Should You Reassess Your Company’s Insurance Coverage?
(Spoiler alert: The answer is yes)
In the past two years, the COVID-19 pandemic has caused most business leaders to re-evaluate nearly all facets of their businesses. But there’s one area that some may forget to reassess: insurance coverage.
“A lot of businesses have changed their footprint during the pandemic,” says Alexander Anglim, a partner at Santomassimo Davis LLP Outside General Counsel™ Solutions, a New Jersey-based firm with offices in New Jersey, Philadelphia, and New York.
Anglim says many of his clients’ businesses look dramatically different than they looked just 24 months ago: Some have reduced their office space. Others have had to invest in new equipment to outfit remote workers’ home offices or lease short-term workspaces in new locations.
“These may seem like small details, but they can have a huge impact on your insurance program,” Anglim says. “And unfortunately, the most common mistake that many executives make is to blindly renew their policies without reassessing how things have changed.”
Now is a critical time to work with your legal partner to perform a check-up on your business insurance coverage.
Three Key Areas To Consider When Reassessing Insurance Coverage
1. What’s the impact of inflation?
It’s no secret that inflation is rising: According to the latest data from the Bureau of Labor Statistics, consumer prices surged by 7% in 2021— representing the largest increase over a 12-month period since 1982. Several factors have contributed to rising inflation concerns, including widespread labor shortage and supply chain disruptions.
What does this mean for your business? “If some of your assets, like vehicles or machinery, have increased in value (or you’ve purchased more), you may need to increase your coverage amount,” Anglim says. In addition, you should re-evaluate your policy’s coinsurance condition — which requires that you fully insure a percentage of the replacement cost of your property, such as 80 percent or 90 percent.
For example, if you’re in an area or industry where the cost of building materials is skyrocketing, or there is a shortage of construction workers, “chances are, the cost of rebuilding your property has soared” from what it would have been a few years ago, Anglim says.
But figuring out how much insurance you need to fulfill your coinsurance commitment “requires a fairly significant amount of math,” Anglim says, “especially when it comes to determining how much business income coverage your company needs.” Your best bet? “Have an in-depth conversation with your lawyer and insurance broker to determine if you have adequate coverage.” Anglim and his colleagues at OGC Solutions regularly guide clients through the insurance assessment process, including getting involved in pre-renewal conferences with brokers.
2. Are your liability limits up to snuff?
Another unpleasant side effect of inflation is that it tends to increase potential jury verdicts. As a result, the limits of your company’s liability policies may need to be increased. Limits that seemed adequate a year or two ago might quickly become inadequate if inflation continues on its present trajectory. Take a close look at your General Liability (CGL), Employment Practices Liability Insurance (EPLI) and your Directors & Officers (D&O) insurance, Anglim says. “Chances are, you’ll need to make an adjustment.”
3. Does your cyber insurance policy need an upgrade?
If you’ve had the same cyber insurance carrier for several years, “you should re-evaluate your policy, and possibly even your carrier,” Anglim says. Why? Cyber insurance policies are evolving very quickly. Policy forms that were issued even five years ago often had exclusions for contract liabilities and should be re-negotiated, Anglim explains. And some companies purchase coverage from insurers who are not among the market leaders in cyber insurance. That could be a big mistake if your company has a cyber security breach and you discover, for example, that your insurer isn’t able to engage the services of forensic technicians who can help you recover the data. Anglim’s top tip? “When you’re shopping for cyber insurance, you need to seek out the market leaders.”
What if you’re among the 30 percent of companies that Anglim estimates still don’t have a cyber insurance policy? “Make it your first priority to get one now,” he warns.
If you think that your company doesn’t need cyber insurance because it doesn’t have a large web presence or handle customer data, think again. Anglim says that many of the most recent stories of companies that have been hit with ransomware attacks are companies that aren’t household names and aren’t dealing with consumer data or customer privacy issues. He points to recent reports of cyberattacks on a meatpacking operation and a petroleum pipeline company. “Who knows who’s going to be next?” he says.