Everyone is looking to trim costs in this economy, and insurance is a significant business expense. Most businesses are both underinsured and overinsured at the same time, leading to a waste of premium dollars and potential gaps in coverage. To efficiently buy insurance, companies need to appropriately match their insurance with their main risks and liabilities. And to reduce premiums companies should choose policy deductibles that are as high as possible while maintaining adequate reserves to pay claims within the deductible. Liability limits should be sufficient for realistic worst-case scenarios and property coverage limits should be within current property valuations.
A good insurance broker can provide benchmarks to ensure that a company’s coverage limits are within a range of coverages purchased by peer companies. But all companies have unique liabilities and legal obligations. One area that can be overlooked is ensuring that insurance coverages comply with insurance requirements in commercial contracts. Insurance requirements are often found in leases, supplier agreements, construction contracts, mortgage and loan documents and various indemnity agreements. These contracts must be reviewed in conjunction with an insurance review that ensures that the company is in compliance with its contractual obligations. Failure to comply with contractual insurance requirements may constitute breach of an important contract. In the event of a casualty, the breaching party may be forced to self insure beyond its expectations — and ability to pay.
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