In this podcast, SCORE mentors chat with Peter Hedberg. Peter started his insurance career in 2003 at Hayes Company in the midwest. Peter handled management liability lines, and professional and privacy insurance. In 2013, he moved to New York and joined the underwriting side at Hiscox, a global specialty insurance company based in London. He currently manages new and renewal technology, professional, and privacy liability insurance for the Northeast Region of Hiscox.
What are the different types of commercial insurance?
Well, there's a very long list. I think we're going to spend a lot of this podcast talking about how the insured identifies which ones they need, but if it's okay with you, I'd just like to start at the top of the list. One of the oldest forms of commercial insurance, in its present form, it's been around about 40 years, but it has its roots going back about 100 years, is called general liability.
It's a type of coverage that was designed so that businesses can continue to exist after, frankly, bad things happen, whether it was their fault or not. General liability today covers bodily injury and property damage that you cause to third parties, whether it's your products or something you did, and it also covers you for advertising injury. If somebody's alleging that you're infringing upon their trademark or something like that. It also covers personal injury as well. If for whatever reason you have defamed somebody unintentionally, it'll pick up.
One of the most important things about general liability, again, we mentioned this in the previous podcast to, is it provides defense coverage. When you get sued by a plaintiff attorney alleging that you did something wrong, one of the most important things the policy does is it's going to start to pay you to secure a defense attorney. Those costs are oftentimes outside of the limit, which means to say if you bought $1 million, the defense costs don't actually take away from that million yet. The million is still set aside for the settlement.
The next type of insurance that's meant to compliment general liability in a way is called professional liability. It's oftentimes referred to as errors and omissions, or E and O. This type of insurance is really meant for when you cause financial harm to a third party. Again, it's not if you cause bodily injury or property damage necessarily. It's when you've caused a financial harm. A great example of people that carry this type of insurance are accountants and lawyers and doctors and so on and so forth. Accountants are a great example because when an accountant files your taxes incorrectly, it's going to cost money when you have to try to fix it with the government of course. That's a financial loss you incurred because a professional rendered a service to you. That type of insurance will then protect the accountant when you bring a claim against them.
The business owner's policy is oftentimes a single policy that people can purchase and it includes multiple lines of insurance. I affectionately refer to it as the Happy Meal policy because you get several different types in one and there's a discount involved there.
The next type of insurance is business interruption coverage. Typically business interruption is triggered when you have a weather-related event that removes or it takes away your ability to make money as a company. A great example of this would be say a hurricane in the New York area that prevented you from producing whatever you manufacture in your facility. The business interruption coverage is going to pay for the extra expense to either find a location to continue making your product, it's going to pay you the income that you lost for that product, and then it's also going to set up any additional facilities that you might need or repairs to the facility that you have to continue operating.
The next type of insurance is cyber insurance. It's a very new type of coverage. It's been around for about 20 years, but it's only until very recently that people have become very aware of it and are starting to purchase it in general. It's a type of insurance that protects you.
It has third party and first party components. The third party component pays for defense attorneys to defend you when somebody alleges that you have wrongfully disclosed their personally identifiable or private or corporate confidential information. The first party component is going to pay you to notify the necessary people if you're responsible for doing that. It's going to pay for forensics to help identify the extend of the loss within your network. It's also going to pay for data restoration or business interruption if it was indeed a cyber event that caused those things.
Again, very popular type of insurance. A lot of people are purchasing it now, and its pricing is now more affordable than it ever has been.
How do you ensure that your client is taking adequate precautions in the first place, because obviously if they don't do everything they're supposed to do in terms of system updates and everything else, you guys end up on the hook?
Like most insurance policies in general, there's an application process where there's several questions. For very basic types of insurance, the questions have really been boiled down over the years. If you're applying for a property policy they typically ask you, "What's everything worth? How much square footage do you have? What kind of office space are you in?" Something like that.
When it comes to applying for cyber insurance, there is still an application. The application does have a lot of questions. A lot of times what I find is that the CFO or the insurance buyer of an organization looks at the application and literally just hands it to their IT director, because some of the questions are pretty in-depth about those different controls that they have in place within the IT department.
I would imagine that just seeing that questionnaire wakes up a few IT departments.
It's funny. You know that you probably need the insurance when the actual application is giving you new ideas on what you should be doing with your organization to protect it. Trust me, I've seen that happen.
You mentioned business interruption insurance and you said that's often or mostly weather related. What about a fire? Would that be under that too?
Yeah, absolutely. I'm glad you brought that up. One of the business interruption claims that I dealt with when I was an insurance agent back in Minnesota was a fire had taken out a turkey processing facility. While it's hysterical to joke about cooking turkeys, it actually removed their ability to process the animals. Not only were they not able to get business income because they weren't able to receive the animals, they needed to find extra expense because they needed to do something with the actual damage from the fire because it was a hazardous material because it was turkeys. Then they also had shipments coming in of new turkeys that they were getting ready to process in the facility, and they didn't know where to put those. They didn't have anywhere to keep those. There were no coolers or anything to place them in a safe place.
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