Where to Start for Business Insurance

Scott Burns and Ben Moore, business insurance agents at BB&T in Charlotte, join us for this episode of the B2U Podcast. Listen as we talk about where entrepreneurs should start when it comes to business insurance.

Andrew: They say that the best person to take care of your future self is your present self, and there are lots of ways to do that. You know you can eat healthy, get plenty of sleep, exercise, and, yeah, you know, you can buy insurance. I am Andrew Bowen, your host of CBR’s B2U Podcast presented by CBRbiz.com. If you guessed that we were talking about insurance today, you guessed absolutely right. But we’re not talking about health insurance. We’re talking specifically about insurance for business owners. You know you need it, but what you might not know is what kind, how much, or even with whom to work. Today we have a couple of experts. Right, guys? Experts? Alright. We have a couple of experts on the topic, Scott Burns and Ben Moore. Scott and Ben are business insurance agents at BB&T, and this is part one of a three-part series with these guys.

Alright, guys. Why don't you tell our listeners a little bit more about yourselves?

Scott: I guess I’ll start with my bio. I am Scott Burns, I grew up in Connecticut and went to Wake Forest. And got back down in North Carolina. And graduated in ‘91 and got right into the insurance business. And there’s a long story there, but I started in the claims world and then moved over to underwriting, which…actually…an opportunity brought me to Charlotte, and that’s what brought me to the Queen City. But the bulk of my career, I’ve been with BB&T as a business insurance agent, working with business owners in the metro Charlotte region, working with their insurance needs.

Andrew: Super.

Ben: My name is Ben Moore. I grew up in Charlotte, went to Appalachian State and actually got hired right out of the program up there to join BB&T. I’ve been with BB&T for about 14 years, and thoroughly love living in Charlotte. I used my connections from growing up here to try to keep and retain business for BB&T.

Andrew: Alright.

Scott: He's a unicorn. He's a native.

Andrew: Yeah, there are very few of us. We're throwing it off right now. What high school?

Ben: Magic One, Independence High School.

Andrew: Okay, we'll forgive you. I went to Myers Park. Alright, so you guys combined have been in insurance quite a long time. So what do people…when people call you and say, "I have a business, and I need insurance." Where do you start?

Scott: Well, I think the best way for this podcast would be…Ben and I are going to kind of chime in and go back and forth on these topics, but I’ll start off here. It wouldn't be an insurance discussion without a disclaimer at the very top here. But obviously, when we’re talking about coverages and all, you want to refer to your insurance policy or talk to your trusted adviser. That just goes without saying, but we have a lot of people that go out in the business and talk to us about, "Hey, man. Give us some guidance about insurance."

The first thing I would say is, Where do I find an insurance agent to help guide us through this process? And you can search the internet. There's an organization we are a part of–it's iianc.org. They can give you some guidance about what agent is in your area, or maybe vet an agent.

But really, I would say the recommendation would be to do traditional 101 networking. Talk to some of your other business owners out there. Who are they using? Who do they like? And maybe talk to a couple of them that kind of have a familiarity with companies of your size, and I think you will be able to find out which one’s a good fit for you.

Start one with finding a trusted insurance adviser. You know, in the days of technology here, I would say that you could go out there on the internet and try to maybe buy an insurance policy for your business, but Ben and I feel obviously very strongly about the value of an agent in the equation. So we would recommend you getting started because so much about making what you do and consulting what you do–insurance may not be one of your specialties. We recommend getting an adviser involved, and that would be similar to Ben and I and our role out there, and there’s dozens and dozens of them in the Charlotte area. I recommend starting with that.

And then the question becomes, "What do you want for insurance?" And there’s two big things you’ve got to think about. One is about what’s required by the law, and things like workers' comp, which we’ll talk about in the second segment. Automobile, of course, but more importantly for this topic is what do you need for business reasons? Starting off with…a lot of people out there will have an office. And so, let's start with an office. How do I insure an office? And you got two main areas there: you look at your property and then your liability aspects of it. And starting off…one side note I will say is a lot of people might start out…Andrew, you mentioned this in our earlier call, about people who work out of their homes. And I will say that one thing you want to be careful of is to not use your homeowner’s insurance as your insurance policy for your business because, even with endorsements, there’s very limited coverage.

If you are going to be in business, I would suggest going out and getting a separate business insurance policy, not your homeowners policy. Once you get out and have an office, the main thing I would suggest you want to look at is your lease agreement, and there’s some criteria in there. And I guess to change the voice of it here, we’ll start with general liability in a lease agreement, and how that might be addressed.

Ben: Yeah, and Scott, that’s a great point. General liability, what we typically find…and as sad as it is…you’re signing a lease and all of the sudden the landlord says, "Hey, by the way, you need a $2 million general liability policy." And you’re like, "Oh, my God. What is that? What am I going to do there?"

