Feb 23, 2020

3 of 4 Business are Underinsured – Is Yours Protected?

Insurance often feels like an unnecessary cost - until you need it.

It’s a disconcerting statistic: three in four US companies are underinsured, and some 40 percent of small businesses have no insurance at all. Thus, when faced with an unexpected disaster or lawsuit, many are left unprotected with their assets, employees, and futures hanging in the balance.

Chances are, your payroll service bureau is among those uninsured or underinsured businesses – and so is much of your clientele. Assuring that your business is protected is a must, but helping clients identify their own insurance needs can quickly prove a competitive advantage.

Most business owners understand the need for commercial general liability insurance (CGL), which covers liability claims against a business for bodily injury or property damage that occurs due to that business’s operations or employees. Adequate coverage, however, goes far beyond CGL.

Two types of additional insurance critical for payroll service bureaus are errors and omissions (E&O) and cyber liability insurance. E&O policies protect your firm from negligence lawsuits. For example, a client claims you failed to provide sufficient advice or failed to fully perform a service which caused the client to suffer a financial loss. Even simple mistakes can have costly repercussions for clients, which can land your company in court. E&O insurance provides coverage of court costs and settlements up to the amount specified in your policy.

As business increasingly is conducted online, cyber liability insurance becomes all the more imperative. It protects you if your data is hacked, stolen, extorted or otherwise compromised. Policies can cover costs of fraud response, forensic and legal expenses, and crisis management and public relations, among other expenses typically incurred.

Another highly recommended form of coverage is an umbrella liability policy. This type of insurance covers primary losses not covered by other policy types, as well as the financial difference between awarded claim amounts and primary insurance policy limits. For instance, when an insured party is liable to someone, the insured’s primary insurance policies pay up to their limits, and any additional amount is paid by the umbrella policy, up to its limit.

While obtaining umbrella liability insurance in addition to your primary policies does come at a cost (upward of $1,000 to $2,000 per month), it can prove itself a profitable investment. That’s because you can leverage that coverage into a selling point. Because payroll service bureaus are not fiducially regulated, they’re not required to be bonded. Securing umbrella liability insurance lends your clients peace of mind; they know that if you’re fully protected, they’re protected, too.

But taking things a step further to assure your clients’ protection may be necessary. A recent survey of 1,000 small business owners revealed that more than a third (35.2 percent) experienced an event in 2016 that could have led to an insurance claim. Among the most common:

1.   Client complaint or contract dispute: Liability insurance covers claims related to client dissatisfaction, including sloppy or undelivered work.

2.   Employee injury: Workers’ compensation insurance covers medical bills and partial missed wages when employees are hurt at work.

3.   Burglary or theft: Commercial property insurance can help pay to replace stolen business property.

4.   Fire, storm damage or cracked pipes: Property insurance can cover repair of property damaged by fire or certain weather events.

5.   Product that caused injury or damage: Product liability insurance covers legal expenses associated with damage from goods sold.

In a post featured in Apex HCM’s blog, Sharp Payroll President Joe Sharpe detailed how advising clients about tax credits awarded for hiring from certain demographics can prove an added value that benefits both clients and payroll service providers. Likewise, advising payroll clients as to business insurance needs and options can help build your trusted advisor status, plus drive revenue via referral fees.