Insurance Set For New Business Risks

September 7, 2005
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GRAND RAPIDS — Forget arson and cat burglars; businesses today are facing a different and evolving type of risk. From electronic crime to nature to a company’s own reliance on automation, threats are increasingly hard to predict and manage. The insurance industry is ready with appropriate coverage.

Kent Shantz, a partner at Van Tol, Magennis and Lang Inc. and a Michigan Association of Insurance Agents board member, explained the latest trends in insurance packages and the new risks concerned with each.

“These are the hot topics,” he said. “Each industry has individual issues and it has to be customized to the industry, but these are the things that most companies should look at.”

  • Electronic Data Processing (EDP): Designed to protect a company’s critical technology infrastructure, this coverage has become more prevalent as business becomes more automated.

“Most businesses today, whether they recognize it or not, have EDP equipment exposure,” Shantz said. “Even the retail store that says, ‘I don’t have a computer’ — 99-percent of the time, their cash registers are computerized.”

Coverage usually includes hardware and software. Businesses can also purchase coverage against any loss of revenue incurred during a systems shutdown.

  • Equipment/Systems Breakdown: This coverage includes damage to all of a company’s heating, electrical and cooling systems, as well as lost income from failure. This is common during utility failures that shut down the coolers at a grocery store, presses at a factory, or phones and computers at an office.

Oftentimes, EDP insurance coverage is wrapped into this package.

“This has become quite affordable and people often overlook it,” Shantz said. “Hopefully, agents are recommending it to them.”

  • Employment Practices Liability: “We’re seeing more and more suits for employment-related practices — sexual harassment, failure to promote, things of that nature,” Shantz said.

Most of these cases are eventually dismissed, he added, but most firms will rack up legal bills of $10,000 to $25,000 defending their position.

“If it’s available to them, the coverage for the legal bills alone is a nice benefit,” Shantz said.

  • Mold: This coverage confronts a growing issue for the construction trades. A common example is a homebuilder who a year after close is confronted with allegations that shoddy construction allowed water to drain into sidewalls and insulation to create black mold, which can cause illness and lung disease.

“Mold coverage is a big issue for all types of artisan contractors, subcontractors and general contractors,” Shantz said. “Black mold is the new asbestos.”

This package can defend builders against liability and pay for the abatement of the mold.

  • Identity Theft: “This is a new adventure we’re all going into,” Shantz said. “From a business standpoint, there really is not a coverage that businesses can purchase.”

If a business is negligent toward protecting employee privacy, liability may be covered by employer benefits or practice liability insurance. If the employer knowingly gave away employee information — which is illegal — there is no coverage available through any package.

In the case of lost client information, the business is often covered under general liability insurance.

To protect against identity theft on a personal level, many homeowner policies now offer limited coverage, primarily to defray legal costs. Some financial institutions do provide their members with insurance packages against identify theft.

For small businesses, some of the above concerns are covered under the business owners’ policy, Shantz said. Employment practices liability will typically require an add-on.    

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