What Small Business Owners Need to Know about Insurance

What Small Business Owners

Need to Know about Insurance

Agenda

• Maryland Insurance Administration

• Introduction to Commercial Insurance

• What Type Automobile Policy Do You Need for

Vehicles for Your Business

• What Type of Insurance Do You Need for Your

Physical Space and Equipment

• What Type of Insurance Do You Need If You Can't

Operate Your Business

• What Type of Insurance Do you Need If Someone

Is Injured Related to the Operation of Your

Business

• Cyber Liability Insurance

• Flood Insurance

• Business Owners Policy: A Package Solution

• Home-Based Business Insurance

• Tips and Considerations

The Maryland Insurance Administration (MIA) is the state agency that

regulates insurance in Maryland. The MIA:

• Licenses insurers and insurance producers (agents or brokers).

• Examines the business practices of licensees to ensure compliance.

• Monitors solvency of insurers.

• Reviews/approves insurance policy forms.

• Reviews insurance rates to ensure rates are not inadequate, excessive

or unfairly discriminatory.

• Investigates consumer and provider complaints and allegations of

fraud.

What is the Maryland Insurance Administration

If you feel that your insurer or insurance producer acted improperly, you have the right to file a

complaint. Examples of improper actions include:

• Improperly denying or delaying payment of all or portions of a claim;

• Improperly terminating your insurance policy;

• Raising your insurance premiums without proper notice;

• Making false statements to you in connection with the sale of insurance or processing of

insurance claims; and

• Overcharging you for services, including premium finance charges.

What is the Maryland Insurance Administration

Introduction to Commercial Insurance

Many kinds of insurance are available to businesses.

Which one you should purchase depends upon the

individual risk characteristics of your business and the

type(s) of loss you want to insure against.

A licensed insurance producer will be able to present

you with different policy and coverage options. It is

very important that the insurance producer

understands the nature of your business so that they

are able to evaluate the risk and provide you with the

appropriate options.

Introduction to Commercial Insurance

While your business may not need all types of

commercial coverages, it is a good idea to have basic

knowledge of the types of insurance coverages

available. As your business changes and expands,

you should reassess your coverages and determine

what additional coverages you may wish to

purchase. This is particularly true if your business

grows and new risk exposures arise.

Do you Need a Commercial or Personal Auto Policy?

• While personal and commercial auto insurance policies

provide similar types of coverage, there are important

distinctions. Commercial auto insurance policies

typically have higher liability limits than a personal

automobile liability insurance policy. For example, a

typical commercial auto policy may have a liability limit

of $1 million. A commercial auto liability insurance

policy also may have provisions that cover rented and

other non-owned vehicles, such as employee-owned

vehicles that are driven for company business.

What Type Automobile Policy Do You Need for

Vehicles for Your Business

Several factors should be considered when determining

whether a personal or commercial policy is appropriate.

These include:

• Who owns or leases the vehicle, you or the business as

an entity? Who drives the vehicle, you or your

employees?

• How is the vehicle principally used, for transporting

people, delivering packages or carrying hazardous

materials?

What Type Automobile Policy Do You Need for

Vehicles for Your Business

Do you allow your employees to take the vehicle home or is its

use restricted to work hours?

• Discuss these issues with a licensed insurance producer

who is knowledgeable about commercial and personal

auto insurance. Also, consider purchasing collision and

comprehensive (coverage for losses other than collision)

coverage to protect your business from losses and

damage to your vehicle.

• Banks and other financial institutions with a security

interest in your vehicle will require both comprehensive

and collision coverage to protect their interest in the

vehicle.

What Type Automobile Policy Do You Need for

Vehicles for Your Business

Tips and Considerations Concerning Commercial Auto Insurance:

• If your business owns or leases a vehicle, make sure the

name of the business is listed on the policy declarations

page as the insured.

• If you are relying on either a personal auto or personal

umbrella liability insurance policy to provide you with

protection for your company’s use of vehicles, closely

review the policy language. Many personal insurance

policies exclude business-related liability claims.

What Type Automobile Policy Do You Need for

Vehicles for Your Business

More Tips and Considerations Concerning Commercial Auto

Insurance:

• If your employees operate a company car, make sure they

have good driving records and are trained properly before

you entrust your company vehicle to them. Failure to do so

may expose your company to additional liability. The risk

presented by your employees may exceed the company’s

underwriting guidelines and prevent you from getting

insurance with the company you desire.

• Consider increasing insurance on your business vehicle(s)

to cover permanently attached items, such as a generator

or a storage unit.

What Type Automobile Policy Do You Need for

Vehicles for Your Business

Property insurance protects small business

owners from losses due to damage to their

business property, including the business’ physical

space or equipment. For insurance purposes,

business property includes the physical building in

which the business resides, assuming the business

owns the building, as well as the property owned

by the business that is located within the building

and other assets of the business.

