Robots, internet of things and the coming cyber liability revolution

Cyber liability remains one of the most prevalent and hottest topics in insurance — and will continue to be so — especially with high profile cyberattacks against companies like Home Depot, Deloitte and, most recently, Equifax.

Small and midsize businesses tend to limit their perceived risk to a narrow set of circumstances; if they don’t take credit card information, there’s no reason to buy cyber liability. However, the risk of a data breach can take many forms, including stolen credentials, malware/extortion, social engineering and even disgruntled employees.

“While cyberattacks take place on a daily basis across the world, we face a somewhat unique exposure here in Northeast Ohio — the growing number of robots being used in industrial and manufacturing settings,” says Chas Lowe, commercial insurance specialist at Zito Insurance Agency, Inc.

The Brookings Institute ranked Ohio second in the nation for the number of robots being utilized in industrial processes in 2015. In fact, the number of robots in the workforce grew by 143 percent between 2010 and 2015, and that number is expected to compound over the next decade.

These interconnected robots can communicate with each other, which opens the door for hackers to reprogram these robots remotely to inflict as much damage physically, financially and technically to the companies using them as possible.

Smart Business spoke with Lowe about these evolving risks moving forward.

What’s an example of what a hacked robot could potentially do?
Take, for instance, a robot that’s designing an integral part of an engine. A hacker could reprogram the robot to inject small defects by remotely changing a configuration file. Should these defects successfully evade detection by a vendor’s quality control program, and depending on the nature of the engine’s final use, it has the potential to cause injury or even a fatality down the line.

While this example highlights potential physical harm, it doesn’t include the cost of the manufacturer’s product recall, business interruption, cost of finding and fixing the problem and the costs of potential lawsuits as a result of the error. Needless to say, without the right insurance coverage, these hacks could financially devastate a company.

What is the internet of things exactly? What potential threats may result from it?
In layman’s terms, the internet of things is the concept of connecting any device, machine or object to the internet to transmit data between each other or with a company. An example would be your alarm clock notifying your coffee maker to start brewing coffee. The potential to implement the internet of things in transportation networks, smart cities and in manufacturing/industrial uses is truly boundless.

A report by Research and Markets estimates that anywhere from 20 to 100 billion devices will be connected by 2020. This brings the issue of privacy and security to the forefront. Each device connected to the internet within your home or business becomes a point of vulnerability.

The real questions moving forward will be how will all the data these devices are collecting be secured? How do we prevent hackers from taking control of these devices in real time? How do we prevent hackers from gaining access to a city’s or company’s critical infrastructure?

How will robots and the internet of things affect the insurance industry and, more specifically, cyber liability insurance?
Robots and the internet of things have the ability to boost productivity and create efficiencies. Unfortunately, these same advancements have created more opportunities for cybercriminals. In the past five years, cyber insurance has expanded as a distinct line of business. These policies have been designed to primarily cover claims for data breaches and privacy violations.

Moving forward, more nuanced policies should be designed to address specific issues facing internet of things claims (i.e. value of stolen intellectual property). There are going to be industry growing pains as claims involving robots proliferate, with questions like whether liability falls to the manufacturer, software developer, company using the robot or another party in the supply chain. As the technological landscape continues to evolve, reviewing your cyber liability policy is more important than ever.

Insights Business Insurance is brought to you by Zito Insurance Agency, Inc.

Don’t stick your head in the sand. Transfer your risk

Transferring risk through the use of indemnity or hold harmless clauses in a contract is common for large corporations with attorneys on staff, but owners of small and midsize businesses need to spend time on this, too.

“It’s become a much larger topic, both from an underwriting and risk management standpoint. People don’t always understand the importance of risk transfer. But there’s a greater emphasis being placed on it by the insurance companies. Taking the approach, ‘that’s why I have insurance’ is not something insurance companies want to hear,” says Chris Zito, president of Zito Insurance Agency, Inc.

Because there is no direct revenue tied to it, business leaders tend to view risk transfer as an administrative burden. What they don’t realize is it reduces their overall cost of risk.

“Every day we see companies executing contracts that have not been read thoroughly,” Zito says. “This results in the unintentional assumption of risk.”

Smart Business spoke with Zito about the importance of risk transfer in business contracts.

