It was in 1666. No one knows how it started, but many generations later, people still remember the great fire of London. It was one of the greatest tragedies of the time, causing untold loss to the people and communities of London. After the fire, Nicholas Barbon decided London would not witness that kind of tragedy again. His response was to start the first fire insurance business.
Later in 1752, Benjamin Franklin began his own movement in the U.S. He started taking contributions to help protect people from the aftermath of fire outbreaks. Since then, insurance has become a phenomenon for almost every industry in modern society.
No one plans for tragedies, but they happen anyway. The idea is to protect yourself against them and be equipped to handle the losses that come with them. This is why your business needs commercial insurance. Got any questions about commercial insurance? Read on, then.
What is Commercial Insurance?
To answer the question 'what is Commercial insurance?' we will examine both words' meanings. 'Commercial' means business-related. Insurance means to 'insure' or 'protect.' Simply put, commercial insurance is the protection given to a business to secure it from risks that could occur in the course of operation. Businesses and corporations seek this coverage for themselves, their workers, and in their interactions with third parties.
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In today's world, the stakes of doing business are higher, especially with digital tools to aid entrepreneurship. But so are the risks too. Getting commercial insurance coverage is, therefore a necessity for any serious business. In many jurisdictions, businesses are compelled by law to seek coverage for their businesses, as even lawmakers understand the importance of protecting businesses.
What are the Types of Commercial Insurance?
There are several types of commercial insurance that business owners seek out. In choosing commercial insurance, business owners must consider their business model and the risks peculiar to their industry and sub-niche.
You must also look at the necessity or relevance of the insurance sought. For instance, getting life insurance for a business is simply reaching. Businesses die alright, but life insurance is designed for humans. Piling up about ten different insurance packages for one business is another overkill. That's the stuff of paranoid business owners. If it is not necessary, it is a weight. It will tie down your business and clog cash flow, eventually affecting business growth negatively.
Here are the different types of commercial insurance
- Liability insurance
- Property insurance
- Transit insurance (also called inland marine insurance)
- Business Interruption Insurance
- Workers’ Compensation Insurance
- Commercial Auto Insurance
- Employment Practices Liability Insurance (EPLI)
- Cyber Liability Insurance
- Management Liability Insurance (D&O)
- Errors and Omissions Insurance (E&O)
1) Liability insurance
This type of commercial insurance is obtained to protect the business from liabilities which might arise from a person's use of the product made by the business. It also covers liabilities that might arise from the negligence or omission of the business owner and his employees.
2) Property Insurance
It protects the property of the business from different mishaps that might have occurred during the course of operation. This includes mishaps like fire outbreaks, theft, natural disasters, etc.
3) Transit Insurance
This commercial insurance is used majorly by businesses to protect goods in transit. This is due to the possibility of accidents where goods being transported could be involved in some mishap which would cause losses. It is mostly used for goods transported by sea. Due to the possibility of cargo ships capsizing and considering the value of goods being transported, it is a regular practice to ensure goods are being transported across the sea.
4) Business Interruption Insurance
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Sometimes, due to situations completely out of the expectations of the business owners, they are unable to operate or carry out their business operations, and as we all know- time is money. This time-lapse can be very detrimental to some businesses. Imagine a business like crypto trading where price fluctuations are commonplace, a single minute delay could result in significant losses. This type of insurance protects the business during the covered period, covering any losses that might occur due to the interruption of the business.
5) Workers' Compensation Insurance
Depending on the level of risk associated with the business, employers might need to cover their employees so that workers can get compensation in case of mishaps that might occur in the place of work. If this mishap occurs as a result of the negligence of the employer, they might incur significant liability for the employee. Even in the absence of that, there are instances where the law compels employers to compensate their workers for injuries or mishaps that might occur during employment.
6) Commercial Auto Insurance
While measures may be put into place to ensure safety. It's a fact that even the most careful person can be involved in accidents due to the nature of using vehicles themselves. This is why it is important to have commercial insurance coverage for vehicles used while doing business. This protects the business, its workers, and even third parties that might be inadvertently affected.
7) Cyber Liability Insurance
Due to several businesses now operating online, new risks have come up which require commercial insurance coverage so that protection can be assured in the case of a mishap. One major issue which affects online businesses is cyber threats/attacks. This could lead to liability through data breaches and malware that affect operations. Commercial insurance protects businesses from all types of possible online threats and attacks.
8) Employment Practices Liability Insurance
This type of Commercial insurance is mostly sought by businesses with large workforces. Some certain duties and obligations arising from an employer-employee relationship. Employers need to ascertain the duties they owe to their employees (both general and sector-specific). This insurance protects employees' claims for breach of their rights, both intentional and non - intentional.
