Understanding Commercial Insurance

Understanding Commercial Insurance

Deskera Content Team
Deskera Content Team
Table of Contents
Table of Contents

Commercial insurance is specially designed to safeguard your business against theft, damages to the land, building, tools, documents, intellectual property, and injuries to the employees. The unforeseen situations that attract financial losses are quite challenging for business owners. It covers standard risks and liabilities, offering a variety of subsets in commercial insurance.

Differences between Personal Insurance and Commercial Insurance

A major difference between personal and commercial insurance is that personal insurance covers an individual or a family while the insurance covers multiple stakeholders and employees.

A business has more assets to be covered, industry-specific needs are different and the risks are a chief reason for higher coverage. E.g., Fire insurance for manufacturing units.

An individual or a family has specific needs but it cannot match the severity of business hence the fire insurance for residence will have a different premium.

Though both insurances have similar attributes but purpose, complexities and coverages differ.

Why should businesses have Commercial Insurance?

Insurance is a smart way to protect the business by paying a small amount of premium for the unpredicted events and losses. You get coverage against the damages for all assets; without insurance, the business income gets used to cover the losses. Just imagine you have to pay from your pocket for the damages, how long will your business be in a situation to bear these costs?

It gives you operational freedom and peace of mind.

How does Commercial Insurance work?

Let’s understand there is fire breakout, an electrical/machine involved accident, office property gets stolen or theft this is what you need insurance for. Business owners buy policies to be prepared for such circumstances and claim for the damages.

Deal smartly for workmen compensation or any other lawsuit, against the company by clients or third party. In case of a law suit you receive compensation for loss and legal expenses too.

Fundamentally, commercial insurance policies pay for any financial losses suffered by your business during the period of insurance.

Tips for buying Commercial Insurance

  1. Your type of business and risks associated with your industry
  2. Legal aspects to your insurance needs
  3. Comparing the coverage and insurance costs
  4. Impact of riders on insurance rates
  5. Accurate estimation for the right coverage
  6. Claim settlement ratios of insurance providers
  7. Hidden clauses if any

Documentation of Commercial Insurance Policies

Just like other policies, the business insurance policies have minute details that you should check insurance limit, exclusions, deductible, premium frequency, and coverage span etc.

The terminology of insurance:

  1. Premium: Amount payable for the coverage for a fixed period of time. You can opt for annual, half-yearly, quarterly, and monthly premium paying methods. The premiums can depend on the number of employees, type of business and risks.
  2. Insurance Policy Limit: This is the higher limit set for the insurance policy payout per claim over the policy term.
  3. Exclusions: It means what is payable and what is omitted as it was either not covered or is not possible to cover under insurance as per norms.
  4. Deductibles: It is the money paid by an insured business before the insurance provider settles your claim. The benefit in this is your premium liability reduces but when a claim is raised you do not receive the 100% claim e.g., Rs. 25,000 is deductible and a claim for Rs. 75,000 was received by the insurance company you can expect Rs. 50,000 as the maximum settlement.

Why are claims of Commercial Insurance declined?

Accurate information: As an insured individual or company you are expected to provide precise information. E.g., Your business has a policy from April 2020 to Mar 2022 for your IT company. In Jan 2021 you added 25 computers and 4 Air conditioners due to overload there was a fire situation in May 2021. The data submitted while you took insurance is different and the reason for overload is found in inspection after claim submission. Do you think the insurance company will pay for this? Certainly, the chances of rejection are high or at the most, they will get a part of the insured amount if they succeed to prove things in their favor. A better approach would have been making changes to the insurance policy for coverage. Self-negligence is a kind of offence.

Timely Renewal: If you were to renew the property insurance in Nov 2021 and for whatever reason it was not done. Due to flood, your office is damaged and you need funds for repairs. Do you think your claim will pass? Any idea if there is a loyalty benefit for a person who insured his business property for the past 20 years and missed renewal this year. The answer to both the questions is ‘NO’.

Coverage: The limit of insurance cover is 50 Lakhs which you continued to renew every year. Your business grew and this cover was never revisited. In case of theft of your latest medical equipments in the laboratory worth 95 Lakhs, which you claim from an insurance company. You will still be eligible to receive at the most 50 Lakhs. To save premium if you choose to remain insured at a lower value it actually can cost you more financial losses.

Premium Issues: The premium was paid and the amount of renewal was kept the same for the past few years while the taxes had changed. The mismatch in the amount paid will block the renewal and if within that period a mishap occurs your claim will go unsettled. Similarly, you sold your office to someone and the insurance was in place. Damage was done to the same property can the new owner claim via an earlier insurance policy just because the previous owner gave him all the insurance documents and the policy for business was active? No this is not acceptable as the insuring party has changed though the office as a premise remains the same.

Misleading Reason: The claim was submitted but the nature of the damage is not as mentioned in the form. Though the business owner has policy and rights to claim but not on basis of falsification. Another scenario is that the damage was done before the purchase of a policy.

Policy Cancellation: There was a joint decision within your organization to cancel the policy because you came across some better terms from another insurance providing company. During the gap of your cancellation of insurance policy from company ‘A’ and purchase of a new policy from company ‘B,’ your company vehicle met with an accident. Now you are expecting the insurance claim to pass and it will not for a simple reason that you forgot that insurance is for unpredictable times.

Partial Coverage: You were transporting heavy machinery and the truck met with an accident due to heavy rains. The machinery was insured and so was the driver but today you had sent a newly recruited (driver) who was not yet insured. In case of his death, your company will have to pay from its funds as the damage to machinery is recoverable from insurance claim. The same can happen when the cost of machinery is higher and the insurance is for a lower value.

Types of Commercial Insurance Policies

No single policy can cover all risks of each type of industry but there are enough options to suit your requirements provided you are aware of them.

