Potential Gaps in Your Business Insurance Coverage
Proper business insurance coverage can mean the difference between saving your business and suffering serious losses. But understanding the coverage you need and don’t need can be tricky. While there are plenty of potential threats a shop can face, accurately assessing your needs and working with an insurance agent you trust is important when protecting your shop.
David Willett, executive vice president of Pearl Insurance, has nearly two decades of experience underwriting business insurance for the automotive aftermarket. Willett recently sat down with Ratchet+Wrench to discuss the most common insurance coverage gaps he sees and how to make sure your business is sufficiently covered.
What are the most common types of coverage gaps you see?
As a shop owner, you need to be presented with options by your insurance providers. Anyone who writes a lot of business insurance should have the key exposure items readily available in their possession and highlight the sections that are most important for you as a shop owner.
Some of the things we commonly see with shops are property and having adequate property insurance that fully anticipates the value. Is your building properly valued? If you don’t know, it might be worth it to go get an appraisal. Many times, the property is the business owner’s retirement fund. This is one of those areas where the risk can be a total loss. It’s really important to have the correct amount; this shouldn’t be dealt with casually. If you suffer a loss, you could get hit with a co-insurance penalty that could be avoided otherwise.
It’s also important to know the value of what’s inside of your building. Let’s say you don’t know whether this piece of equipment is part of the building or the building’s contents. Lifts can be part of the building, whereas diagnostic equipment is sometimes covered in breakdown.
The valuation of the contents is one of the things you want to make sure you’ve got covered properly.
Business interruption insurance is another important coverage. It’s a property coverage that helps you take care of your key customers and employees in the event that your business goes down. The extra payout allows you to get back on your feet and open business much quicker. If you only have one location and need to close for a few days, this will be very important to minimize the potential losses.
I think it’s important to have employee liability insurance. In this day and age, you’re a lot more likely to have an employee discrimination claim than any other type of claim. Even if it’s unfounded, it can still have an impact in a number of ways. First, just from the claim itself, but secondly, this type of a claim can really affect your reputation and credibility. You also run the risk of other similar claims occurring.
You fall under employment as soon as someone comes in to interview for a job, even before you hire them. If you don’t have the coverage in place for them, that’s a huge risk from a liability standpoint.
There are a lot of complicated factors at play, and just because you’re right and are doing things the right way, doesn’t mean you won’t get sued. The time to attack a suit is before you get sued.
What kind of limit should you be looking at for your liability?
You want to make sure you have proper limits, the maximum amount an insurance policy will cover, for all of your coverage, but especially your liability. I always say that an insurance professional should never pick your liability limits for you. You should be able to have as high of limits as you need. From a limits standpoint, I’ve heard people say you should look at your assets and the largest loss paid.
Whatever analysis you use, it gets into the risk-averse nature of the business owner. It’s the business owner’s decision. Your insurance agent should be able to say, “Here’s what it’s going to cost for a $2 million limit and here’s what it’s going to provide you.” You don’t want to end up in a situation where you have to purchase more insurance to take care of a claim. It’s always more expensive to buy insurance after you realize your coverage wasn’t enough.
Is tool insurance a type of coverage shop owners should consider?
That goes for replacement tool costs, too. Tools are very expensive and they’re often owned by the employee. Employee retention is so important; you don’t want to lose that employee because something goes wrong with their tools. Equipment breakdown coverage provides replacement costs on things like computers, phones, equipment and machinery.
Is there any other liability coverage shop owners should be aware of?
You might also want to consider having mechanic’s errors and omissions coverage too. It’s typically excluded in many policies. This coverage protects you from losses that can be a direct result of mistakes you or an employee make. Let’s say that a mechanic forgets to tighten an oil filter and all the oil drains out of the engine and no longer works.
When professionals make mistakes that cost customers money or lose value in their cars, those customers could potentially sue for damages. Errors and omissions coverage protects you from having to handle the litigation and settlements out of pocket.
How can you avoid under- or over-insuring your shop?
Our world has become more predictive modeling. It’s very cookie cutter and everyone should be able to fit into the same mold. The reality is, if the insurance agent is wrong, they’re not the ones who will have to deal with the consequences; you are. You need someone who’s not telling you what liability limits you need, and who is really looking out for your best interests and not trying to push unnecessary coverage on you.
Where should shop owners buy insurance?
I would ask other businesses in the area or in your 20 Group. Even though it’s tempting to buy insurance online, I think it’s important to know who the person coming through the door is going to be in the case of an emergency. The most important thing is to sift through the people who come through your door. Find somebody who you’re comfortable with. If you have somebody you really like, there’s not anything wrong with staying with them.
Insurance is more than just a policy and premium; it involves many services. Those services include loss prevention, risk management, identifying the risks that are there and helping you work through them.
A lot of insurance companies will write a shop’s insurance like they’re writing a florist’s insurance. By dealing with somebody who knows your business and specializes in it, it shortens your conversation. Time is money. It allows you to communicate more effectively with somebody. If they don’t specialize or they don’t handle this type of industry, the fact of the matter is that they don’t have a lot of experience.