How does risk transfer work? What are some examples?
When it comes to risk transfer, construction companies are an easy example. General contractors hire subcontractors and pass the risk down; a lower tier of subcontractor indemnifies the tier above it. The intent is that the party responsible for any damage or injury is held accountable for its actions, while protecting the people it is working on behalf of.

A company takes the risk and pushes it back to the people who created it.

A retail store, distributor, wholesaler or a manufacturer’s rep might sell a product made by somebody else. If that product causes injury or damage, the way the legal system works, everyone in the supply chain can be named in the litigation — from the end seller to the manufacturer, even if they had nothing to do with the product’s design, manufacturing or packaging.

Say for example, a manufacturer outsources a portion of its manufacturing process, such as plating, grinding, heat-treating, etc., to a third party. If the work wasn’t done properly or to the specification required, it might have an adverse impact on the end product. As a part of its risk transfer process, the manufacturer should ensure the proper insurance and indemnity provisions are in place.

Ideally, how do companies use contracts to move risk away?
In a perfect world, the company has contractual hold harmless language in place, along with the proper insurance for the people who supply it goods and/or services. In some cases, a buyer of a product might be named as an additional insured. The ability to do that varies based upon the industry and type of services being provided.

The hold harmless or indemnity clauses range in length. If you’re trying to transfer the risk, you want the scope of that indemnity language to be as broad as possible. If you’re the entity assuming the risk, you want the language to be narrow. Like anything else in business, it becomes a negotiation.

In addition, risk transfer is a negotiating tool for purchasing insurance. Companies that demonstrate the best risk transfer practices are more attractive to insurance companies. The best businesses spend time on risk transfer practices, which helps their rates and lowers their risk profile.

What role does an insurance agent play?
Your insurance agent can educate you about risk transfer tools, and possibly help facilitate the process — becoming your back room, so to speak. If your insurance agent reviews contracts before you execute them, he or she can alert you to red flags or help you push the risk back to the people who ultimately create it.

Prudent businesses have a system in place where they make sure they’ve got current information on all vendors, suppliers and subcontractors, because those relationships have the ability to create and pass down risk to the people who are purchasing their goods and services.

In some cases — particularly when doing business with large corporations — implementing risk transfer can be difficult. However, at the very least, companies can quantify the risk they are assuming at the time of the transaction.

Insights Business Insurance is brought to you by Zito Insurance Agency Inc. 

Better to develop an internal disaster plan than be sorry after disaster strikes

Most business owners understand the need for insurance to pay for damage to their business assets. However, many companies have overlooked an important aspect of risk management — the development and implementation of an internal disaster plan.

Up to 40 percent of businesses affected by a natural or man-made disaster never reopen, according to the Insurance Information Institute. At the same time, a 2013 study by Cintas Corp. found fewer than one in three employed U.S. adults believe their workplace is proactive about emergency preparedness.

A disaster plan can not only assist in establishing evacuation and storm sheltering plans, but it also includes procedures to notify government agencies, contact vendors, allocate emergency funds and backup records.

“Should a disaster occur, following established procedures could help a business get up and running more quickly,” says Chris Zito, president of Zito Insurance Agency, Inc. “While insurance carriers may reimburse or advance funds required to pay for damages, they don’t have an obligation to manage the company’s disaster procedures.”

Smart Business spoke with Zito about how to get started on an internal disaster plan at your company today.

How does a disaster plan benefit an organization?

Disaster planning can help establish contingency plans to allow for the continuation of products or services to be provided to your customers during the period of time the company is out of business. This may include arrangement for alternative locations or the outsourcing of products or services.

A disaster plan also helps your company prepare how to put your customers at ease before they panic and contact your competitor.

It clarifies and identifies who within the company is responsible for:

  • Backing up critical data.
  • Restoring data.
  • Working with the disaster recovery company.
  • Assessing the equipment.
  • Communicating with staff, suppliers, government agencies and the media.
  • Allocating emergency funds.
  • Arranging for security.

What is important to remember when developing a disaster plan?

When developing a disaster plan, be sure to consider if the business has multiple locations. It also can be beneficial to coordinate with neighboring businesses.

It is important to involve employees from all levels in the company as well as employees with special needs.

