What Kind Of Coverage Does A Small Business Need?

Table of Contents

A person in a yellow shirt is packaging up their handmade products into brown paper boxes they have insured with product liability insurance.

When looking at possible exposures, there are commonalities between all businesses, no matter your size. The challenge is identifying the exposures and vulnerabilities and plugging the hole with the appropriate insurance coverage if you can.

But what are the right insurance coverages for your business? Product liability insurance, general liability insurance, worker’s compensation, inland marine, ocean marine, cyber coverage, excess liability, and the list goes on.

We will explore some of the most common exposures most businesses face but may not realize and provide some possible solutions to protect your business.

Identifying Exposures

This can be a challenging exercise for some business owners, mainly because they may be unaware of the potential harm some aspects of their normal business operations may cause to their business. It can be easy to identify the obvious exposures, like a slip and fall, fire, theft, or a product causing harm or sickness to someone.

Where the challenge comes is to identify the vulnerabilities of your business that aren’t so obvious or vulnerabilities you have not recognized. So, let’s get started.

A woman in a warehouse is taking inventory for her product liability insurance policy.

Employees

Employees can be one of a business’s greatest assets, but there are times when an employee’s actions can harm your business. Below are some items to consider and the coverage that may help protect your business from employee-related exposures:

Exposure Insurance Coverage
Employee Theft, Fraud, and Forgery
Commercial Crime Policy
Work-Related Injury and Sickness
Worker’s Compensation
Employee Lawsuits Arising from Discrimination, Sexual Harassment, Wrongful Termination, Wrongful Discipline, Failure to Promote or Employ
Employment Practices Liability (EPLI)
Employee Suits Due to Errors and Ommissions in administrating company-sponsored benefit plans
Employee Benefits Liability (EBL) and Fiduciary Liability Insurance
Suits or Claims Arising from Employees Driving Their Vehicle on Company Business
Non-Owned Auto Coverage
Computer Data Breaches
Cyber Liability Insurance

Computers & Websites

Any small business that uses computers and websites (which is everyone) has exposure to first and third-party breaches. When discussing cybercrimes, many business owners don’t consider the extent of the exposure or that it will happen to them. You only hear about the large companies that get attacked, but the reality is that the primary target is small businesses.

According to an FBI report, there were 847,376 complaints of cybercrime reported by the public in 2021, which was an increase of 50% compared to the prior year. Since COVID cybercrimes have increased by 600%, with the primary target being small businesses.

What Kind Of Cybercrimes Is Being Launched At Small Businesses?

  • Ransomware – A type of malware that prevents or limits users from accessing their system, either by locking the system’s screen or by locking the users’ files until a ransom is paid
  • Extortion – Recipients are told that their personal information will be released to their social media contacts, family, and friends if a ransom is not paid. With an extremely tight deadline, the recipient is instructed to pay in some form of currency (such as bitcoin).
  • Malicious Code – Any code in any part of a software system or script intended to cause undesired effects, security breaches, or damage to a system. Malicious code examples include computer viruses, worms, Trojan horses, logic bombs, spyware, adware, and backdoor programs
  • Data Breach – An incident where information is stolen or taken from a system without the knowledge or authorization of the system’s owner. A data breach exposes confidential, sensitive, or protected information to an unauthorized person. The files in a data breach are viewed and shared without permission.
  • Social Engineering – Cybercriminals use various tactics through, phishing, malware, pretexting, vishing, etc., to trick you into divulging sensitive information.
  • Fund Transfer Fraud – Fund transfer fraud may not be the most common cybercrime, but it is highly damaging to small businesses. If a Fund Transfer Fraud occurs, it is rare to recover any stolen funds.

The costs to investigate and mitigate cybercrimes can be staggering. Incident investigation, crisis management, fines, penalties, data restoration, and business interruption costs can bring a business to its knees.