What Type of Insurance Do You Need for

Your Physical Space and Equipment

While the terms of coverage, and the specific property covered, depends upon the specific language

of the policy you obtain, the following types of property may be considered business property:

What Type of Insurance Do You Need for

Your Physical Space and Equipment

• the building or physical plant where the

business is located;

• inventory;

• furniture, equipment and supplies;

• machinery;

• computers and other data processing

equipment;

• valuable papers, books and documents;

• antiques and artwork;

• televisions, VCRs, DVD players, and

satellite dishes;

• signs, fences and outdoor property not

attached to a building; or

• intangible items such as trademarks,

copyrights and other intellectual property.

There are three types of property insurance plans:

• Basic form, which provides coverage for losses resulting from a fire, lightning, windstorm, hail and

explosion, plus the cost of removing property to protect it from further damage.

• Broad form, which includes the coverages described above, plus extended coverage for other

types of perils, such as a roof collapse due to snow or ice, or broken windows caused by a riot and

civil commotion.

• Special form, which includes the basic and broad coverages, as well as all direct physical losses

except those conditions specifically excluded in the policy.

What Type of Insurance Do You Need for

Your Physical Space and Equipment

With property insurance, you can purchase

either actual cash value (ACV) or replacement

cost value (RCV) coverage. ACV insurance

reimburses you for the value of lost, damaged or

stolen goods after depreciation is taken into

consideration. RCV insurance reimburses you the

amount it would take to replace, rebuild or repair

damages with materials of similar kind and

quality, without any deduction for depreciation.

What Type of Insurance Do You Need for

Your Physical Space and Equipment

Business interruption insurance, also known as business

continuation insurance, provides coverage for expenses

associated with running a business, such as payroll and

utility bills, when the business is unable to operate for

an extended period of time because of a fire, or other

type of loss as specified in the policy. While the policy

will specify how such expenses are to be determined

and how many days coverage will be provided, the

amount of coverage is typically based on the company’s

financial records.

What Type of Insurance Do You Need If

You Can't Operate Your Business

Business interruption/continuation coverage can be

added to a property insurance policy or purchased as

part of a package insurance product. Even if you

purchase business interruption coverage, you should

be aware that this type of coverage typically is not

triggered until a specified period of time has passed

following a covered loss that results in the

interruption of the business. That time period will be

set forth in your policy.

Business Interruption/Continuation Insurance

Liability Insurance, also called Commercial General Liability (CGL)

insurance, protects your business against the economic loss and

expense associated with claims filed against your business for bodily

injury, property damage, injury to reputation caused by slander and

libel, and also the harm caused by false or misleading advertising.

Bodily injury claims include claims for damage that results when

someone falls while visiting your business or one of your products falls

on the person. It can, depending on the language of the policy, also

include coverage for claims of damage that occurs as a result of your

business operations. For example, if your business serves food, this

may include the cost of medical tests to detect hepatitis because of

contamination due to food-handling.

What Type of Insurance Do you Need If Someone Is Injured

Related to the Operation of Your Business

Property damage includes property belonging to someone else that

is physically damaged or lost by your business. Whether a particular

loss or expense is covered, will depend on the source of damage and

the language of your policy. For example, damage to business

inventory belonging to another person or business while in your

possession, may be a covered loss if it is damaged from an accidental

fire, but the same damage might not be covered if the inventory is

damaged by flood waters and the policy does not provide coverage

for flood-related damage. The scope of coverage available under

your policy will depend upon the policy and endorsements you

select, so be sure to discuss all of your concerns with your insurance

producer and to learn about all of the different types of coverages

available for purchase.

What Type of Insurance Do you Need If Someone Is Injured

Related to the Operation of Your Business

A CGL policy is advantageous for two reasons:

First, the insurer will defend you against any covered claim at no out-of-pocket cost to you.

Second, if your business is found responsible, the insurer will pay at least part of, and maybe

even all of, the damages owed.

What Type of Insurance Do you Need If Someone Is Injured

Related to the Operation of Your Business

The amount the insurer will pay depends upon:

• the amount of damages; and

• the type of damages sought. When a valid claim is made, the insurer will pay up to the

stated maximum. If the claim for damages is greater than the policy maximum, you as the

policyholder are liable for the balance. Also, while most CGL insurance policies provide

coverage for compensatory and non-compensatory damages, punitive damages are

typically not covered. Compensatory damages include expenses incurred by the claimant as

a result of the injury, such as the cost of medical services and lost wages from missing work,

as well as projected future losses and expenses. Non-compensatory or general damages

include non-monetary losses suffered by the injured party, such as “pain and suffering” or

“mental anguish.” Punitive damages are additional monies awarded as a penalty and

sanction against the defendant as a form of punishment for its actions.