Andrew: What does that even mean?

Ben: That's usually when we get the phone call. Insurance…and I recommend business owners not do this…is typically reactive. You're buying insurance because someone told you you have to.

Andrew: Right.

Ben: You're buying insurance on your property and general liability. So think of general liability as protecting your company, protecting your product. So if you're anything from IT to a food manufacturer, you have an exposure in the product liability sector. So your product…it basically helps to defend that. And then when you lease space, they typically want liability before someone slips and falls on your premises. And so, what we typically see is when they start signing that lease, they'll have to buy a liability policy from there. Liability is…one of the things people forget about liability is it actually protects the company from lawsuits. So it actually helps to…it has a duty to defend clause in the policy contract because, remember, these are contracts. These aren’t policies. These are policy contracts. And so, it helps to defend you in the event that you get pulled into a lawsuit from your product or your premises.

Scott: And a lot of people feel with the premises that, "Oh, I’m in a big building, and I just have a little, small office here." But really, you've got to look at that lease agreement because those leases are typically going to push down the responsibility to the people that are the tenants. And so, if somebody’s coming to your premises and has a slip and a fall, that lease is going to say that you are the one that’s going to be primary, and therefore, your insurance policy should be first for that, you know, FedEx person that slips and breaks their hip in your office. Well, then you’re going to have to pay for that before the landlord does. So that’s a big thing to look at.

Andrew: So it sounds like it is not something that’s always spelled out clearly. Like this is something that happens once you have your business plan. Because a lot of this discussion so far and previous podcasts has been, "Do I need a business plan?" This is well beyond that, you know, business plan, marketing,…

Scott: Doors are open.

Andrew: Right, yeah. So this is very…you know, when I have space, and I’m making product, this is one of those things that sometimes just kind of slips out of mind, right?

Scott: But I will say when people…very first thing they do is they say, "I need a place to work." Well then, in order to do that you’ve got to sign a lease agreement and in order…a lot of people…some people might just sign a lease agreement…"Yeah, that sounds good." And they don't even look at the insurance clause in there.

Andrew: Got it. So it is not like when you buy a car. If you don't have car insurance, you can't buy a car.

Scott: Exactly.

Andrew: They’ll let you sign your life away, but it says you need insurance, but they don’t…you don't have to prove that you have it.

Scott: And if you don't have it, and if something goes wrong, well then that’s your personal assets. Right.

Andrew: Gotcha.

Scott: The other aspect in that insurance clause–something you’ve got to be mindful of–is what is in the property arena. And a lot of times if you…what property it's going to cover…it’s just going to be your stuff. Like we're looking around here: our tables, our computers, our desks and stuff like that. Maybe artwork. That’s going to be covered under what they call their contents coverage, and so you need to buy a policy assuming you have enough that you want to insure. If you’ve got one table, you know, and cinder blocks and a piece of wood on it, well, then we don't need to worry about insuring that. But as you evolve as a business, there’s going to be contents. I’m sure you want to cover that.

The other thing that is often overlooked is what’s called betterments and improvements, and that happens when we move into a four-wall space in this office building. Well, I want to kind of make it my own, and I might do some really cool cabinets or some sort of specialized woodwork or stuff like that, depending on what you do. Then those need to be insured because the building owner is going to say, "Hey, if this burns down, we're going to build back these four walls. Your $400,000 that you spent to go ahead and upfit your office is not going to be covered. That's on you." And that is an important part.

Ben: No, I totally agree. If you look at South End, everybody is putting these art spaces in there. Really cool stuff, and there are exposed beams, and they’re spending a lot of money fixing these old buildings. I guarantee the landlord of that building has something in the policy or something in their lease where they say, "Look, you do something to the inside, that’s on you. I will fix the structure." A lot of these open-space concepts, especially the breweries and things of that nature, a lot of those improvements and betterments, just…they don’t insure them. We have a brewery in town we insure because they're friends of mine, and we walked through it, and they said, "Yeah, we spent about half a million dollars just fixing the beams and making it look cool. And all the wrought iron." And we’re like, “We’ve got to insure that because if we don't, then if the building burns, the landlord does not have the burden to fix that.”

Andrew: So that concludes our podcast. We're now going to the brewery where he has friends. Yeah.

Scott: Yeah. Fair enough. It's shocking that Ben has a brewery client.

Ben: But no. I mean, to Scott's point, it’s a good idea. And one thing he talked about in the beginning that I think is crucial is when you're picking your CPA, and you're picking your attorney, you start interviewing your broker. Those three…and they’re not always that way…those three need to be…and Scott used the term trusted adviser…and they all three need to be there because you need to ask them questions as it goes down.

