How to Build an Affordable Insurance Program for Your Small Business

Every business needs insurance to manage risk, fulfill obligations and protect its bottom line. While insurance is a necessary business expense, it doesn’t have to strain your budget. By taking an organized and informed approach to coverage, small business owners can build an affordable insurance program that protects their operations and supports growth.

Start with a Comprehensive Insurance Strategy

Many small businesses purchase insurance reactively, adding policies as new needs arise. You rent office space, so you purchase commercial property insurance. You buy a company vehicle, so you add commercial auto coverage. You hire employees, so you secure employment practices liability insurance. And so on. If a policy isn’t renewed or premiums increase significantly, you shop for a new policy.

The problem emerges when business owners never stop to assess their program as a whole. As a result, they may have:

• Coverage gaps that leave them exposed to uncovered losses.
• Overlapping coverage that causes them to pay for coverage twice.
• Unneeded coverages that cost money while providing no value.
• Missed discounts and savings opportunities that result in unnecessary costs.

A portfolio-level review helps you determine whether every premium dollar is supporting a meaningful business risk.

1. Identify and Prioritize Your Risks

A thorough risk assessment can help you determine which insurance coverages are most vital.

Your business may have unique risks due to the nature of your operations. However, common risks include:

• Business property, including buildings, equipment, inventory
• Business interruption caused by natural disasters, cyber incidents and other events
• Employment-related risks, including injuries and lawsuits
• Management liability risks, including fiduciary breaches and misrepresentation
• Product-related risks, including recalls and product liability
• Professional risks, including negligence, errors, and omissions
• Cyber incidents, including ransomware, data breaches and fraud
• Third-party risks, including injuries, property damage, intellectual property claims and pollution

Because risks evolve as your business grows and the world changes, it’s important to reassess your risks periodically. Review your program at least once a year and whenever adding locations, employees, vehicles, products, services or major contracts.

2. Compare Policies, Packages and Endorsements

Once you have a clear idea of your business’s risks, you can compare your coverage options. This should include individual policies as well as packages and endorsements that can provide additional coverage at a lower cost.

For example, small businesses can often save money on insurance by purchasing a business owners policy (BOP). This is a common insurance package that combines general liability, commercial property and business interruption coverages. It’s also possible to add certain endorsements, such as employment practices liability coverage. In addition to costing less, a bundled insurance package can simplify claims because you don’t have to determine which policy should respond to a claim.

Although options that lower premium costs are desirable, evaluate more than the quoted premium when comparing options. Deductibles, exclusions, coverage limits and claims support can also contribute to the total cost to your business in the event of a loss.

3. Explore Alternative Insurance Strategies

For most small businesses, standard insurance options provide adequate coverage at a reasonable cost. However, your business may encounter problems, such as:

• Risks that standard insurers are not willing to cover.
• Premiums that are prohibitively expensive.
• Exclusions that leave important exposures uninsured.

If you encounter challenges like these, you may need to turn to alternative insurance and risk management solutions. There are many options to consider, including:

• Non-admitted insurance. A non-admitted insurer is not admitted in the state but is authorized to write eligible surplus lines coverage. This can be a good option for risks that standard admitted insurers don’t want to touch.
• Parametric insurance. A parametric insurance policy provides a payout based on the occurrence of an event rather than the actual losses. Parametric policies are typically written to cover specific types of events or losses, such as wildfires or earthquakes.
• Group captive insurance. A captive insurance company exists to provide coverage for its parent company. In the group captive structure, multiple businesses share ownership of the captive, making this a suitable option for smaller businesses.
• Large deductibles or self-insured retentions. When you accept a large deductible or self-insured retention, you are accepting a greater share of the risk. In exchange, you may be able to negotiate significantly lower premiums. However, you will be responsible for the deductible or self-insured retention in the event of a loss. With a deductible, the insurer covers the loss minus the deductible. With a self-insured retention, coverage does not activate until you pay your share.

Build the Right Insurance Program with Expert Guidance

Insurance is too important to be an afterthought. If you’re not giving insurance the attention it deserves, you may be overpaying for coverage. Even worse, you may not have the protection you need in the event of a loss, putting your business at risk.

Heffernan Insurance Brokers can help you build an affordable insurance program that’s tailored to your needs. Explore our small business insurance solutions.