Buying Insurance for Your Small Business: The Ins and Outs

Important questions to ask and valuable advice from an insurance broker

By Jeff Aube

Insurance is a crucial component to risk management for all small businesses, but the sheer volume of products and the best practices around purchasing it can be overwhelming for even the most experienced insurance buyer. Below we have outlined essential information that all small business insurance buyers should consider when sourcing the market.

The Ins and Outs

The two most frequent questions the small business insurance team at Gallagher encounters from business owners are, “I am opening my own business – what type of insurance do I need?” or “I am opening my own business and my lawyer/bank told me I need property and liability insurance.” If only it were that simple.

It is true that most small businesses need property and liability insurance, and the most common way to purchase these coverages in Canada is via a package – either a Business Owner’s Policy or Commercial Package Policy. Typically, a package policy will include property coverage, including business interruption, commercial general liability, equipment breakdown, and crime coverage.

Lawyers and banks often suggest these coverages because they are required to meet the terms of loans or leases, and while these coverages are crucial to protect businesses, there are others that should be considered.

Some questions to ask oneself are:

• Am I going to use internet /digital in any way to support my business?

If so, cyber insurance should be strongly considered. In Gallagher’s January Cyber Market Conditions Report, John Farley highlights that ransomware attacks in the first six months of 2021 surpassed all of 2020 in terms of paid ransoms. Furthermore, social engineering schemes resulted in $1.8 billion in losses because of business email compromise. Often, a separate crime policy is required to protect against social engineering claims.

• Am I going to use my automobile in conjunction with my business?

Depending on how/what you use your automobile for will determine whether you need a commercial auto policy, or a personal auto policy with a business use extension.

• Will I have employees?

If yes, small businesses should strongly consider director’s and officer’s liability insurance, or at minimum, employment practices liability to protect themselves from lawsuits arising from allegations such as discrimination, wrongful dismissal, or failure to employ or to promote.

• Am I a professional, or am I delivering a service that could cause loss to my client?

If so, professional liability insurance should be considered to protect your business from errors or omissions in the rendering of, or failure to render, professional services and/or social services.

Advice from an Insurance Broker

Consider price, but not in the absence of coverage/value. Remember, you often get what you pay for.

Insurance buyers often fall into the trap of valuing price over coverage. Price is a critical component of a business’ insurance program, but it cannot be considered in isolation of coverage. Having the right insurance to protect your business against the exposures and risk inherent with it is a critical step in your risk management program.

Provide your broker with the information they require/request.

The insurance environment has changed over the past few years and as a result, brokers and clients are required to produce far more information than in the past to receive a quote. This increased information helps the broker thoroughly evaluate your exposures and obtain the best terms possible for your business.

Speak with your broker to determine what limits you should consider.

Insurance to value/adequate limits is as important as the coverages you buy. A complete policy with inadequate limits exposes a business to losses as much as not having the proper coverage at all. From a property perspective, a business may not only be left contributing to losses that are more than their limit of insurance, but they may also be subject to a coinsurance penalty. Furthermore, no business wants to be left with hefty legal fees or payments from liability actions due to inadequate liability limits.

Let your broker know if there is material change in your business.

Businesses often evolve and change as client expectations or external factors require. A perfect example is the number of in-person service businesses that pivoted online during the COVID-19 pandemic. Changes like these require you to speak with your insurance broker to ensure that coverage is not impacted and that new exposures are not present. An example of some of these changes are listed below.

Operational changes such as expansion to another province or country, or new products or services you may be providing.

Any newly assumed contractual liability, granting of indemnities or holdharmless agreements.

Changes in fire or theft protection, such as the installation or disconnection of sprinkler systems, addition or removal of fire extinguishers, burglar alarms, etc., including any alterations of the same.

Immediate advice of any changes to scheduled equipment such as contractors’ equipment or electronic data processing equipment.

Any changes to existing premises, including but not limited to vacancies (whether temporary or permanent), alterations, demolition, etc. Any new premises or equipment purchased, constructed, or occupied.

Any new premises or equipment purchased, constructed, or occupied.

Company property that is in transit, unless we have previously arranged for the insurance.

Read your policy and request that your broker review anything that might be unclear to you.

Have a general understanding of what insurance you purchase and what it covers. Equally important is understanding what is not covered and why. All insurance policies have terms, conditions, and exclusions that limit the amount of coverage available. An understanding of the policies purchased and options available allow businesses to appropriately assess their uncovered risks and make plans to self-insure them.

Insurance buyers should always consult with their broker to determine what exposures exist and how best to guard against them. To learn more or speak with a Gallagher representative, visit www.ajg.com/ca/canfitpro.

Jeff Aubé leads the small business team at Gallagher. The team’s focus is to deliver market leading solutions and exemplary customer service to Gallagher’s 12000+ small business customers. Jeff is a proud Alumnus of Western University and, in his free time, enjoys spending time with family and golf.