The below estimated cyber incident cost is based on a small manufacturing company with a data breach of 200 records:

Estimated total cyber incident costs are $395,581

Just the estimated incident investigation costs exceed $160,000, which alone could cripple a business. It is highly recommended that every business have a cyber liability policy to protect from probably the fastest-growing crime sector in the United States today.

Autos

A frequent conversation with business owners is about using personal vehicles for business use. It is common for business owners to use their personal vehicles for their business. In some circumstances, this is acceptable, but many private auto insurance companies will exclude any claims that arise from business use of that auto.

It is important to discuss the use of your vehicle with your personal auto insurance carrier, or agent, to verify if the use of your vehicle is acceptable. Some carriers may charge an additional premium for the business use of the auto, or the business use of your personal vehicle may be excluded altogether.

It may be a better option to purchase a commercial auto policy for the business use exposure. Yes, it may be more expensive than your personal auto insurance, but if you have a claim that isn’t covered by your personal auto policy, it will seem like a bargain.

Inland Marine

Inland Marine is a form of property insurance that covers tools and other equipment that are not stationary in one location.

Many commercial property policies will only provide coverage to business personal property at a designated location on the policy. Once the property leaves this location, the coverage ceases. To properly cover items that are mobile and in transit while on land, you should consider a Commercial Inland Marine policy.

Two men are walking side by side discussing general and product liability insurance. They are wearing dress pants with blue dress shirts with yellow hard hats as they walk amongst shelves of boxed products in an industrial warehouse as they discuss product liability insurance.

Ocean Marine

Similar to the Inland Marine, the Ocean Marine policy provides coverage for items being transported or shipped from overseas. Ocean Marine policies usually cover your product from warehouse to warehouse, but coverage can be extended to include multiple transport stages, including over land and air.

Collisions, fire, or weather, can cause severe damage to a vessel, and your goods can be lost in the blink of an eye. Ocean Marine can protect you in the event of:

  • Lost cargo – Should the shipment you’ve promised your clients never arrive—whether due to a collision or misplacement—you could be liable.
  • Lost revenue – Should a shipment be delayed for so long that your client no longer needs the goods and refuses to complete payment, you could suffer a financial loss.
  • Legal liability – In a situation like the above, a client could take you to court to sue you for the payments they’ve already made on lost, late, or damaged goods. Without insurance, you may be responsible for your own legal fees (depending on the specifics of your other insurance policies).

Consider an Ocean Marine policy if your business has importing and exporting exposures. It may even be more cost-effective and have broader coverage than buying from a freight forwarder.

Product Recall

Product recall insurance covers expenses associated with recalling a product from the market. Product recall insurance is typically purchased by manufacturers such as food, beverage, toy, and electronics companies to cover costs such as customer notification, shipping costs, and disposal costs.

In 2016, MEIRxRS, the training and auditing firm, reported, “Almost one-third of recalls conducted in 2014 are from small companies under five employees. Using data from the FDA and [Department of Agriculture], we worked on calculating the cost of a recall. The average market value of products recalled in 2014 was $1,563,551, with a median of $33,598. Small businesses make up the vast majority of recalled products.”

Recall Events by Product Type

Chart displaying “Recall Events by Product Type” for the fiscal years 2012 through 2023. The pie chart show 11,336 were devices, 7,662 were biologics, 6,097 were food/cosmetics, 3,473 were drugs, and veterinary and tobacco had no data displayed on the chart.

Product recall insurance can protect your company from the expense associated with a product recall.

It is common for a business owner to purchase their general liability, product liability, and commercial property for their business and not consider the other exposures to their business. The coverages outlined can sometimes be purchased with a package policy; other times, you will need to pursue them on a stand-alone basis.

The important part is to recognize the additional business exposures you may have to make an informed decision on what you want to do to handle them.

For more information on the coverages mentioned above, or if you would like to discuss your business exposures, please contact one of our licensed representatives at 844.520.6993.

Disclaimer: All insurance policies have specific coverages, limitations, conditions, and exclusions. Please refer to the policy for exact coverages.

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