Category Archives: Business Risk

Business Risk, Earthquakes

Got Earthquake Insurance? Businesses Should AssesS Their Readiness for “The Big One” and Other Natural Disasters

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By Loretta L. Worters, Vice President – Media Relations, Insurance Information Institute

Every year businesses temporarily shut down – or close forever – because of a disaster.  The 6.4- and 7.1-magnitude earthquakes which struck near Ridgecrest, California late last week are stark reminders of a quake’s ability to disrupt a business’ operations. Even though many California businesses are in seismically active areas, only one out of 10 commercial buildings are insured for quakes, according to the California Department of Insurance.

Depending upon a business’ location, the threat to its operations may come from risks other than earthquakes, such as a hurricane, tornado, or wildfire. Forty-plus percent of U.S. small businesses do not reopen after a disaster impacts them, the Federal Emergency Management Agency (FEMA) estimates. But by taking measures to prepare, businesses can increase their chance of recovering financially from a disaster.

Steps businesses can take in the aftermath of this month’s southern California earthquakes:

1) Review Insurance Coverage: It is important businesses have the right amount and types of insurance for their needs and risk profile. There are two types of policies that can be purchased by a business owner.

  • A Businessowners Policy (BOP) is commonly purchased by small businesses. BOP policies combine property, liability, and business interruption coverages in one policy and are usually less comprehensive than a commercial multiple peril (CMP) policy. Business interruption coverage, also known as business income insurance, reimburses a business owner for lost profits and continuing fixed expenses during the time a business stays closed because of a covered event, such as a hurricane, tornado, or wildfire.
  • A Commercial Multiple Peril (CMP) policy combines several coverages—such as property, boiler and machinery, and general liability—into a single policy. It is typically less expensive to buy a CMP policy than to buy these coverages individually. Boiler and machinery insurance, also known as Equipment Breakdown Insurance, also usually extends to air conditioners, heating, electrical, telephone, and computer systems.
  • Commercial Earthquake Insurance Is Sold Separately: Earthquake-caused property damage and business interruption is not covered under either a standard BOP or CMP policy. Businesses in earthquake-prone parts of the U.S. must consider a separate policy or an endorsement to an existing policy which specifically mentions earthquake-caused damage. Earthquake insurance carries a percentage deductible ranging from 10 percent to 15 percent.

There are some areas of a business that automatically include coverage for earthquakes.  Commercial auto provides coverage for loss or damage from temblors.  This can include damage from falling debris, fire, or other events.  Injury to employees at work because of an earthquake is also a covered loss under workers’ compensation insurance.

2) Develop a Business Recovery Plan: Businesses that are forced to close following a disaster run the risk of never being able to open their doors again. But by developing a business disaster recovery plan, they will be able to determine how their operations will be restored after a natural or operational disaster. Moreover, the Insurance Institute for Business & Home Safety (IBHS) offers a free, customizable toolkit to help businesses plan for any type of business interruption.

3) Take a Business Inventory: Creating a business inventory includes listing equipment, supplies, merchandise, and commercial vehicles. An inventory facilitates the filing of a business insurance claim.

Herein lies the fault:  Businessowners, by their very nature, are risk takers; trailblazers in their respective fields.  Risk-taking is a crucial component of launching and building a successful business, be it with capital investment, hiring employees or marketing strategies. But entrepreneurs who don’t purchase the right type and amount of coverage, including earthquake insurance, end up jeopardizing the enterprise they worked so hard to build, leaving themselves, and their business, on shaky ground.

Business Risk

Rampaging animals and farm liability insurance

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(thankfully) placid cows

According to Deutsche Welle, an Austrian court has held a farmer liable after one of his cows killed a hiker walking through his farm. The article reported that the cow grew enraged at the hiker’s dog and charged at them. The farmer will have to pay over $200,000 in restitution for the horrible event to the deceased’s spouse and son.

I’m not well-versed on the nuances of Austrian liability law and insurance. But what if a similar (hopefully non-fatal) accident happened on a farm in the U.S. – how would insurance play a role?

Luckily, there’s a thing called “farm insurance.” It can get complicated, but often a farm insurance policy is just a hodgepodge of property and liability coverages – with a lot of customization in between for the unique needs of each farm.

Today, let’s just focus on the liability part. Imagine Farmer Joe’s cow, Betty, runs wild and breaks the leg of someone visiting his farm. What happens?

Paying for liability damages and medical expenses

The standard farm liability policy will cover damages if someone is hurt on the farm (subject to various limitations and exclusions, of course). So when Betty breaks someone’s leg, Farmer Joe’s insurance will help cover any damages he has to pay. The farm policy will also pay for some medical expenses, regardless of who is at fault for the injury. Medical expenses usually include first aid and other necessary services.

Feats of strength are not covered

Easy enough. But imagine another scenario: Farmer Joe is holding a cow race on his farm and has invited his neighbors to watch. Betty breaks loose from the race track and breaks his neighbor’s leg. In this case, Farmer Joe is probably not covered for any injuries arising out of races, strength contests, or stunts. Nor is he covered if someone got hurt while riding Betty for a fee.

