What business insurance coverage does an agency need?

Written by: Karl Sakas

An agency owner came to me with a risk management question: “What insurance coverage does my agency need?”

One of their agency’s clients was insisting they get General Liability, Workers Compensation, and Professional Liability. He wanted to know if that was common for all agencies.

“Common” is relative. Insurance coverage is a mix of statutory requirements, client requirements, and personal risk tolerance. It helps to have a trustworthy business insurance agent—they make it easier to navigate all the options.

Insurance is helpful for risk management. The insurance underwriting process also reminds us about foolish behaviors (for instance, it’s expensive to insure a vacation home on a barrier island… because owning a house on a barrier island is a risky idea).

There are many insurance options for agencies—in this article, I’ll review 15+ options to consider.

Note that I’m not an insurance agent or an attorney, and my advice skews toward U.S.-based insurance. Be sure to consult with an insurance expert for advice on your agency’s specific situation.

Top Agency Insurance Options

1) General Liability is the baseline—it’s what covers you if a random person sues you. Clients—especially large corporations and universities—want agencies to carry a lot, like $1M to $2M+ in coverage. If you already have $1 million in coverage, going to $2 million to meet a prospect’s requirement likely won’t double your premium.

2) For liability coverage, agency owners often get a BOP (Business Owners Policy) that bundles several types of coverage (property coverage, liability coverage, and—sometimes—business interruption insurance). This can be a streamlined approach if you don’t own your office building. Here’s more on the ins and outs of BOP coverage.

3) Worker’s Comp requirements vary by state—most require it for companies with 1+ employee, although some relax that to 3+ employees. It’s relatively inexpensive per-person; my accountant estimated $150/year for my first W-2 employee.

4) Professional Liability insurance—aka “errors and omissions” (E&O)—is specific to the type of work you do. It’s effectively the non-medical version of “malpractice” insurance. Getting E&O requires a special underwriting process, with an application form specific to a firm’s “profession.”

Not every agency has Professional Liability insurance, and it may be somewhat expensive, depending on how much or how little your internal policies and practices work to prevent problems.

Check your coverage, especially if you’re building websites or apps—Professional Liability might not cover you for things like an ADA compliance lawsuit against one of your clients for a Section 508 accessibility issue, or a cybersecurity lawsuit blaming you for a client’s data breach. More on those below.

Employee-related Agency Insurance

5) If you can afford it, you would ideally offer Health Insurance to your employees. At the recent AgencyCon conference, one speaker said, “If you can’t afford to offer health insurance, you aren’t charging [clients] enough.”

Note that medical insurance is less common for agencies under 10 employees, due to the expense. If you’re smaller—or a small group plan is still unaffordable—they may be able to offer it sooner via a Professional Employer Organization (PEO). And if you’re outside the U.S., the government is usually taking care of this for you.

If you offer a 100% employee match, that’s generous—but be careful not to commit to more than you can afford, especially as premiums go up.

6) States offer Unemployment Insurance, which you’re required to pay-into. (And a spike in claims will produce a spike in premiums—although ethically, I believe agencies should rarely challenge an ex-employee’s unemployment insurance claim.)

7) If there’s a company car, you need company Auto Insurance. (That said, most agencies shouldn’t have a company car—when I see agencies with company cars, it’s usually a financially unsound boondoggle.)

8) To protect yourself against employee discrimination claims, consider Employment Practices Liability Insurance (EPLI). EPL insurance covers you against claims regarding discrimination, harassment, and wrongful termination. Note that you may be able to secure some protection by creating—and following—a strong employee handbook.

9-10) Disability Insurance is helpful in reducing double jeopardy situations—where someone can’t work, and you need to pay them while also paying their [temporary] replacement.

Short-Term Disability coverage is more common than Long-Term Disability coverage. Short-Term Disability insurance frequently provides a maternity leave benefit, which lets you provide partial income at minimal cost to the agency.

Client-oriented Agency Insurance

11-12) Agencies should increasingly consider some sort of Cyber Liability or Data Breach Insurance. I expect that to become more important as the years go.

Cybersecurity issues likely aren’t covered by a General Liability policy, but may be covered by a Professional Liability policy—check your policy.

13) If you do big-budget events, Event Cancellation Insurance is a cheap investment (as long as you know it’s unlikely to pay-out; it typically requires a state of emergency).

Other Agency Insurance

14) If you own a building, you may have separate Property Insurance. This typically has a liability and property-replacement component; replacement-value coverage is somewhat more expensive, but a lot more useful.

15) Agencies with multiple partners should consider Key Person Insurance. This is effectively a life insurance policy that pays the company if a key partner (or key employee, if the key non-owner is a superstar) dies. The cash might go toward hiring temporary help, buying-out the deceased partner’s estate, and handling other issues.

Beyond Business Insurance

16) Business owners are smart to have an individual Umbrella Policy. This covers you personally beyond your other policies, such as auto and homeowners/renters insurance. Because it’s unlikely to be triggered, the additional premium tends to be low relative to your overall coverage. For more on business insurance tips, check this new post about What is Phoenix Company.

Separate from insurance, it makes sense to have internal security and compliance policies around requiring screenlock passwords and regular software updates, controlling non-employee access to employee devices, and building cloud-based backups into everything you do.

QUESTION: When was the last time you checked your agency’s business insurance coverage?

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