Small- and mid-sized businesses generally do not require the same kinds of insurance coverage as massive organizations. Furthermore, smaller outputs and customer bases often translate into less revenue and lower profit margins, which increases the need to eliminate wasteful spending on unnecessary coverages bundled into business owner policies. Companies that either do not meet the eligibility requirements for a BOP or do not need all of the included coverages should consider building a commercial package policy.
Insuring a Commercial Business
A business’s insurance needs are as unique as the business itself, but most policies include a combination of four basic coverages plus additional options for unusual risks.
Commercial General Liability Insurance
In short, general liability insurance covers expenses incurred for a broad definition of harm caused to others by a business. The spectrum of coverage is not unlimited, but common claims that fall under general liability can include:
- Bodily injury to clients or bystanders
- Damage to customers’ property
- Defamation or repetitional harm due to advertising or published or recorded statements
- Copyright infringement
General liability can help pay for legal expenses, medical costs and reimbursements for property repairs or replacements.
Business Auto Insurance
Business auto policies offer the same types of collision and comprehensive coverage that personal auto insurance does: bodily injury and property damage caused by a covered driver or vehicle to either the insured or third parties. Business auto policies can cover a fleet of vehicles and a specific list of drivers or provide protection for any employee or personal vehicle performing company-related tasks.
Commercial Property Coverage
Commercial property insurance covers damage or loss claims due to events such as fires, vandalism, storms or theft. In addition to the physical structure that houses commercial operations, business owners can choose to insure files, computers, office furniture, inventory, heavy machinery and manufacturing equipment, to name a few.
Each state has its own mandates for workers’ compensation insurance; however, most statutes require businesses with more than a few employees who are not owners to have coverage for a worker injured while performing his or her duties, either on or off the premises. Individual statutes vary widely, but generally speaking, this insurance will guarantee compensation for the costs and expenses related to employee injuries in exchange for the waived right to bring forth a personal injury lawsuit against the employer.
Not all industries face the same types of risk, so there are many specialized policies that provide protection against certain liabilities and exposures. A few of the more common policies include:
- Crime Protection: A crime policy covers losses due to illegal activity, such as embezzlement, forgery, credit card fraud or vandalism.
- Directors & Officers Liability: D&O coverage protects individuals against claims made while they served as corporate officers or on a board of directors.
- Inland Marine Coverage: Inland marine insurance covers products shipped via rail or road or stored in a warehouse.
- Pollution Coverage: A pollution policy covers property damage or bodily injury resulting from hazardous waste or materials released by a company.
- Professional Liability: Professional liability policies can cover a broad spectrum of risks that include injury, loss or damage due to errors and omissions (E&O) or various malpractice categories.
Bundling Coverage Into Commercial Package Policies
While there may be a few exceptions, most businesses will require some combination of at least two of the above-mentioned insurance policies to cover all of the risks and exposures normally incurred by a commercial operation. For that reason, insurance companies often group multiple coverage types, such as business liability and property insurance coverages, into a bundle known as a commercial package policy (CPP).
Furthermore, companies have specific exposures and liabilities due to their industries’ nature, so CPP insurance is designed to be highly customizable. Agencies assess each business’s insurance needs and combine a variety of coverages into a single policy that protects all of its liabilities without over-insuring the company for minimal or nonexistent risks. Insurance companies typically offer this tailored coverage at a lower premium than the total of the individual policies.
A commercial package policy should not be confused with a business owners policy (BOP), which bundles business interruption, income, property and liability coverage into one policy, also at reduced premiums than purchasing each insurance policy separately. With the exceptions of some opt-in coverages at added costs, a BOP is not as customizable as a CPP, and businesses generally must meet certain criteria to qualify. Different insurance providers may offer different BOP features, but a commercial package policy can help eliminate the need for business owners to shop around trying to find the best BOP package.
Building CPP Insurance Plans
Due to the highly customizable nature of commercial packages, it is necessary for a company and its insurance agent to examine all of the risks and exposures faced before writing a CPP. Businesses can help build a complete picture by understanding the basic structures of commercial insurance policies.
1. Who can benefit from a commercial package policy?
CPP packages are generally written for small- to mid-sized businesses that don’t have much property or liability exposure or operate within a niche with very specific insurance requirements. For example, a small nonprofit organization may need an extensive professional liability policy that includes coverages for directors and officers liability and crime and employee dishonesty but minimal coverage for property or business auto insurance. Conversely, a manufacturing company will likely require a comprehensive property insurance policy along with product recall and pollution coverages. A CPP quote bundle all of a company’s insurance needs into a single policy, but agents can make sure a commercial package policy includes protections that will best benefit the client and make recommendations for additional coverage.
2. What do commercial package policies include?
Each specialty CPP insurance plan will cover the liability and property exposures deemed appropriate for the insured entity. However, most commercial package policies include limits for general liability, property and business auto insurance.
CPPs often incorporate additional policies such as inland marine coverage, which insures property or products in transit, and crime protection, which covers both internal and external risks of fraudulent activity or practices. Specialty commercial operations, such as breweries and wineries, importers and exporters and nonprofit organizations, often carry with them unique risks that require special protection. Agents can mitigate much of the risk by customizing a CPP with coverages such as:
- Pollution liability
- Equipment breakdown
- Employment practices liability
- Electronic data processing
- Umbrella policy
3. Which commercial insurance policies must a company purchase separately?
Each state has workers’ compensation coverage requirements written into law, so these policies must be purchased in addition to a CPP. Directors and officers liability insurance also cannot be included in a commercial package.
Furthermore, most insurance policies provided as employee benefits must be purchased outside of a CPP. These coverages include health, disability and life insurance.