Many disasters that impact businesses are due to forces of nature, but some can be man-made. Given this, it is also important that a disaster plan address these types of incidents, too. These types of disasters can include chemical spills or violent acts. Supervisors should to know what to do when a violent act occurs. Your disaster plan may include incident reports and investigation forms.

Before a disaster occurs, employees should be familiar with warning systems, know what type of evacuation is needed as well as their role in the completion of the evacuation plan. Some training may also be required. (For example, how to use fire extinguishers and critical operation shut down.) Another good idea is to have someone create different variations of how a disaster could play out; you can then identify holes and work out the kinks during trial runs.

Disaster plans should be reviewed periodically with all staff. And, it is important that new employees be trained in how to handle an emergency as well.

Should a disaster occur at your business, implementing a well-structured disaster plan could reduce the size of your insurance claim and help the business get up and running faster with limited loss to revenue.

Insights Business Insurance is brought to you by Zito Insurance Agency, Inc.

Health care shouldn’t be a four-letter word

Health care plans sometimes feel like a shell game. Consumer-directed plans. High-deductible plans. Health Savings Accounts. Narrow networks. Detailed deductibles for certain line items. It may sound great, but at the end of the day, it’s often just shifting cost to your employees, says Joe Turi, Vice President of Benefit Solutions at Zito Insurance Agency, Inc.

“Employers want to lower their premiums, while staying cognizant of the plan’s other variables. The problem is if an employer squeezes one part of the plan — the premium — just like a balloon, costs or a reduction in coverage pop out someplace else,” Turi says.

It’s better to take air out of the balloon by lowering the total premium cost, keeping the network as whole as possible and educating employees on how to best spend their health care dollars.

Smart Business spoke with Turi about how to manage a health plan with a focus on compliance and education to ultimately control costs and still serve employees.

Where do employers make mistakes?

Many employers are so focused on price, the plan loses quality and their employees get upset. Instead, they need to dive into the details of potential plans to really evaluate what’s covered and what’s not covered. Whether the company is a two-person group or a 2,000-person group, what it’s actually doing is financing health care claims while assuming prudent risk.

How should brokers help employers manage their health plans?

It starts with the employee relations component. The plan is a benefit that the company provides to attract and retain good talent. Employees have doctors they want to continue to see and hospitals they want to continue to access. The plan shouldn’t disrupt patterns of care, so how can the broker work with those doctors and hospitals in order to purchase health care better? The answer is managed care contracting.

Most brokers simply look at the discount arrangement — say 50 percent versus 25 percent. But what if Hospital A’s 50 percent discount is a $1,000 MRI, while Hospital B charges $500 for the same imaging with a 25 percent discount? After the managed care contract has re-priced that claim, it’s more cost effective to pay $350 than $500.

The broker and employer need to consider: Where do the employees go? How much are they going to pay for that care? Most importantly, how do they take their knowledge and get the biggest bang for their health care dollars? And, how do they transfer that knowledge to their employees?

Many times, it’s evaluating where the care is received — even on-site at work.

Do fully funded plans still allow access to this kind of detailed information?

Yes, but the process is different than with self-funded plans. For instance, a broker might need to collect Explanations of Benefits to see who is spending what and where. While employers cannot see that data, per the Health Insurance Portability and Accountability Act, a broker can report back to help create educational materials.

If education is so important, how can employers change employee behavior?

It isn’t easy, but over time, as trust is built up, there will be more adoption. It typically follows a 20-60-20 rule — 20 percent will be early adopters, the next 60 percent will follow along because they hear good things and the last 20 percent dig their heels in.

A broker who brings a spreadsheet every year and says, ‘This plan with this carrier will save you 2 percent over your current rate, so let’s go here’ isn’t helping minimize the risk. It’s better to take a consultative approach on compliance and education. The broker and employer need to work together to understand the cost drivers that impact the plan over time.

That’s when the air starts to come out of the balloon, the trend line comes down and cost increases are minimized.

Insights Business Insurance is brought to you by Zito Insurance Agency, Inc.

When it pours and sewage hits the fan, is your company protected?

Water always makes a mess, so nobody wants it inside his or her place of business regardless of how it gets there.
While many business owners assume that property damage caused by water is automatically covered by their insurance, there are a number of exclusions related to water that are standard in most property policies.

Recognizing that in some cases water can cause more damage than fire, it is important that this exposure is properly covered.