What Type of Insurance Do you Need If Someone Is Injured

Related to the Operation of Your Business

This type of insurance is customized to fit the particular needs of

your business. The policy may cover security breaches where

sensitive information is either hacked or inadvertently disclosed.

For example, the policy may pay for the increased expenses to:

• provide credit monitoring for consumers in the event of a

security breach;

• repair or replace business assets damaged as a result of a

security breach; or

• operate the business if the security breach causes an

interruption.

Cyber Liability Insurance

If your business could be damaged by rising water,

you should consider buying flood insurance

because property insurance policies generally do

not cover damage caused by rising waters. Even if

your building/business is not in a flood zone, it may

be at risk for flooding. Flood insurance is an

optional coverage offered through the federal

government and some private insurers. It may be

purchased by contacting your insurance producer.

Flood Insurance

When deciding whether to purchase federal flood insurance, you should be

aware of these important facts:

• There are two types of coverage available under the National Flood

Insurance Program:

• Structural coverage for walls, floors, insulation, furnace and items

that are attached permanently to the insured structure, and

• Contents coverage for the business’ personal property. These

coverages do not come together automatically, but must be

purchased separately.

• There is a 30-day waiting period for a new or modified flood insurance

policy to become effective, unless the lender requires that flood

insurance be purchased in connection with a mortgage loan. If the

lender requires this coverage, then there is no waiting period.

Flood Insurance

The standard flood insurance policy covers direct

losses caused by a flood, less an insurance deductible

(usually $1,000). You may buy a policy that covers

flood damage to both the structure and contents, or a

policy that covers damage to only one. A business may

need only one type of coverage if, for example, it does

not own the building in which it is located, and the

lease agreement does not require it to insure the

premises. By law, the maximum allowable commercial

property limit for a small business is $500,000.

Flood Insurance

Many small business owners purchase a business

package policy (BOP). A BOP typically includes

liability insurance, property insurance, business

interruption/continuation insurance and crime

coverage. A BOP packages various types of coverages

into one policy, so, for small businesses, it is often a

less costly option than purchasing several separate

policies. Many insurers customize BOPs for specific

types of businesses.

Business Owners Policy: A Package Solution

You should be aware that a BOP does not cover

claims of professional liability (claims arising from

allegedly wrongful practice by professionals), auto

insurance, workers’ compensation, health or

disability insurance—all of which require separate

policies to be purchased.

Business Owners Policy: A Package Solution

Home-based businesses – like all businesses – should be

properly insured to protect the business’ assets and its

owners against certain risks. Often, home-based

businesses are underinsured – a fact the business

owner usually discovers after an incident or loss occurs.

Then the business owner learns that the insurance

he/she has is inadequate or insufficient to address the

type or amount of loss the business is facing. Talk to an

insurance producer to be sure that you have the

necessary coverages in place to protect yourself and

your business against a loss or claim.

Home-Based Business Insurance

As a small business owner, you can take steps to minimize

risk in the workplace, thereby helping to lower your

insurance premiums. Here are some tips that could benefit

your business, employees, customers and clients:

• Install fire and security alarms.

• Plan and train employees for an emergency on the

premises, such as fires and evacuations.

• Have employees keep wallets and other personal

items in a secure place. Keep the business’ cash and

other valuables in a safe.

Tips and Considerations for Reducing Business Risk

• If employees work with machinery, provide goggles,

gloves and other recommended safety gear to help

prevent injuries.

• Keep office space in good physical condition.

Maintain carpeting and railing on stairs. Make sure

telephone and computer wiring is in good working

condition and does not create any hazards.

• If your employees operate company cars, ensure

they have clean driving records and proper training.

Tips and Considerations for Reducing Business Risk

• Review all insurance policies each year, and note

any changes that may affect your coverage costs.

For example, your premiums could be impacted by

the addition or reduction of employees, client

product offerings or inventory; alterations to your

building or equipment; or changed state

regulations.

• Find out how plans differ to ensure you are

purchasing the best policy for your particular

business at a competitive price.

Tips and Considerations for Lowering

Property and Liability Insurance Costs

• Claim a tax deduction for your premiums on fire,

casualty and burglary insurance.

• Avoid purchasing overlapping policies. Carefully read

the terms to make sure you are not covered for the

same item in two separate policies. This type of policy

examination also helps you ensure that you are not

missing crucial coverage in other areas.

Tips and Considerations for Lowering

Property and Liability Insurance Costs

Maryland Insurance Administration

800-492-6116 or 410-468-2000

insurance.maryland.gov

Contact Information

Maryland Insurance Administration

marylandinsuranceadmin

MD_Insurance

Maryland Department of Transportation

March 8, 2023

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