Lots of policies, lots of options

There are many types of farms: dairy farms, cattle ranches, horse farms, poultry farms, agritourism farms. There are many different types of insurance coverages available for each unique situation. Here’s just a taste:

  • Horse farms and ranches (property and liability)
  • Commercial equine (liability for horse-breeding operations)
  • Equine (business coverage if a horse becomes ill or dies)
  • Livestock insurance (covers animals other than horses)
  • Crop insurance
  • Farrier (property and liability for people who shoe horses)
  • Riding instructor
  • Roadside farm stand and farmers’ market insurance
  • Agritourism (corn mazes, on-premises hay rides, petting zoos)

It’s always important to talk to an insurance agent about your coverage needs. You may not think that you have farm liability exposures, but if you live in a semi-rural or rural area and own livestock, it’s probably a good idea to double check.

You can read more about farm and ranch insurance here.

Business Risk, Catastrophes

I.I.I. Joint Industry Forum Panel: The P/C Industry has been doing well, but threats loom on the horizon

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Left to right: Bill Donnell, David Wessel, Jay Gelb, John Huff

By Lucian McMahon

The 2018 financial results for the property/casualty (P/C) industry were strong. According to Verisk Analytics, private P/C insurers in the U.S. reported a nine-month net underwriting gain of $4.7 billion. The industry combined ratio was 97.3 percent – down from 104.1 percent in 2017.

“It’s unusual to have an industry-wide underwriting profit,” said Jay Gelb, managing director at Barclay’s, speaking at a geopolitical risks panel at the 2019 I.I.I. Joint Industry Forum. “But 4Q 2018 is going to be worse.” The insured losses from Hurricane Michael and the disastrous California wildfires will make a dent on industry underwriting results. And in the last two years the total global industry catastrophe losses were about $230 billion, the highest level for any two-year period, Gelb noted.

While the industry did well in addressing these catastrophe losses, greater threats may be looming on the horizon for the P/C industry and the economy generally.

Panelist David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy and senior fellow at the Brookings Institution, listed a few.

In the short term, he expressed concern about the ongoing government shutdown. He also pointed out that, while incoming economic data are strong, the markets are expressing continuing pessimism, assuming higher weight on downside risk for 2019. In the long term, Wessel listed the continuing productivity growth slowdown and climate change as serious threats.

John Huff, president and CEO, Association of Bermuda Insurers & Reinsurers (ABIR), added the continuing challenges facing global insurance regulations, particularly in light of recent political events that seem to suggest a souring attitude towards global interconnectivity. Huff did express some optimism, however: “people want to stay at the table for international regulatory standards because business is global. They don’t want conflicting regulatory standards.”

Political uncertainty in the U.S. are also reasons for insurers to be concerned, per Huff. There has long been a push to “de-risk” government liabilities and move some of them into the private market, including the National Flood Insurance Program (NFIP), crop insurance, the Terrorism Risk and Insurance Act (TRIA), and earthquake insurance. How this will play out in the current political climate remains to be seen.

Gelb included flood and wildfire risks to the equation – both of which may increase in frequency and severity due to climate change.

Despite these possible threats, the panelists are keeping a mildly positive outlook for the future. “I think nothing is permanent, fortunately,” Wessel said regarding the current political and economic tensions.

If anything, this could be a time of opportunity for insurance leadership. Insurance has always led the way forward for economic growth. Said Wessel: “We’re in a moment when business leaders can be a more prominent voice to deal with tension […] The world is yearning for leadership.”

Business Risk, Catastrophes

Roundup: How the federal government shutdown is affecting its agencies

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By Jennifer Ha,  Head of Editorial and Publications, Insurance Information Institute

According to the New York Times, the current shutdown is one of the longest ever. While there have been 21 gaps in government funding since 1976, the level of shutdown has varied. Before 1981 most agencies could continue operations by cutting non-essential functions. In the media, various reports have emerged how different agencies have been affected.

While some agencies also receive funding from elsewhere, and have limited operations, others have mandated employee furloughs. On January 9 Dr. Scott Gottlieb, commissioner of the Food and Drug Administration, announced that the agency had ceased routine food safety inspections of seafood, fruits, vegetables and many other foods at high risk of contamination, such as clams, mussels, oysters and other bivalves. The seafood inspection program is run by the National Oceanic and Atmospheric Administration, whose inspectors are working without pay, as are meat and poultry inspectors. 

The National Transportation Safety Board has been unable to investigate 10 new crashes in which 22 people died, and the circumstances of seven plane crashes in which 13 people were killed, two fatal railroad crashes, a highway crash in which seven people died and an incident in which a school bus collided with a tractor-trailer, injuring 15. According to the Transportation Security Administration, there has been “no degradation in security effectiveness” and staffing is adequate, amid warnings from U.S. airport security workers and air traffic controllers that security and safety could be compromised and employee call-outs.

On Dec. 28 the Federal Emergency Management Agency (FEMA) reversed its decision to halt the issuing and renewal of federal flood insurance plans, which could have disrupted up to 40,000 new home sales each month, according to the National Association of Realtors (NAR). However, rural and suburban homebuyers who depend on mortgage loans from the U.S. Department of Agriculture through private lenders have been stymied by the shutdown. The post-Hurricane Maria recovery will be unaffected, according to a FEMA spokesperson.

The newly created Cybersecurity and Infrastructure Security Agency will be unable to protect against cyber and physical threats to infrastructure, according to a report. Another report from NBC News provides an overview of how other agencies are being affected.