Walking the Wire
Q: I'm starting a homebased business that does background checks. Do I need errors and omissions (E&O) insurance? I'm having a hard time finding someone to carry my tiny business.
A: Your business will definitely need E&O insurance and for two reasons: First, in today's employment environment, it's not uncommon for lawsuits to arise related to background- checking issues if something's been missed or overlooked. Second, clients feel greater safety in working with firms that have insurance protection, which gives you a definite edge. Many such firms promote that they're insured and bonded on their Web sites, business cards and vehicle signage.
Business owners are often so passionate about their new businesses that they tend to overlook the liability risks that being in business can bring. So you're to be commended for attending to such matters now, as you start your business.
When you're ready to find a policy, try these suggestions, which will work for almost any kind of business:
1. Go to your industry's trade association. Typically, trade and professional associations, business organizations and, sometimes, even local chambers of commerce offer the best buys on E&O insurance, so look here first. While there doesn't appear to be any trade association specific to firms that do background checks, there are more than a dozen organizations for the professional investigation and security industries, such as the National Association of Legal Investigators. You can contact these organizations and determine if joining will enable you to get insurance, or they may point you in the right direction to find brokers who specialize in your industry.
2. Start your own association. Since there's no organization for the background-checking industry, you might consider starting your own-that's what Donna Maria Coles Johnson did. When she couldn't find an existing association to provide coverage for an aromatherapy business she once owned, Coles Johnson took matters into her own hands and formed the Handmade Beauty Network, a beauty products trade association. She then located an insurance broker specializing in insuring natural and herbal products who would work with her association members. If you have leadership skills and would enjoy such a challenge, you might do the same in your field.
3. Minimize your risk of personal exposure by how you organize your business. The two primary ways of doing this are by incorporating your business or by structuring it as an LLC. You can read more about it in Form Your Own Limited Liability Company by Anthony Mancuso. In this book, Mancuso, who has also written a book on forming a corporation, compares LLCs with other business forms.
As your firm gets beyond the startup stage and generates revenue, it will be easier to get insurance. For example, InsurePro is an online agency specializing in various forms of business liability insurance. It has a page on its Web site that discusses the risks inherent in background checking. Though located in New York City, it's licensed in most states, but only works with companies that exceed $1 million in revenue. Professional Liability Insurance Services is another firm that specializes in E&O insurance, and it lists more than 150 business categories it provides E&O coverage for. But because it places insurance through Lloyd's of London, don't expect any bargains.