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The perils of small business: Indiana insurance companies and agencies focus on small-business risks.

Did you know that your insurance policy may cover your computer hardware, but not your software and data? Many Indiana insurance companies and agencies are ready with insurance products and advice for the small-business owner.

"We've got a sign in our small-business center which proclaims: 'Small Business is Our World,'" says Dan Appel of the Indianapolis-based Gregory & Appel. "We began focusing on small-business insurance as a real growth area for us about a year ago. It's now a distinct profit center in our office."

One trend that continues to develop in small-business insurance is the package policy. The Business Owner's Policy, known in the trade as a BOP, folds property/casualty, automobile and liability coverage under one policy. "The BOP is designed for the smaller business," says George McKown, vice president of Wells & Co., a fifth-generation agency located in Indianapolis, "shoe stores, retail, hardware and the like."

At Indiana Insurance Co. in Indianapolis, commercial lines underwriter Tom Harvison says the carrier "is constantly reviewing our packages" for small businesses. "We're seeing a lot of consolidation into package policies."

Harvison says there's also a continuing trend in the small-business area toward more all-perils coverage versus insurance for just one or two main perils, such as fire and wind. "We're covering more and more perils."

Jay Smith, vice president of MBAH Insurance in Lafayette, cautions small-business owners to consider an oft-neglected area of coverage: theft. "Employee dishonesty coverage is increasingly important," he says.

McKown adds that the small business person "needs to concern himself or herself about liability. They should have liability insurance to cover that exposure." One area that McKown identifies as a potential high-loss situation is that of the home worker. Growing numbers of home-based businesses--typically someone starting out with an idea and a computer--are underinsured when it comes to liability.

"It only takes one incident," McKown says. "A lot of people think the home office is covered under their homeowner's policy. But it's specifically excluded."

Another area that is often not covered is that computer in the home office, or the small-business office. McKown says many policies cover the hardware--the actual computer terminal and keyboard--but not the software installed on the computer hard drive or the disks and tapes used to back up the computer.

"Most people don't know that you can purchase electronic data processing coverage to cover computer data and media," McKown says. "It's something that needs to be paid more careful attention to."

One other peril owners of small businesses must consider is their own deaths. That's where "key-man" life insurance comes in. The policy in essence makes possible the continuation of the business. If the business is to be passed to family members, the policy can help beneficiaries pay estate taxes owed on the business. If the owner wants the business to pass to someone else, the policy can provide the funds for that person or those persons to acquire the business.

The lion's share of attention these days is focusing on two areas of insurance businesses must deal with: health insurance and worker's compensation. Insurance industry observers most frequently cite the rising premiums in these two areas as the problem that must be solved by the industry during the 1990s.

"Controlling expenses is a major item" for small business, Harvison says.

"The main concern is cost, cost, cost," Smith echoes.

"Workers compensation is obviously one of the biggest issues for the small-business person," says H. Peter Hudson, president of Monroe Guaranty Insurance Co. in Carmel. "It has been a challenge through all the 1980s but is getting progressively more imposing."

Hudson, a former state insurance commissioner, notes that much of the "health-care community is shifting its costs into worker's compensation invoices because their charges are being suppressed by health benefit payers. In other words, Medicare, for example, sets a maximum they will pay for a procedure, which the medical community claims is less than their charges; consequently, they shift those basic charges into the worker's compensation treatments rendered."

Workers compensation is "a tough area," agrees Paul Steiner, president of Brotherhood Mutual Insurance Co. in Fort Wayne. Steiner says his company writes a lot of worker's compensation for small business, since coverage is mandated by state law. But he points out that some states are far more liberal on benefits than Indiana. "Unless you're diligent, it can really get out of hand. The court referees have liberalized it so much more than the intent. It's become a 'deep-pockets' type of claim. It's getting difficult to write the policies."

Warren Williams, marketing underwriter at Amerisure Companies in Indianapolis, notes that "even in smaller-sized accounts, worker's compensation represents a good portion of the premium." But he points out that small businesses can do things to keep their worker's compensation experience levels low. "There has to be an emphasis on safety and prevention."

An even more difficult area for both insurers and small businesses is the rise of health insurance premiums. Many small businesses report that their premiums have more than doubled in the past several years, and it's not uncommon for a small business with 10 employees to be faced with $50,000 a year in employee health-insurance premiums.

That's if the employees can even get coverage. "Health care is critical" for many small businesses, says Malcolm Wright, vice president of Forrest Sherer Insurance in Terre Haute. "They're stuck. If they have an employee with serious health problems, they can't get coverage."

The good news is that more and more agencies are paying increasing attention to the needs of small business. Appel of Gregory & Appel believes many larger agencies don't think that small businesses are all that profitable. But his agency has decided to concentrate on what its principal calls "mom and pop" businesses, those with fewer than 20 employees.

"They have the same kinds of needs that a bigger client does but typically don't get the kind of service that the big guys do," he says. "We offer a package that includes risk-management services, combined with competitive products."

Another trend in insurance is niche marketing. For example, Wells & Co. is the largest writer for apartment complexes in Indiana, and the firm is increasingly moving into writing insurance for automobile dealers. McKown notes that the typical automobile dealers has hundreds of thousands of dollars of inventory sitting outside on a lot, subject to damage from hail and wind.

MBAH Insurance in Lafayette has become a specialist in covering hospitals around the state. "Construction and health care are our two largest industry groups," MBAH's Smith says. "Hospitals have very unique property/casualty needs, especially because of their equipment."

At Brotherhood Mutual in Fort Wayne, the specialty of the house is churches. "Over 90 percent of our commercial business is church and church-related," Steiner explains. "We write a lot of liability."

Increasingly in recent years, that liability has included coverage of sexual misconduct by the clergy and church employees. "It's an area in this particular market that is continuing to crop up," Steiner says. "We know that coverage is needed. We will protect the church. There is an exclusion for the perpetrator."

The company also insures against other, more pedestrian perils. "One of the biggest liabilities is the church hay ride in the fall," Steiner says. "Every year, we get claims."
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Author:Beck, Bill
Publication:Indiana Business Magazine
Date:Jan 1, 1993
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