“There may be an artificial level of comfort that water damage is always covered, which isn’t the case at all,” says Chris Zito, president of Zito Insurance Agency, Inc. “Usually, it’s discovered after a business owner suffers a large water claim and finds out he or she only has a small amount of coverage, or none at all. The first reaction is typically to blame the insurance company, however it really is a result of the coverage not being structured to adequately address the business’ risk.”

Smart Business spoke with Zito about being aware that your business may not have the protection it needs, when it comes to water damage.

What are examples of water damage that isn’t automatically covered in most policies?

While many people understand that flood often isn’t covered, the flood exclusion is broader than the overflow of a river or lake that most people associate with a flood. The typical exclusion reads: ‘the partial or complete inundation of normally dry land areas due to:

  • The unusual or rapid accumulation or runoff of rain or surface waters from any source.
  • Waves and tidal waters.
  • Water from rivers, ponds, lakes, streams or any other body of water that is not contained in its natural or man-made boundary.’

In addition, other sources of water excluded from coverage are:

  • Floor and roof drains.
  • Sewers, sump pumps or related equipment and septic systems.
  • Seepage through foundations, walls, floors or paved surfaces.
  • Basements, doors, windows or other openings.
  • Repeated or continuous seepage of water or the presence of humidity, moisture or vapor that occurs over a period of time.
  • Water from plumbing, heating, air conditioning caused by freezing (if heat was not maintained or shut off and drained from the system).

As you can see, water damage can originate from inside or outside a building from virtually every direction, putting assets such as equipment, furniture, production equipment, inventory, floors and walls at risk.

How can business owners do something about these exposures?

Whether you have an HVAC system in your office building, machinery or appliances that incorporate water, or something as simple as a malfunctioning toilet or sink, almost every type of business is susceptible to a range of losses caused directly or indirectly by water. Fortunately, in many cases, coverage for many of the noted exclusions can be purchased by endorsement or through a separate policy. That’s why it is important to work with an agent or broker who understands your individual exposure to water damage and has structured the coverage accordingly.

It’s your agent’s job to know what is included and excluded in your policy — and then ask pertinent questions about your business. For example, do you have pallets of inventory? Are they on the floor? Are they up on shelves? Are they wrapped in plastic? Are they susceptible to a roof drain breaking? Is there electronic equipment below, or is it just boxes that wouldn’t be damaged by the water?

The degree of exposure varies by company, so the coverage has got to be tailored to your specific needs. It isn’t automatic but, for the most part, these things can be rectified at a relatively low  cost, as long as they are identified by an agent doing the right things.

Insights Business Insurance is brought to you by Zito Insurance Agency, Inc.

Is your organization overlooking your risk for a pollution claim?

When many people think of pollution insurance, they picture large factories or chemical companies that pollute the environment, such as has the historic Love Canal litigation years ago. But that’s not the whole story — or the entire picture of who could face pollution risks.

Smart Business spoke with Chris Zito, president of Zito Insurance Agency, Inc., about environmental risks and coverage that is available as protection.

What are the risks of pollution exposure?

Most companies in the environmental remediation or consulting business recognize their exposure to pollution claims and insure them accordingly. There are also a large number of companies not in the environmental business that have significant exposure to pollution-related claims, which in many cases have been overlooked. These risks can include Environmental Protection Agency (EPA) mandated cleanup costs as well as third-party claims alleging sickness, disease or property damage.

The financial impact to your company can be devastating if you encounter a legitimate pollution incident. If you are ultimately found to have no liability, you can still go broke proving it if you’re self-insuring this risk.

When considering the extent of your individual risk, it is important to remember that you can be held responsible for pollution incidents caused by others with whom you have contracted or are working on your behalf.

What types of companies are at risk for environmental exposures that might be surprising?

To some degree, hazardous materials, as defined by the EPA, can be found in almost any business — even something as innocuous as cleaning supplies. Significant environmental exposures exist in a number of industries that most would not consider at risk, such as:

  • Contractors — pollutants that are brought to a job site (sealants, adhesives, fuel for equipment, etc.) or actions that result in the release of pollutants into the air, land or water, including mold, lead paint and asbestos.
  • Manufacturers — cutting oils, solvents, paints utilized during the manufacturing process that may create an environmental hazard.
  • Real estate owners — claims generated by property transfers (exposures created by prior owners), mold, lead paint, current tenants or ‘midnight dumping’ by unknown third parties.
  • Service industries that utilize environmental unsafe chemicals, such as beauty salons, dry cleaners, auto repair, service stations or junkyards.

