client’s data. “If somebody hacks into your system, once you make a claim, they are there to investigate what happened,” Little explains.
Not only does cyber liability insurance explore how the breach occurred, but it also covers the expense of notifying the insured’s clients of the breach and the cost of protecting the company’s reputation.
Maintaining the Right Coverage
Far too often, companies tend to be uninsured or underinsured by commercial insurance in terms of their business income expense, Maudsley says. Many times, this critical coverage is misunderstood, yet it is one of the most important ways for a business to get back up and running after a major loss. “Loss of income frequently plays a major role in making an otherwise healthy company file for bankruptcy once a loss occurs,” Maudsley says.
Grummett says there are ample commercial insurance carriers available to meet the needs of Alaska’s businesses. However, companies that go underinsured may do so for a variety of reasons. Sometimes business owners have a tight budget and only purchase the minimum coverage required by law. In other cases, they may not be aware they are underinsured.
That’s why Shattuck and Grummett Insurance strives to meet with its insured businesses annually to discuss their needs. “There are so many changes that can happen throughout the year,” Grummett says. “We ask if they are adding a business or location. And we take notice when things are in the paper, such as a grand opening, and follow up with the insured to ensure they are adequately covered.”
Many business owners have very little knowledge about the ins and outs of commercial insurance, Martin says, but an insurance professional can fill in the gaps. She says, “It’s up to the broker to show them where their exposure is.”
Maudsley expresses similar thoughts: “Each company’s needs are quite different, and a professional broker can assist with identification and assimilation of those needs.”
Former Alaskan Tracy Barbour writes from Tennessee.
of Alaska Business Monthly magazine.
Stacy Grummett, President of Shattuck and Grummett Insurance, and
Adrienne Little, Insurance Sales Executive for Wells Fargo Insurance Services,
are correctly identified in this updated article.