Keep Pace with Insurance as Your Business Grows

Tracy Mayor -- Expert Business Source, 4/6/2007 6:29:00 AM

The news is all good: You’re in growth mode, adding employees, moving into bigger space, increasing traffic and fine-tuning your inventory-management skills. You’re so busy, in fact, you may not have time to ask yourself one crucial question: Is my insurance keeping pace with the success of my company?

It’s not a question to take lightly, says Loretta Worters, vice president of the Insurance Information Institute, a non-profit industry group, because periods of expansion can also be periods of vulnerability. “Many small- and medium-sized businesses don’t want to spend on insurance,” she points out. “They’d rather put the money back into their business. But that’s when they need [insurance] the most.”

Many businesses start off on the right foot with a Business Owners Policy (BOP), which typically includes property insurance, business interruption insurance (also called business income insurance) and liability protection. Companies of any size should also carry separate auto insurance and worker’s compensation or health and disability insurance.

As your company grows, you’ll need to take your insurance up a notch – or several – to keep pace. Companies that are rapidly increasing the size of their workforce and management teams, for example, should consider insuring themselves against two types of professional risk: employment practices liability and directors and officers liability.

Employment practices liability insurance (EPLI) protects against claims that a worker’s legal rights as an employee of the company have been violated. EPLI provides protection against such employee claims as:

sexual harassment
discrimination
wrongful termination
breach of employment contract
negligent evaluation
failure to employ or promote
wrongful discipline
deprivation of career opportunity
wrongful infliction of emotional distress
mismanagement of employee benefit plans

A second area of vulnerability for growing companies is a lawsuit brought against directors and officers. The cost of defending such suits can be catastrophic for nearly any company, but even more so for closely held corporations in growth mode, where exposure can well exceed the assets of the operation. D&O liability insurance protects directors and officers against claims alleging:

employee discrimination or unfair employment practices
wrongful termination
disposal of corporate assets without regard to the firm’s ability to pay for or secure the company’s debts
wrongful denial or termination of credit to any customer or client
violation of antitrust laws or unfair methods of competition
violation of a loan covenant
exorbitant dividend payments or profit-sharing contributions made by the company
improper loans made to directors or officers

Finally, Worters urges business owners in growth mode to step back and consider insurance as just one element in the bigger picture of strategic risk assessment.

“As you start to prosper and grow, it’s important to look at the overall risks to your company,” and then cover yourself accordingly, she says. A restaurant, for example, should consider protection against food spoilage and liability insurance in case someone sues after becoming ill. A retail tire operation might want to insure itself against an inventory disaster caused by a mild winter that leaves it with too many unsold snow tires.

This type of industry-specific risk management is important to all businesses, large or small, because it improves performance, Worters says. And that, in turn, ultimately improves the bottom line.

Tracy Mayor is a freelance writer in Hamilton, Mass.