Andrew: Yeah, and keep them on speed dial.

Scott: Yeah, and to put a bow on this business owner’s policy, or BOP as they’re called. The other aspect is called the business income and extra expense, or your loss of income. And depending on your operation, if the building tomorrow burns down, how’s that going affect your business? Do you generate a lot of revenue out of that space or are you…if your clients are not here around metro Charlotte, well, then maybe you can keep…you know, get a laptop and roll on at your home the next day. But if you do have income being generated from your space you can also…a lot of these business owner policies have what they call actual loss sustained up to 12 months. And so, if it burns down, and you have any impact to your net income or any continuing expenses that keep going, that will help you get through and kind of bridge that until you get back up and get restored in your business. So…and the final thing is deductibles, as with anything auto. Everyone’s familiar with those, but typically I would recommend in that $500 to a $1,000 range for the deductible to get started. And that’s what the market’s…

Andrew: That's pretty standard.

Scott: And that's kind of what you expect. If you do have some theft claim or a water damage thing, you’re probably on the hook for the first 500 bucks of that.

Andrew: Right. So we've talked a lot so far about the people who are leasing space. How does the complexity change if someone buys a building outright and starts doing business there?

Ben: Typically, when you buy a building outright there’s going to be a lien on it, so the bank’s going to get involved. Where there has a tendency to be discrepancy is the bank will want it insured for the full loan amount versus what we feel it should be insured to value because it’s so…if you find a fire sale…like so let's say you find a very large building, and you find a really good deal on it, sometimes the bank just wants their loan, but we need to insure it to value. And so, it’s typically a mechanism of square footage. And so, when we have the square footage of the building, we’re able to come up with a concept of covering the actual building. And it plays into what Scott’s talking about with business income and extra expense as well.

Scott: I can't tell you the number of times we’ve had buildings that people have bought for a million dollars and they said, "Well, I want to insure it for a million dollars." Well, just because you bought it in a depressed market, especially after the recession and all, the replacement cost of a general contractor to build that is going to be $3.2 million, say. Well, then you need to insure it for $3.2 because that’s what the policy is for. So market value and replacement costs are two different things especially when we’re dealing with older structures.

Ben: That’s great. It’s a great point.

Andrew: Anything else to add? I mean, I know there is, right? Is there?

Scott: Well, there’s a lot more to it, but those are the basics: your property and your liability.

Oh, one more thing is, under a business owner's policy, a lot of times when you start out the business, you don't own your own…you don’t have a fleet of autos. You might have your own personal auto insured with State Farm or somebody over here.

But what you do have is, if you have employees, you have what’s called hired and non-owned auto exposure. And hired would be renting a vehicle for business. I’m going to a convention in Chicago. I go to the airport to get it. You can either buy it through Avis or Hertz or whomever, or you can have it on your commercial insurance policy. There are some gaps in that discussion, which we won't bore you with on this podcast, but just be careful that there’s…you’ve got to look at the insurance, what you offer, and what the Avises of the world offer.

But the other thing that’s very important is what’s called non-owned auto. So let's just say you’ve got five or ten employees. Part of what they do is they go around and meet and interact with customers in the Charlotte area. When they get in their personal vehicle, the company doesn't own those vehicles, but they’re on the clock, and when they go down the road, and they run into that minivan and do damage, the first part of the claim is going to be their insurance. Their insurance is primary, but a lot of employees out there might only have minimal limits right now in insurance, and if it’s a bad enough accident, they’re going to blow through those limits, and they’re going to say, "Oh, you were on the clock working for ABC Company." Then they’re going to come…the lawyers will come after that company, and that’s where that non-owned liability protection comes in and can protect the company and not let them come after you but have the company step up and pay those damages, which leads to the umbrella discussion.

Ben: Yeah, and so the umbrella–that sits on top of–basically covers over a lot of these particular coverages. You can buy various limits and again, sometimes with a lease they’ll require you to buy a higher umbrella limit, versus sometimes they won't. An idea and a good concept to think about when you first start out as a company is it’s hard to say, "Do I need to buy an umbrella for the sales of the company? Do I need an umbrella for my assets?" Really you just need to look at the largest potential claim you could have, and you look at that limit. Umbrella covers, so it basically sits on top of your general liability, your auto liability and your…we'll get to in a sec…employer's liability and worker's comp. But the main tenants are general liability and auto liability. When it sits over those it basically…if those limits are exhausted…so if you have a million dollars, think about a million dollars in this bucket…if that’s exhausted, the million-dollar umbrella comes down and starts paying on that claim. It does happen. We have clients that have large, multimillion dollar claims. So it does happen.

