Shopper’s Guide to Business Insurance For Fabricare Businesses
Business – Policy
Just like dry cleaning, “insurance” is not generic. There is a difference between carriers and agents. Just as in dry cleaning, the “cheapest” may not offer the best value. The memory of a cheap premium is quickly forgotten if a disaster strikes and your insurer is not there to make you whole. Suddenly a “cheap” policy becomes expensive with possible catastrophic consequences for your business..
Financial Solvency & Licensing Will the carrier most likely be able to pay your claim in case of a major disaster? Will the state guarantee fund pay you if the carrier can’t? Has the insurance department approved the policy language to protect the consumer? Can you appeal unfair treatment to the insurance department? In most states the answer is “maybe” for the first question and “no” for the others IF you are dealing with a non-admitted (surplus lines) carrier. Be sure to deal only with insurers who are admitted in your state and which are rated at least “A- Excellent” by A.M. Best for claims paying ability. Be certain that the policy is not assessable so as to avoid possible, mid-term premium increases. Finally, only deal with an agent who is licensed and regulated by your state.
Stability of Market Many carriers come and go into the dry cleaning market and into coastal areas. Be sure that your insurer has a history of dealing with fabricare businesses and has served your geographic area for some time. Avoid insuring with a carrier which does not understand the risks involved in your industry or your geographic area and may leave you scrambling for coverage if they decide to stop insuring dry cleaners or businesses in your area. A stable carrier who is not going to flee your market is imperative. .
Windstorm Protection Some carriers do not offer windstorm protection in coastal areas which means damage to your equipment, customer goods, and your business income loss while closed would not be covered in the case of a windstorm. Be certain that causes-of-loss due to windstorm are covered. A policy which covers wind without a special windstorm deductible will reduce your out-of-pocket expenses for a wind-claim compared to one with a special wind storm deductible.
Customer Goods (Bailee) Your most likely large-loss will be due to a small fire which wipes out all of your customer goods on hand, while doing more limited damage to your equipment. I know this from experience. I also know that customer’s goods are always “brand new” in the customers mind. This type of claim could easily exceed a sum that is 25X your inventory of clean/dirty clothing. If you have $5,000 on the racks & in-processing, you could be looking at a $125,000 claim. If possible, choose “Actual Loss Sustained” (ALS) aggregate limits to guarantee all customers are paid. Failure to take care of the customer will likely lead to horrific local PR, a tremendous loss of customer base and cash-flow plus it could severely impair your ability to provide current income and funds for future retirement. . Be sure your insurer not only has adequate limits to protect the clothing, both at your store and in-transit, but that they have adjusters who are used to dealing with hundreds of claimants at once. Most adjusters deal with one claimant at a time and may alienate and drive away your customer base by how they process these claims.
Business Income/Extra Expense Many carriers are limiting the amount they will pay for lost income and extra expense to a set amount per month for only three or four months. Your landlord may take that long to decide what to do. Choose a policy that provides coverage for 12 months on an “Actual Loss Sustained” basis and which has a 72 hr. or less waiting period for benefits to begin. This could be the difference between protecting your source of current income and future retirement or losing it to an unforeseen disaster. Don’t forget about loss of income from an undamaged drop store due to damage at the main plant or due to a loss of utilities even though no damage was sustained at your location. Many policies don’t cover these exposures.
Property Limits The most expensive parts of a policy are the building and business personal property limits. Be sure you are comparing quotes with the same limits and make sure your policy has accurate limits. You are responsible for setting appropriate limits, but many fabricare business owners and agents have no idea how to set limits. This can lead to a large penalty assessed by the insurer during a claim for being underinsured and could require you to borrow money to replace equipment due to inadequate limits. Insist that your carrier utilize a replacement cost tool which uses construction rates in your area to help you pick appropriate building limits. Ask your agent for a price list of new dry cleaning/laundry equipment that includes the cost of delivery, installation and tax to help you set appropriate personal property limits.
General Liability Limits Carry limits of at least $1,000,000 per occurrence and $2,000,000 aggregate on business owners or commercial package policies. Some carriers will give a “per location aggregate”. This is preferable to having the aggregate be a policy-aggregate. Unless covered by a business auto policy, request coverage for “Hired & Non-Owned” auto through your business policy.
Equipment Breakdown (Boiler) A boiler or hot water heater under pressure which bursts and damages itself, other property, and causes a loss of business income is not covered by a standard business insurance policy. Be sure that your policy includes this coverage. This coverage typically covers property damage, business income loss, and the cost of an annual inspection by a state-approved inspector.
Environmental Insurance Pollution coverage provided through most business policies does not cover sudden/accidental spills or non-sudden causes of loss (eg. over time) and therefore is not a major factor when comoparing policies. Separate environmental policies covering both sudden and non-sudden causes of loss may be purchased for this exposure.
Employee Dishonesty Most policies exclude employee theft. Some offer endorsements to cover this exposure. Few endorsements will cover a theft loss in which the only evidence is inventory shortage. This coverage is often purchased to cover bookkeeper exposures.
Employment Practices Liability Most policies do not provide protection if you get sued by an employee for such things as: wrongful discharge, racial or age discrimination, etc. Some carriers provide endorsements to offer limited coverage for this exposure; typically at low limits. A separate policy should be considered for those with a high risk.
Electronic Data Processing (EDP) Most policies provide very limited coverage and low limits of insurance, if any. Some will provide additional limits to cover such exposures as the cost of data restoration after a covered cause of loss. The importance of this coverage will depend upon the business’s exposure to this risk.
Pay Plan If possible, buy a policy which allows you to directly pay the insurer; not the agent. This will help ensure that the agent is not adding fees to the premium and that the premium gets to the carrier. Most carriers will finance premium with a down payment of 25% or less and at no or low interest rates.
Customer Service Be sure that the agent and carrier have good reputations for customer service and that there are multiple methods to access assistance for claims, billing questions, certificates, etc.