How can employers insure against these risks?

As a means to stay competitive in the market, most commercial insurance carriers have broadened the coverage included in the various policies they offer. One exception to that statement is pollution liability coverage, which has been greatly restricted or excluded entirely from most policies since the 1970s when asbestos, lead and other environmental claims bankrupted many well-known companies.

While limited pollution coverage may be available by endorsement to general liability, the most comprehensive coverage is typically written on separate policies through companies that specialize in environmental coverage.

Pollution coverage is available for most industries and typically is categorized to address environmental risk in three basic areas:

  • Job site.
  • Site specific (i.e. owned premises).
  • In transit.

An evaluation of your exposure to environmental claims should be included as part of your risk management program. A qualified agent or broker will be able to assist with this process and provide the appropriate solutions in cases where environmental risks are identified in your operations.

Insights Business Insurance is brought to you by Zito Insurance Agency, Inc.

Your insurance coverage is only as good as the agent structuring it

Despite the attempts of many insurance companies to create the perception that insurance is a commodity — nothing could be further from the truth.

“While it is important to place your coverage with a stable, reputable carrier, insurance policies are legal contracts and are only as good as the expertise of the agent that structures your insurance coverage,” says Chris Zito, president of Zito Insurance Agency, Inc.

Many agencies represent themselves as being “full service,” however often that only means they sell several different types of polices. Your insurance agent should take more of a consulting role, or in some cases be an outsourced risk manager.

Smart Business spoke with Zito about what to look for in an insurance agent or broker.

What can happen if business owners don’t have the right agent?

A business may operate exposed to risks that management doesn’t realize exist. When coverage is not in place and a claim occurs, the business may incur significant out-of-pocket expenses.

These situations can to occur as a result of changes in the legal or regulatory environment. Alterations in how business is conducted can alter exposures, for example an increase in cyber exposure or employee litigation.

How should business owners evaluate their current or prospective agent?

It is the job of an agent or broker to educate the business owner about potential risks. There isn’t a right or wrong approach to structuring an insurance program, which may include choosing not to purchase traditional insurance for a given risk.

That said — it is absolutely critical that the business owner makes a conscious decision versus unknowingly self-insuring a risk.

Here are some questions to keep in mind when evaluating an agency or broker:

  • Do they have expertise in your industry, including a thorough understanding of the risks that are unique to your business?
  • Are they transparent in how they conduct business? Do they disclose pricing for all proposals obtained? Are they willing to share how they are being compensated?
  • Does the agency represent a diverse number of high-quality regional and national insurance carriers that can accommodate your current and future coverage requirements?
  • Do they maintain a dedicated claims administrator on staff? Many agencies view claims personnel as an unnecessary expense and direct clients to contact the carrier’s claim department for assistance. Paying claims is why insurance exists, and the quality of the claims handling process can be a chance for the right agent to excel when you need him or her most.
  • Is your agent part of the greater community? While it’s possible for an agent to handle your insurance efficiently from another part of the state, or even out of state, most business owners prefer an agent who is engaged with the community.
  • Does the agency have the capability to handle all aspects of your insurance program — business, personal, group benefits, life insurance, estate planning, etc.?
  • Do they offer ‘value added’ services, such as claims analysis, risk management, safety training materials, etc.?
  • Is the agency willing to provide references from companies in your industry?

How often do agents need to be evaluated?

It really depends on how proactive the agent is in addressing market conditions, relevant legislative changes and updates in the company’s operations. If the only contact you have with your agent is to deliver a policy or collect premium, it may be time to consider alternatives.

Insights Business Insurance is brought to you by Zito Insurance Agency, Inc.

Cyber liability: What you need to know about your risk

Cyber liability remains one of the most prevalent and hottest topics in insurance — and will continue to be for some time. But many business owners still don’t correctly perceive their risk.

Small and midsize business owners tend to limit their perceived risk to a narrow set of circumstances, says Chris Zito, president of Zito Insurance Agency, Inc. For example, if they don’t take credit card information, then there’s no reason to buy cyber liability.

