When purchasing insurance for your business, it is important to come to the table fully prepared. This is an important financial decision that could potentially preserve or destroy the business you have worked so hard to establish.
From whom will you purchase the policy? What is their experience related to your industry? Are they licensed to sell insurance in your state?
Insurance policies are sold either directly by the insurance carrier or through an insurance agent. Independent insurance agencies usually represent a variety of carriers and are therefore able to shop around for the best rates. The specialty of an agency is important consideration–determine if the agency staff is familiar with your industry (if they can’t spell “aesthetics”, they don’t know what it is). Insurance agencies must have a state license to sell insurance. If you are unable to get a direct answer regarding the licensure of your agency, your state Department of Insurance will be able to help.
What insurance company will provide the policy? What is their financial rating? Are they an “admitted” carrier?
Insurance carriers are rated on a letter grade scale (A++ is the highest) by a number of rating organizations. The ratings represent a measure of the company’s financial stability, overall size, and claims-paying ability. I do not recommend purchasing a policy from an insurance carrier with any rating lower than “A-”. “Admitted” carriers are regulated by your state. Changes in policy rates or forms must be filed with and approved by the state Department of Insurance. Policyholders with these carriers are protected by a variety of state guaranty associations–if a carrier becomes insolvent (bankrupt), there is a reserve to pay claims. “Non-Admitted” or “Surplus Lines” carriers are not regulated by the states and are therefore not protected by state guaranty associations.
Does the proposed malpractice coverage include all of the services you perform?
Be sure to first disclose all of the professional services you perform. Verify that your policy includes coverage for all of these services. Assuming that your agent “knows” what services your perform or that coverage exists is dangerous territory. You may not realize that coverage doesn’t exist until a claim is denied.
Is the liability coverage to be written on a “claims-made” or “occurrence” form?
Under an “occurrence” form policy, coverage exists for claims which occurred during the policy period regardless of when they are reported to your insurance carrier. Under a “claims-made” policy, claims must occur and be reported while coverage is in force in order for coverage to exist. For example:
- Your claims made policy will expire on June 15. A client was injured on May 15 and you report the incident on June 1. Coverage will respond.
- Your claims made policy will expire on June 15. A client was injured on May 15 but doesn’t tell you until July 1. Coverage will not respond unless you renewed the policy.
- Your occurrence form policy expired on June 15 and you did not renew coverage. A client was injured on May 15 and doesn’t tell you until July 1. Coverage will respond.
These situations are particularly relevant when moving your coverage from one insurance carrier to another. If you are non-renewing a claims-made policy for any reason, consider purchasing “tail” coverage from the original carrier or “prior-acts” coverage from the new carrier in order to protect yourself from situations like that described in example 2 above.
Does the policy include coverage for your business property? Does the coverage include burglary and theft? What about loss of income?
If you’ve invested in equipment, inventory, or furnishings for your business, it is advisable to protect it against loss or damage. You will need to provide your agent with relevant information including the amount of coverage needed, property location, and “protection” characteristics (building construction, sprinkler systems, alarms etc.). If available, be sure that your policy includes coverage for burglary and theft of your property and money. In most cases, the cost savings afforded by eliminating coverage for burglary and theft are not substantial enough to warrant the reduction in coverage. Many “package” policies automatically include coverage for loss of business income. This coverage will reimburse you for loss of income due to a business interruption caused by covered peril (fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot, vandalism, sprinkler leakage, and sinkhole collapse). Business income coverage is provided with a time and/or dollar limit on coverage.
(“Shopping for Insurance?” originally published in the American Society of Esthetic Medicine’s 1999 Resource Directory)