5 Growth Changes that Impact Your Risks & Business Insurance
No successful business finds a “sweet spot” and puts the metaphorical car into autopilot. Great businesses find a way to keep expanding or offering new services in ways that take advantage of changing markets and consumer preferences. Either expansion, an updated business model, or both, are eventually going to be necessary. And with growth comes a changing set of risks that may face your company, which you may need to prepare for with appropriate business insurance.
#1. Opening a New Location
Your business may not have a spare $13.7 billion sitting around to pull a Jeff Bezos and expand by buying out entire companies, yet you may still be considering opening a new location or two in the coming months. According to Sageworks, small businesses saw an annual sales growth of 7.8% in 2015, a trend that continued into 2016 and appears to be continuing into 2017 as well.
Expansion always comes with a few growing pains, especially when one considers the increased risk exposures of additional locations. If you’re opening a new location (or several), considering the following insurance needs:
- Commercial Property Insurance
- General Liability Insurance
Starting with General Liability, there’s a good chance you already have a policy in place, especially if your business already operates with physical locations and not just online. However, your policy may have certain limits in place that won’t extend to your new location. You’ll need to re-evaluate your policy and may need to expand your policy as a result.
Commercial Property Insurance is also something you may already have, but again, a new location will come with its own challenges. What happens at your new location may not be covered by your Commercial Property policy, particularly given such policies are written based on the property you own or lease when the policy was written. It’s likely going to be time for a refresh on this policy before you open the doors on your new location.
In general, consider the normal risks that are associated with one location, and then consider how those risks might increase given a new location. In some cases, depending on where your new location is located, you may have an increased risk for third-party claims or higher risks of property damage due to fires, theft, or other named disasters. It’s unlikely that every location will have the same concerns, so you’ll need to look at your new location as a unique situation.
#2. Hiring New Employees
All stats point toward increased hiring in 2017 and beyond. In truth, hiring has been on the upswing since at least 2015. The Small Business Administration (SBA) reported that small businesses created 1.1 million net jobs in 2013, while private sector employment increased 2.5% in 2015. The report also indicates that more businesses startup entry rate exceeded the exit rate for businesses in 2013, providing a net gain in growth.
Overall, the jobless rate in the US is at a 10-year low, just 4.4%.
All of this goes to say that business in the US is booming, and it’s likely that your business may be looking to hire new employees to meet the new demands. However, hiring new employees will come with some additional risks. In particular, you will need to consider your increased risks that are part and parcel of bringing in new workers.
If you’re hiring new workers, you may want to consider:
- Workers Compensation
- Employment Benefits Liability Insurance
- Employment Practices Liability Insurance
Workers Compensation is going to be a concern if your business is growing to a point where such insurance becomes a legal requirement in your state. If your business has been small enough that you haven’t done more than cursory research on Workers Comp, you’ll need to do a bit more research as it relates to your state.
New workers will also mean benefits considerations, making Employee Benefits Liability Insurance more of a necessity, as clerical errors related to benefits packages may become more likely.
Additionally, the increasing number of employees means a higher potential for worker-related issues to arise, such as sexual harassment or other harassment claims. Harassment claims, especially, can be expensive for a business to settle, which is why the requisite Employment Practices Liability Insurance designed to mitigate those risks tend to have policies that range between $1 million to $25 million in coverage.
#3. Offering New Products or Services
Expanding what your business is offering is always exciting. You’re also entering a fairly packed business market. According to the SBA, there were over 28 million small businesses in the US in 2013. As that number continues to grow, with entries outpacing exits year-over-year, your new products and services are going to become increasingly important to the survival of your business in the long term.
Two key insurance areas you’ll want to consider are:
- Product Liability Insurance
- Professional Liability Insurance
If you are offering new products, Product Liability Insurance will help mitigate the risk that your new products don’t quite live up to expectation. That’s always a problem when offering a new product. Although new product failure rates are not as high as the mythically heart-wrenching 80%, some research suggests new products fail at a rate of around 40%.
Even a 40% failure rate for new products is precipitously high, making liability insurance for your new products a relatively safe bet. The chance that your product will be defective, may cause bodily harm to users, or simply needs to be recalled for one reason or another is too high to ignore. Keep in mind, however, that such insurance also protects your business against false claims of product failures, which is not uncommon with a newer product hitting the market.
Meanwhile, Professional Liability Insurance is designed to protect your business if you’re moving more into providing advice to customers or clients. Even if that advisory role is for a new product you’re offering, it’s important to consider the risks associated with employees who may accidentally give erroneous advice. Advisory services, in general, carry the risk of human error which most consider to be unavoidable.
#4. Developing Delivery, Catering, or In-location Services (Restaurants)
Millennials may be killing casual dining, but they’ve also been a boon to delivery and catering services. Thanks to businesses like GrubHub and Door Dash, the amount of delivery traffic increased from over 455,000 to over 604,000 in 2015, a 33% growth rate. People increasingly want their dining experiences in their own home, and increasingly want the casual restaurants that they enjoy in person to deliver to their houses.
If your business is looking to take advantage of the trend by offering delivery, catering, or in-location services, you’ll need to consider a few additional risks associated with this move. Of particular importance are two key insurance policies:
- Commercial Auto Insurance
- Hired & Non-Owned Auto Insurance
Commercial Auto Insurance is generally only going to be necessary if you plan on rolling out vehicles owned by your business. If you already own such vehicles, but will now be using them more extensively, you’ll need to look into expanding the policy you already have, likely adding more coverage to mitigate the increased risks with covering more miles.
On the other hand, if you’re offering new delivery, catering, or in-location services by utilizing your employees’ vehicles, their personal auto insurance policies won’t cover the risks. Additionally, your Commercial Auto Insurance won’t cover those risks either. Hired & Non-Owned Auto Insurance is designed to mitigate the problems that your drivers may encounter within their own vehicles while they’re driving for work-related activities. It’s a good compromise between the two common vehicle insurance policies.
#5. Bringing on New Investors
Venture capital investments are not likely to reach the high points that startups experienced in 2000, which saw $28.4 billion in venture capital poured into small businesses. However, venture capital investments are on the rise once again. According to the SBA, in 2015, $13.4 billion in investment capital went into small businesses, as opposed to just $5.1 billion around 2012.
Bringing on new investors, however, means you’ll need to consider Directors and Officers (D&O) insurance.
Especially if your business is seeking and gaining investors for the first time, D&O is not only integral but may be necessary per agreement with your investors. D&O mitigates several risks associated with having a board of directors in place, such as misrepresentation (when investors feel misled about your business model), protects managers and directors against lawsuits, and importantly, helps keep business assets and personal assets protected if lawsuits arise.
Are you growing your business in 2017 and beyond? Don’t ignore how it will impact your insurance needs. Chances are your growing pains will only be compounded if you don’t properly manage the increased risk exposures.
Maxime Rieman is Director of Product Marketing at CoverWallet. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining CoverWallet, a startup dedicated to simplifying insurance for small businesses. Previously, she launched the personal insurance team at NerdWallet, and helped create an innovative brokerage comparison productRead Full Bio