Buying commercial insurance? Watch out for pesky pitfalls

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Published: June 16,2008

There seems to be an endless array of different types of commercial insurance available to business owners today. And, each policy has different levels of scope and coverage. It is a ripe environment for making a poor buying decision.

Mississippians in the commercial insurance industry, indeed, report that they see mistakes made every day by business owners when purchasing policies. And, with the economy going south and businesses looking to “trim the fat,” many are concerned that more owners are going to wander into common pitfalls.

“Businesses are looking to cut costs,” said Dian Lewis, CIC, commercial operations manager at Ross & Yerger insurance Inc. in Jackson. “They are looking at price only, looking to buy the minimum. That can be a mistake.”

While there are many mistakes professionals point to, some rank higher than others. Under-insured, over-insured, lack of proper asset inventory and changes in ownership/operations seem to be the most common.

Too little or too much

Of all the commercial insurance professionals contacted for the story, the one mistake they all listed first is under-insured policyholders. The potential here is obvious — the cost is more than the policy is worth. That can be a business-killer, and at best can lead to extra expenses and fees that impact the bottom line.

Over-insurance can often be a problem, as well. and is often the product of overlapping policies, experts say. It is important to read all policies carefully to ensure that the same item is not covered on two separate policies. That is also a good way to make sure that assets have not been forgotten and left uncovered.

However, James Galloway Jr., president of Galloway-Chandler-McKinney Inc., N.A., in Columbus, says over-insurance is hard to define.

“I hate to see a business lose an asset because it was under-insured. I believe you should err on the side of caution,” he says. “What does ‘over-insured’ mean? If a person held a $2-million policy their entire life and never made a claim before they died, technically, I guess they were over-insured.”

Galloway adds the key is assessing a business’ risk exposure. He says that is why it is imperative that owners seek a trusted agent, who can identify the risk exposure and transfer that exposure.

“If you are a propane company and carrying tons of explosive materials every day down the road, obviously you have more risk than a guy selling eggs on the side of the road,” Galloway says. “Not long ago, we had a client who wanted to sell liquor at an event. We advised them to forget about that income, because the risk was simply too high.”

All the stuff

Another common pitfall is not having a handle on the business’ assets. Keeping track of a company’s stuff is essential to having just the right amount of coverage.

Too often, business owners overlook certain assets. Furnishings, computers and equipment, etc., certainly all need protection, and owners usually realize this. However, there are other assets such as fencing and signage that can often be forgotten when looking at buying a commercial policy.

Professionals remind that asset inventory is a “moving” target. Owners must continually review all of assets, and adjust their coverage accordingly if needed. Galloway says this is especially true for growing businesses, which may need to conduct an inventory and asset report monthly.

Hard times, soft market

Insurance industry leaders and law enforcement across the nation are worried that the faltering economy may lead to criminal activity. Faked auto accidents and even arson could rise.

Professionals in Mississippi are not foreseeing a rise in that type of behavior. but are concerned that the downturn in the economy will lead to poor decisions.

“I am not worried as much about businesses dropping policies as I am concerned that they may not be willing to spend the money to eliminate risk,” he says. He adds, as example, companies might forego routine maintenance of equipment, or use old equipment, that could raise their risk exposure.

On a positive note, experts say commercial insurance is currently buyer-friendly. Premiums are generally flat, with some reduction.

Contact MBJ staff writer Wally Northway at wally.northway@msbusiness.com.

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