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.
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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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