  • General Liability Insurance: This is a unique cover that protects you from lawsuits for property damage to another person, injuries to the third party like clients, defamation, copyright infringement etc. The third-party can be your client, a neighbor or even a person who doesn’t work for you.
  • Commercial Property Insurance: It insures you from losses of repairs, damages to property, loss of stolen property, inventory, equipments, office furniture. You can insure business owned or rented property and machineries.
  • Business Owner’s Policy: A insurance that combines general insurance and commercial property insurance. BOP is a dual benefit policy.
  • Shop Owner’s Insurance: This policy caters the need of small to mid-sized shopkeepers. It protects the property from damages due to theft, burglary, natural disasters, and other financial losses. The shopkeeper’s insurance also covers cash insurance, damages to the shops, its internal belongings, outer properties such as signboards, personal accidents etc.
  • Public Liability Insurance: This is quite similar to general liability insurance for electrical contractors but it differs where it covers the liability for damages of a third party within your premise i.e., injury, disability, or accidental death. E.g., A customer gets hurt by machinery or simply slips on the wet floor and breaks his leg.
  • Employee Benefits Insurance: This policy provides health insurance to the employees and includes the Mediclaim and personal accident plans.
  • Workers Compensation Insurance: A very common form of insurance needed in engineering, manufacturing, construction, and such industries. It provides medical benefits and reimburses legal expenses. It protects against lawsuits by the employees for ill health, injury, permanent or temporary disability, or accidents on the job during the course of employment. It covers lost wages due to health issues or accidents; ongoing expenses of medical treatment or funeral costs in case of death is covered.
  • Unemployment Insurance: This policy provides benefits when the workers lose their jobs due to unavoidable circumstances and not through their fault.
  • Fire Insurance: Every damage or destruction and repairs required due to an outburst of fire is covered under this policy.
  • Burglary Insurance: A policy that insures the business against the losses caused by robbery, riots, and malicious acts.
  • Business Interruption Insurance: The Business Owner’s Policy covers against basic damages the Business Interruption Insurance is to recover from losses of a temporary closure of business due to fire, storm, flood, any other disturbances that hamper business operations. It is also known as Business Income Insurance.
  • Directors & Office Liability Insurance: A company may incur losses due to wrong decisions, negligence, breach of duty, or any wrongful act. This insurance insures you against such losses.
  • Commercial Automobile Insurance: It covers liabilities of the driver, property damaged during accident, medical expense of driver and third party in case of an accident, vehicle repairs as well as legal bills. Personal car insurance cannot protect you if the vehicle is used for business purposes. Automobile insurance covers cars, vans, trucks, and other vehicles.
  • Cargo Insurance: It is specifically designed for cargo business owners to cover against losses that occurred during the shipment is in an undelivered state. The cargo gets protection for damages if sent via road, rail, marine and air.
  • Transit Insurance: This insurance is particularly for risk coverage while the goods and commodities are still in transit.
  • Marine Insurance: It is an insurance policy to meet the needs of marine industries, it covers the losses against sea threats, war, pirates, and restoration of marine vessels.
  • Engineering Insurance: This policy provides cover to companies involved in heavy industries, power, construction etc. where engineering risks are involved.
  • Professional Liability Insurance: It is also known as Errors and Omissions Insurance. It protects against professional negligence.  Accountants, doctors, lawyers, software professionals and other such professionals can purchase this insurance. This insurance will not include data breach, neglected cyber liability, or intentional harm if proven. Even a software technology company needs protection for a missed deadline, coding errors and other errors for which their client can sue them. In case of lawyers, it does not cover the claims for a criminal offence.
  • Plant & Machinery Insurance: There are huge and highly expensive machineries like compressors, cranes, excavators, bulldozers, mining trucks, forklifts etc. which can breakdown or need repairs during usage on site. This insurance is important as it provides cover against the losses caused by machinery damage, and the replacement or repairs needed.
  • Construction All Risk Insurance: It offers protection against the losses encountered during construction. Whether the damage is to construction, machinery, men, third party injuries, or contracts. This policy is designed taking into account the risks involved in work done by engineers on the construction site, architects, and other technicians.
  • Aviation Insurance: It basically covers all types of aircraft and private jets against the damages to the equipments, tools, supplies etc. It gives protection against financial losses due to war, attack on aircraft or disappearance of the aircraft.
  • Bankers Indemnity Insurance: It insures the banks and their branches in the country as a whole. The banks deal with a lot of uncertainties and need coverage for cash or securities lost in transit or from the premise. This policy mitigates the risk of losses due to forgery and hypothecated goods.
  • Data Breach Insurance: Current era of data confidentiality cyber liability insurance is mandatory. Insurers buy coverage to deal with cyberattacks, malware and ransomware. The data stealing may happen rarely but it gives your clients the liberty to sue you for the damages. Your organization’s reputation and loss of clientele are at risk and comparatively premium is a small price to pay.
  • Natural Disaster Insurance: This policy is designed so that you can deal with losses generated during or after natural calamities. The businesses are protected from floods, cyclones, storms, and earthquakes. This can be a more useful earthquake or flood prone areas and in general, it is beneficial to all business owners.

Final Thoughts

Commercial Insurance empowers you to protect the business and its reputation. Personal insurance cannot fulfill the needs of businesses hence commercial insurance does not have a real alternative.

Each business needs different insurance for obvious needs like cab service company needs auto insurance, oil and gas industries will need marine insurance, furniture shop and restaurant will need fire insurance, while retail business will need protection against theft. The combination of various insurance can work well.

Always consider that businesses grow and each one has unique insurance needs. You may find information from various sources, agents, or friends, if needed you should consult the legal advisors for any specific query that is unaddressed by insurance companies.

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