“The reality is the better cyber policies cover a number of internet and/or data breach-related exposures that aren’t limited to credit card information or electronic hacking,” Zito says.

The most commonly acknowledged data breach is hackers accessing a company’s server, but breaches can take place in other ways. An employee might leave a client file on a desktop; not properly shred documents; use an unencrypted phone, laptop or tablet; leave a mobile device in an airport or Starbucks; or use Wi-Fi in an unsecure environment.

In addition to potential data breaches, another example of an exposure is email liability. Companies can be exposed to liability for allegations that transitions of corrupted emails caused harm to the recipients’ networks.

Smart Business spoke with Zito about what companies need to know about cyber risk and liability.

Which companies face cyber risk?

Everybody has some level of cyber exposure. A privacy or data breach can certainly come from somewhere other than a hacker.

Nearly every organization keeps confidential or what’s called personally identifiable information. Even if your business doesn’t keep that kind of information about customers, it still may maintain and/or transmit medical records and Social Security numbers for its own employees.

Medical providers or financial institutions, for instance, have more risk because they literally have thousands of confidential records with personally identifiable information, but that doesn’t eliminate others from some kind of risk.

The more access the outside world has to your data, including employees using social media or mobile devices accessing the company’s server, the more exposure you have.

How has cyber liability insurance evolved in the marketplace?

Like any relatively new coverage, cyber constantly evolves.

Insurance carriers are consistently coming out with broader, better forms, in an effort to keep up with the changing exposure generated by advances in technology.

Generally there is no standardized cyber coverage policy language. Many carriers’ policies will look similar but very few will be identical.

Much like when employment practices liability was introduced, cyber liability started out as very expensive, requiring extensive underwriting.

As carriers have become more comfortable with the cyber exposures, they’ve begun adding cyber endorsements, with limited amounts of coverage at affordable pricing.

What’s important for employers to know about buying cyber liability insurance?

It is important for companies to understand what coverage is actually being offered by these endorsements as some may only provide coverage for reimbursement of mandated expenses, and no coverage for legal defense or settlements.

It usually comes down to affordability.

With the evolution of the cyber landscape being a near certainty, in addition to implementing internal security measures such as data encryption and firewalls, companies should buy the broadest coverage they can afford.

Insights Business Insurance is brought to you by Zito Insurance Agency, Inc.


How to restore your business with business interruption coverage

Many people buy life insurance. What they don’t think about is disability insurance — even though you’re 16 times more likely to be disabled than you are to die during your working life, says Chris Zito, president of Zito Insurance Agency, Inc. Similarly, employers understand lightning could hit their building, a tornado could blow the roof off or a fire could start. They know that they would have to fix their property, but they forget about the lack of earnings the company goes through while it gets back on its feet.

“Business interruption functions as the ‘disability insurance’ for your company. It is designed to restore your company’s financial condition to the same place it would have been if the claim hadn’t occurred,” Zito says.

Many business owners, however, underestimate the impact a business interruption claim can have and underinsure this exposure. Accordingly, inadequate business interruption limits account for a large percentage of the businesses that never reopen after a large loss.

Smart Business spoke with Zito about what employers need to know about business interruption coverage.

How does business interruption coverage work?

Business interruption coverage reimburses the business owner for ongoing expenses during the shutdown period, the profit the company would have earned during that time, and any expenses above and beyond the normal operating expenses — temporary facilities, outsourcing to friendly competitors or renting generators.

Not only can business interruption losses be caused by damage to the company’s own facilities, but also from damage to off-premises locations owned by others such as material suppliers, utility companies or key customers. You don’t want to overlook how the damage at another location can create a business interruption loss for you. A properly written policy will provide coverage for these exposures.

Both the business owner and insurance carrier should have the same interest in getting the insured back to 100 percent as fast as possible with the least amount of disruption to the business and impact to the customer base.

What mistakes do you see employers make?

The most common mistakes are business owners underestimating the amount of coverage they need or recognizing the likelihood that such a loss could happen to them.

Which companies have more of a need for business interruption insurance?

Typically, organizations with facilities that can’t easily be replicated will benefit the most. If you run an accounting firm, as long as you have computers and phones, you can set up quickly in a new office space. But manufacturers with specialized equipment or custom-made machinery may face long lead-times to replace that equipment or machinery. You can’t just move into a new plant and outsourcing your product may not be feasible.

