Commercial insurance customers are managing new and increasingly complex risks. Cyber threats, litigation trends, supply chain disruption, and changing workforce models continue to create new exposures for businesses. At the same time, premium costs remain a motivating factor for most policyholders. Commercial insurance mistakes are costly and can create lasting effects on businesses.
Read on to learn more about how agents can help policyholders avoid six common commercial insurance mistakes.
How to Avoid Six Common Commercial Insurance Mistakes
Here are six common mistakes agents can help policyholders avoid:
Underinsuring property values. Failing to properly insure commercial property to current replacement cost values is an expensive mistake. Inflation and construction costs have risen in recent years, increasing rebuilding costs, but many policyholders continue to rely on outdated valuations. A common misconception is assuming modest annual increases will keep pace with market conditions. Agents can help by encouraging regular property valuation reviews, discussing inflation and other pressures, and explaining coinsurance penalties that may apply.
Overlooking cyber exposures. Small and medium-sized businesses are popular targets for cyber attacks due to their often weaker controls and limited resources. Many policyholders do not consider the need for separate cyber coverage, with some assuming their CGL will extend coverage and others assuming they are too small to be a target for cyber criminals. Both of these misconceptions can be costly mistakes. Agents should discuss cyber risk during coverage reviews with commercial insureds across industries, regardless of the size of the business, and explain how even a temporary network outage or phishing attempt can create major operational challenges and expenses.
Making operating changes without updated coverage. As businesses evolve, adding locations, expanding products and services, and hiring employees, their risks change. But insurance programs do not automatically adjust to cover these expanded risks, creating gaps that can be expensive should a loss occur. To help reduce this risk, agents should ask detailed operational questions during regular coverage reviews and encourage policyholders to contact them with any operational updates throughout the year.
Underestimating business interruption and extra expense exposures. Business interruption losses can extend far beyond the scope of the physical damage loss, but these exposures are often underestimated. External delays from labor shortages, supply chain disruption, parts delays, and dependent property losses can all affect recovery periods. Restoration timelines and waiting periods can also be confusing. Agents can help provide clarity by discussing operational dependencies and continuity planning with policyholders. This helps to ensure expectations around business interruption coverage align with realities.
Misclassifying operations or employees. A costly mistake businesses sometimes make is misclassifying employees, misunderstanding how operational changes affect classification codes, or failing to report subcontractor exposures properly. These incorrect classifications can lead to underwriting issues and claims complications. For policyholders with blended workforces, independent contractors, and gig workers, these issues can be especially complex. Agents should educate their policyholders about operational reporting and payroll classifications at reviews and when changes occur.
Overlooking emerging liability risks. New liability risks arise from the use of AI, social media activity, remote work arrangements, and third-party vendor use. These potential areas of liability may not be well understood or recognized by policyholders, and even traditional businesses can face new technology exposures. By staying informed about emerging risks and coverage solutions, agents can provide meaningful and timely advice to help policyholders reduce their risk of emerging exposures.
External Links:
- https://riskandinsurance.com/underinsured-properties-are-crushing-reinsurers-why-proper-valuations-will-be-a-focus-for-years-to-come/
- https://www.insurancebusinessmag.com/uk/news/cyber/sme-cyber-insurance-on-the-rise-attacks-regulations-and-contracts-fuel-growth-551857.aspx
- https://www.mckinsey.com/industries/public-sector/our-insights/empowering-the-us-workforce
