- Created on Tuesday, 03 October 2006 02:03
- Written by MARK E. BATTERSBY
Insurance is a necessary evil for personal and business protection. Although the ultimate goal is not to make a claim, relief sets in by having coverage if and when a claim must be submitted.
Every laundry operation, large or small, should have a plan in place to manage the risks that are part of operating the business. Without such a plan, losses can leave the laundry vulnerable to failure, and employees and customers exposed to injury.
STEPS TO AFFORDABLE INSURANCE PROTECTION
A loss prevention plan helps protect the business – as well as its owners. Should a loss occur despite precautions, that loss prevention plan should contain strategies or methods for managing the loss in order to prevent additional losses.
In other words, the goal is to develop a plan the help prevent losses from occurring and to manage those that do occur. Perhaps employees are not using protective gloves or glasses when they should, a retail store may have a poorly lit entryway. Either scenario could cause injury to employees and visitors, resulting in serious financial losses.
That means evaluating the laundry operation’s exposure to risk. That, in turn, may mean looking at the property, equipment, products/services and employee-related exposure to risk in the business. Then, and only then, is anyone ready to purchase insurance that will provide the funds needed to help restore the laundry operation in the event of a loss. Which leaves the question: what insurance is needed?
The basic business insurance package, according to many experts, consists of four fundamental types of insurance coverages: general liability, workers’ compensation, auto and property/casualty – plus an added layer of protection over these, often called an umbrella policy.
Although nothing about insurance is easy, of the four types of insurance coverages, workers’ compensation comes closest to being a “no-brainer.” After all, laws in all 50 states require employers to maintain workers comp. insurance. What’s more, in most instances, the rates are established by the state.
To reduce the cost of this necessary insurance, do not accept the first price offered. Ensuring that the laundry is categorized properly means it will be charged the appropriate rate. No one wants to be classed as an explosives manufacturer if the business really involves dry cleaning or laundering linens.
Another way to reduce the costs of workers’ comp is to take advantage of rate variances offered in many states. After a certain premium level, usually $5,000, employers can be rated based on their claims history. Naturally, the fewer claims, the lower the premium.
General liability is the most confusing and misunderstood type of insurance coverage. Overall, commercial general liability coverage insures a business against accidents and injury that might happen on its premises, as well as exposures related to its products or services.
Naturally, no insurance company wants to be responsible for poor workmanship. As a result, general liability insurance tends to be so rife with exclusions that many laundry owners and managers often are not sure why they have it.
The best strategy with general liability is to determine how much coverage is needed. The old rule was that you should buy general liability insurance equal to the business’s net worth. Unfortunately, that does not work anymore because people now sue for the amount of the policy – and your net worth.
Thus, there are two extremes that a laundry owner or manager might want to consider. The first, the so-called “empty pockets” approach is to buy little or no insurance so as not to become a target of lawsuits. The other approach is to buy $2 million to $3 million of liability insurance – generally, the most you will need.
Like workers’ compensation, auto insurance is fairly, straight forward. Even saving money is routine: simply increase the deductible.
Of course, cost cutting should not result in lower policy limits. Many states set minimum liability coverages, and those coverages may be well below what a laundry requires. If the laundry does not have enough coverage, the courts can take everything. Many experts suggest carrying a minimum of $1 million in liability coverage.
The majority of property insurance is written on an “all risks” basis as opposed to a “named peril” basis. The latter offers coverage for specific perils spelled out in the policy. If a loss occurs from a peril not named, then it is not covered.
For starters, make sure the laundry operation is covered by an “all risks” policy. Then go the extra step and carefully review the policy’s exclusions. All policies cover loss by fire. But what about losses from such casualties as hailstorms and explosions? Many businesses purchase coverage for all of these risks.
Whenever possible, “replacement cost” insurance should be purchased. This will replace the damaged property at today’s prices, regardless of the cost when you bought the equipment or property. It is protection against inflation. Naturally, total replacements should not exceed the policy cap.
For full protection, there is replacement insurance with an inflation guard. This adjusts the cap on the policy to allow for inflation. If that is not possible, then be sure to review the limits of your policy from time to time to ensure that you are still adequately covered.
In addition to these four basic types of insurance, many insurance professionals recommend an additional layer of protection, called an “umbrella policy.” This protects you from payments in excess of your existing coverage or for liabilities not covered in your other policies.
GOING THE EXTRA MILE
Aside from an umbrella policy, there are several other specialized types of insurance coverage worth considering:
- Business interruption insurance;
- Mechanical breakdown insurance;
- Director’s and Officer’s insurance; and
Key employee life insurance
Obviously, figuring out which of these may be important to your laundry requires professional assistance. Often choosing the right insurance agent can be as important, if not more important, as selecting the types of coverages you require. The most fundamental question here is whether to select a so-called “direct writer,” who is someone who represents just one insurance company, or a broker who represents many companies.
OPTIONS AND MORE OPTIONS
Instead of purchasing insurance against certain risks, a number of businesses have chosen to accumulate funds to cover losses. This is called “self-insurance.” A laundry that self-insures usually sets aside cash reserves on a periodic basis to be drawn upon only in the event of a financial loss resulting from the assumption of a pure risk.
Unfortunately, self-insurance is usually only a realistic choice only for big business or those laundry operations with operating units spread over a wide geographic area. For a small commercial laundry, especially those with only one fixed business location, one fire, accident or theft can prove disastrous and contributions to a reserve fund for large potential fire damages can be prohibitedly high.
A more popular, and far safer, form of self-insurance, involves adjusting the size of the loss that the laundry will be responsible for under its current insurance coverage. Higher “deductibles,” mean assuming more of the loss as well as much-reduced insurance premiums.
HOW MUCH IS TOO MUCH?
It should be obvious that it does not take much -: a fire, burglary, the illness of a key employee – and one of these can trigger the downfall of any laundry or business. Insurance can provide a financial cushion for many different types of losses, but often is ignored because of “cost” concerns.
Surprisingly, however, insurance is not that expensive. Out-of-pocket expenditures for insurance can be reduced with business tax deductions. Insurance costs themselves can be reduced using risk assessment and prevention strategies. There is even self-insurance to help manage the cost of that much-needed protection.
No two businesses, not even businesses the same size and in the same industry will have the same types of insurance coverages, nor will they want to assume the same amounts of liability. A growing company may be more willing to assume a greater level of risk and forego some insurance protection, increased deductibles, etc. Another company, not growing, but more interested in conserving and protecting its assets – and those of its owner – may choose the route of heavily insured.
Adequate, affordable insurance coverage for any laundry is an on-going concern. With a few simple strategies, a reliable advisor and a little homework, that protection can become a reality.
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