How should this coverage be set up?

Similar to direct property claims, business interruption coverage in a policy will respond (or not) based on the cause of the loss. Business interruption claims also can be very complex, and typically are the most difficult for the insurance carriers to adjust.

For this reason, it is important to work with an agent or broker that understands the insured’s business, as well as the correct method of calculating the proper business interruption coverage limit. There are worksheets that help calculate the appropriate limit by ensuring your coverage reflects a worst-case scenario.

For example, in a large loss, it might take 90 days alone to clear the site of debris, investigate the cause of the incident and get the proper construction permits before reconstruction even begins — and it’s not uncommon to take nine months or more to get to full capacity.

Another concern is the indemnity period. Standard coverage stops once you are back in business. Due to the risk of loss of market share, you may want to buy an endorsement to lengthen the time after resuming business you have to get back to pre-claim levels.

Business interruption coverage isn’t prohibitively expensive, but it will take individual tailoring to get the policy to fit your needs. So, before disaster strikes, call your agent or broker.

Insights Business Insurance is brought to you by Zito Insurance Agency, Inc.

How to prevent coverage gaps as your personal wealth increases

Not all high net worth individuals started out that way; they’ve spent years building a business and career, slowly accumulating assets and wealth. Even though they have more items to insure and face different risks, they often don’t adjust their personal insurance to reflect their changing needs.

“They are so busy building a business, they often don’t take the time to adjust their coverage as their needs and circumstances have changed,” says Kevin Franczkowski, client advisor at SeibertKeck Insurance Agency, Inc.

Most of these people would never go without necessary coverages on their business, but there can be major inadequacies with their personal insurance, he says.

Smart Business spoke with Franczkowski about where high net worth individuals need more or different types of insurance coverage.

What is the biggest area that high net worth individuals under insure?

The biggest concern is liability. While it is upsetting to lose an expensive piece of jewelry, it generally will not ruin someone financially; a liability claim, however, can. With inadequate liability and/or umbrella coverage, one incident can affect the total wealth and earnings of an individual and their family.

If the individual sits on nonprofit boards, or is involved with charity work, he or she needs to consider increasing his or her limits and supplementing coverage with an umbrella policy. If a nonprofit is sued, it is common to name all the individual board members in the suit as well. Without the proper coverage, you could be footing the defense or judgment bill yourself.

For example, a high net worth individual sat on a youth athletic league’s board of directors, and a former coach sued all board members for improper dismissal. Thankfully he had a personal umbrella policy that covered him for liability resulting from unpaid or voluntary positions and paid for his entire defense.

Auto accidents are a common source of claims and can result in financial pain if you and your estate are not adequately covered. For instance, an individual has a $1 million umbrella policy over a $250,000 per person liability limit with his automobile policy. Unfortunately, he or she had an accident in which a child was severely injured. The child’s care will more than likely exceed $5 million within 15 years; his or her estate, business and earnings will all be at risk to cover this situation.

What problems do you see with homeowners policies?

Homeowners policies come with limitations on certain items like fur, jewelry, fine arts and firearms. These provided limits are not usually adequate for high net worth individuals. As individuals gather wealth, they tend to gather expensive items that with a standard policy have a very limited amount of coverage. It is important to review these items with your insurance agent to be sure the items are properly and fully covered. Collectibles and rare or unique items often require a separate policy, known as an inland marine policy.

Make sure the values on your homeowners policy are correct, and ensure you use insurance products that are designed for higher risk. This will be extremely important in the event of a claim.

How should household help be covered?

If household help, such as a gardener, nanny, cleaner etc., doesn’t come from an established company, you need to pay workers’ compensation. This will protect you in case they are injured in your home.

If the employee comes through a service company, ask for proof of coverage with a workers’ compensation certificate. It is also important to inquire with the company about background checks for anyone coming to work in your home to make sure there’s compatibility, experience and no other issues. Your insurance agent can assist you with determining if the company’s coverage will extend to the employee, or if you need to purchase your own policy for them.

A good agent will do a risk management audit, asking what you’ve got to protect and walking you through the different items you have to ensure there’s adequate coverage. By spending time with a qualified high net worth agent, you’ll know your assets and income are properly insured.

Insights Business Insurance is brought to you by SeibertKeck