Scott: You're dealing with one right now.

Ben: I’m dealing with a $6 million auto loss right now, so it definitely happens. And it is a good idea for business owners to at least price that out. Talk to your independent agent and say, "Hey I want to look at a $1, $2 and a $3 million limit." It gets cheaper, the higher the limit. So if you go the first million in an umbrella is always the most expensive, and as you climb up, they get cheaper. So it is a good idea to look at.

Scott: I can't tell you the number of times that a business owner says, "I don't need an umbrella or whatever. Maybe only a one million dollar umbrella.” But they get very conservative about what they think could potentially happen to them, but then the next thing you know they turn around, and they start doing work for Bank of America or one of the large organizations who say, "Hey, if you want to do business with us, you need to go ahead and have these limits in place." And they say, "Okay. I am going to be generating X amount of revenue. This is only going to cost me $1,000. Well, then this is a no brainer. I'll go ahead and meet their insurance requirements." And they'll go from a $1 to a $5 million umbrella. That's kind of how we see…not so much that it's about the risk, but it's business driven. It’s those changes.

Ben: Yeah. A great example on that large loss that I’m dealing with right now. The owner of this company wanted to bring his umbrella limit down to $4 million, and I talked him into keeping it at the six. And so, had he not done that, then he could’ve basically had an uncovered claim because once the umbrella is gone, the insurance company has fulfilled their part of the contract. That's paid out. That's on him, and that’s something that we battle a lot, and Scott hit the nail on the head a lot of times. It's a mechanism of the people that we’re working for. So if the people that we’re working for need a $10 million limit, that’s what they put out there.

Scott: So I would say in summary as we close out this thing, if you're looking to get started in a business, if you talk to an insurance agent and say, "I want a business owner's policy to get started." That's going to basically cover all of your exposures that you have going forward, and then as you grow, get more sophisticated and have more business requirements out there, that program may expand, but using a BOP policy to get started is a great way to go.

Andrew: Bottom line being, cover all your exposure.

Scott: You got it. And it’s really…at the end of the day, it’s not very expensive to get started. I mean, I could see you probably would be coming in at less than $1,000 to get started.

Ben: Absolutely.

Andrew: A day? A month? A year? Sorry. I've got to ask.

Scott: Yeah. That's a good question. For a 12-month policy.

Andrew: Yeah. Well, that's great.

Ben: Everything in commercial. Always remember it goes on a 12-month term. So it's always a 12-month cyclical thing, and the rating factor on general liability is usually based on sales. And so, a lot of people, if they’re starting out, their sales are very low.

Andrew: Alright. So before I close up this section, I probably should’ve started this at the beginning as you guys talked about who you are and what you do and where you work and all that great stuff. Credentialing. You mentioned the iianc.org.

Scott: That’s right.

Andrew: I imagine that's like a professional organization, and you both also as insurance agents are credentialed to some extent.

Scott: Credentialed?

Andrew: Yes.

Scott: Yeah, well, the state requires that you have to have continuing education to maintain your license every year, and then in addition to that, Ben and I pursue professional designations like CPC, UCIC, AIC and different things like that that require additional education as you go through. But yeah. It’s very similar to maybe a CPA that has to have continuing education…same thing goes for insurance agents.

Andrew: Right, great. That’s awesome to hear because, you know, you want to make sure your insurance agent is well qualified.

Scott: That’s right. And that’s why I refer to that organization. If you wanted to vet anybody, they'd be happy to do that for you.

Andrew: That's great.

Ben: And I think another good idea is to ask your agent for references.

Scott: Yeah.

Ben: I don’t think…there's nothing wrong with that because you’re going to ask the CPA and the attorney for references. There's nothing wrong with asking the agent and saying, "Hey, are there a couple of your clients I can call?"

Andrew: Yeah.

Scott: Well, I didn’t even think of this, but just to stick in there is, in case you ever wondered how do we even get paid? And the vast majority is on a commission basis off of the premium amount. And that can vary depending on the product, but you can start roughly around 10 to 12% of the premium. So if you’re paying $1,000 a year in premium to your agent, he's grossing about $100 to $200 or probably $120 a year on that. So I just wanted to put that out there about, what is this guy making off of this?

Andrew: Good information. Alright. Well, thanks, Scott and Ben. Stay tuned to our next episode where we’ll continue our conversation with Scott and Ben to talk about workers' compensation. That's going to be an exciting one to see at what point people really need to purchase that. Listeners, if you have any questions after this episode, tweet them to us @CBRbiz. This has been CBR's B2U Podcast, brought to you by CBRbiz.com. We mean business. Do we? Do we mean business, gentlemen?

Scott & Ben: Yes, we do.

Andrew: We mean business. Alright.

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