9) Management Liability Insurance
It is usually a protection for a company's managers and directors for lawsuits and actions arising out of a wrongful allegation. This is because sometimes the directors of a company get sued in their capacity. This helps to cover the cost of defense in a lawsuit.
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10) Errors and Omission Insurance
This is a commercial insurance best suited for service providers, i.e. professionals. It is used to finance reparations for errors and omissions on the part of the owner or employee of the business/corporation.
How to Determine Whether or not to get Commercial Insurance
Generally, we advise every business to get insurance. However, the truth is only some businesses at every stage need every type of commercial insurance. You must therefore consider whether you need one and, if yes, which would be appropriate for your business. In determining this, there are a lot of things to consider. The following are some of the considerations when choosing to apply for Commercial insurance
- The Business Model
- The size of the business
- Legal considerations
- The risk factor
- Required standards of operation
- Commercial insurance policy
1) The Business Model
This is one of the first things that must be taken into consideration when determining whether and what type of commercial insurance to go for. Businesses have different modus operandi and needs, which influences the type of insurance they seek. A company specializing in making fireworks would most likely prioritize fire insurance, while one whose employees deal with dangerous machinery would cover their workers in case of mishaps. While it would be ideal to have as much protection as possible from risks, companies have limited resources and competing interests. Hence the need to prioritize while getting commercial insurance coverage.
2) The size of the business
For some businesses, considering the scope of their operations, it might not be worthwhile to seek insurance coverage- especially under the realization that it might cost more to seek insurance than to replace any losses that arise from any mishaps simply.
3) Legal considerations
There are instances where the decision to get insurance is taken out of the hands of the business itself due to some compliance obligations arising out of government regulations. This mostly happens when the lawmaker envisages the danger of not getting insurance as seriously enough to compel business owners or corporations to get commercial insurance coverage. In case of non-compliance, sanctions are usually imposed, ranging from fines to maybe even getting the business shut down. Business owners need to seek legal advice on the regulations that govern the sector they operate in.
4) The risk factor
Some businesses engage in high-risk operations, e.g., Oil rigs, refineries, ship transports, mining operations, etc. This makes it paramount for them to get commercial insurance or risk crippling losses if they suffer from mishaps. There are, however, some businesses that are relatively low risk. These are businesses where general operations in the sector rarely encounter mishaps or even when they do. The losses are never substantial enough to have any major impact on the business, i.e., they are easy to recuperate.
5) Required standard of operation
Depending on the scale of the business, the sector it operates in, or its general organization, the business's needs can vary slightly or significantly. While a sole proprietor might only need to do the necessaries to ensure functionality of the business, a limited liability company who'd be requiring investors, with heavier regulations would need to go the extra mile to make sure it's operations meet with a higher standard needed to thrive in that sector. An example of this is a situation where the business would need to get commercial Insurance despite being a low priority to satisfy investors who might need it to ensure that their money is safe.
6) Commercial Insurance Policy
This refers to the policy set up by an insurance company for businesses seeking its coverage.Three things usually influence the insurance policy.
- Provision of the law
- The type of commercial insurance required
- The insurance company itself
The commercial insurance policy plays a big part in determining whether or not to seek insurance. If the insurance policy is unfavorable, it could be a factor in discouraging getting a commercial insurance. For example, when the Commercial Insurance quote given by the insurance company outweighs the possible losses that could be suffered when consideration is given to the feasibility of the loss itself.
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How is Commercial Insurance Beneficial for Your Online Business?
A common phenomenon in the 21st century is discussions about old legal and economic concepts and how they interact with technological advancements of the present age. With many companies and businesses operating virtually, this has significantly affected the ease of doing business. However, it hasn't done much in terms of risk alleviation. Online businesses still make their products in factories, store them in warehouses, and transport them to various customers, and all of these operations come with their respective risks. Even businesses that are strictly online give rise to unique risks, which can be very debilitating if not protected against. Some of the benefits of commercial insurance include:
- Protection against all forms of risks that might occur in complementary physical operations
- Provides customers and investors with assurance of the safety of their money
- Reduce liability that might be otherwise born in the course of operations and serves as protection from court actions.
As soon as your business can be legally called a small business, getting commercial insurance should be your next move. Although insurance agencies have the expertise to advise you, total ignorance is no bliss in business. Do your research about each insurance package, relevant laws, and the policies of the agents you're considering.
While we are still discussing protecting your business, did you know that getting a website is one way to protect your business? When you put your business online, you help your business stand strong against competitors. A good website can impress your customers so much that they choose you over a competitor. That's a way to keep your business from failing. Get a free website with ready-made templates from Strikingly. Add that to an insurance plan, and you have a good deal for your business.