Upgrading Your Insurance Policy

Your business has grown beyond the needs of the basic insurance policy you bought in the beginning. Now what?

You've spent countless hours developing a business plan to secure financing. You've hired a talented staff and purchased office equipment to get things up and running. You've burned the midnight oil and worked numerous weekends to build your business. And should a lawsuit or natural disaster strike, or some other crisis send your company into a frenzy, your smoothly operating machine won't be derailed, because you've bought basic business insurance.

But what if you've been playing the game for several years now, and you've developed your business from a respectable hum to a pulsing buzz? As your business changes, so do your risks and exposures. It's only natural that the scope of your business insurance should grow accordingly. Whether you need additional coverage in your basic business owner's package policy (BOP) or you intend to purchase an insurance policy that addresses specific risks (such as product-related insurance), making sure your business has adequate protection should be an ongoing task.

A Case Study

For Davin Wedel, founder of Global Protection Corp. in Boston, business insurance was something he initially wanted to keep to a minimum. Back when his business was still in its infancy, controlling costs was crucial. In fact, Wedel, 33, wasn't really in the market for anything beyond workers' compensation, which is required by federal law, and a BOP, which lumps together liability and property coverage. When he purchased his BOP, the premium was $350 for $1 million in liability coverage, excluding products, and $5,000 in property coverage.

But because Wedel's company, which manufactures and distributes condoms, is in the business of protection, so to speak, it was inevitable that he'd eventually have to increase coverage and add supplemental insurance as his business took off. From the day he opened the doors for business, Wedel has worked closely with Tom Skelly at Skelly Insurance Inc. in Boston to determine what kinds of coverage to increase or add. "As an entrepreneur starting a company, you learn that the alliances you develop with certain service providers are just invaluable," Wedel says.

Since its inception, the $5 million company has either increased coverage or added supplemental insurance in the following areas: product liability insurance, vendors insurance, property insurance, employment practices liability insurance and general liability insurance. While there's always the balancing act of deciding when to add what and how much additional coverage you can afford, as long as you periodically review your policies--especially when your company experiences significant changes--you'll be on the right track to ensuring you have the right amount of protection.

In Wedel's case, it wasn't necessarily his own concerns that motivated him to consider tacking on supplemental insurance; it was often his customers' needs. "The first pressure was a business pressure," he says. "[I had] to have the insurance in order to get someone's business, like a distributor or chain of stores, for instance--that's what first prompted me to look into adding more insurance."

Another common factor for entrepreneurs to consider is that as assets increase, so does the need for more coverage. It's wise to re-evaluate your policies with that in mind whenever they're up for renewal. For Wedel, the demands of distributors and customers as well as the growth potential that came along with adding more insurance carried a lot of weight. If a certain distributor required a particular level of insurance coverage, Wedel evaluated the pros and cons. He recently purchased additional liability insurance. Although it will probably cost more during the first six months or even the first year than what his company will make from the distributor that requested it, Wedel was willing to do it because he believes it will lead to additional opportunities.

Taking on that kind of expense isn't routine for Wedel, however. "There have been times I've said no to customers who demand certain kinds of liability insurance because it wasn't profitable enough to justify the investment and wasn't going to lead to other opportunities," he says. Yet he often considers supplemental insurance to be a wise investment. So while Global Protection started slow with just a simple BOP, the company has since added, among other things, a products policy with a $16,000 premium for $500,000 in coverage, and its package policy now includes $85,000 in property coverage. It's critical to talk to your broker about risks specific to your business because there simply isn't a one-size-fits-all approach to business insurance. If you own a deli, for example, you'll need spoilage coverage. Say you have $15,000 worth of meat in the refrigerator. If the refrigerator breaks down and the meat spoils, you'll want that expense covered.

As Global Protection continues to grow and extend its reach to include international markets, Wedel has been forced to look at liability from the perspective of vendors in other countries. His efforts to find a supplier in Japan were hampered by media stories about lawsuits abounding in the United States. Foreign suppliers were concerned that they, too, would be vulnerable doing business with a company from so litigious a society. To forge a successful relationship with a supplier, Global Protection purchased vendors insurance to cover the company in Japan.

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