By Calvin Gilman, Insurance Broker, Advance Insurance Agency, Minneapolis, Minnesota, cgilman@advanceins.com
Many researchers are small-business owners who face confusing questions about whether and what business insurance to carry.
These questions are even amplified when triggered by a new client sending you insurance requirements in their contract. “What are these insurance terms in their contract? Is this just boilerplate language, and do I even need these? Am I not covered by the market research vendor that contracted me for this project?”
Once these questions arise, independent researchers may wonder about business insurance in general, and what type of insurance is a valuable investment.
In this article, I lay out the typical kinds of insurance worth considering. I share what these types of insurance cover and do not cover to help you know whether it’s a type of insurance that might be right for your business—and help you better understand what your clients might be requesting from you.
Overarching Benefits of Business Insurance
Before describing specific types of insurance coverage, I want to lay out the two primary benefits insurance provides. These benefits will likely seem obvious once you read them, but it can be helpful to have the foundational benefits of insurance in mind as you start to navigate and think through particular types of insurance.
The first and most commonly understood benefit is risk transfer. That is, you, as the business owner, pay a monthly or annual fee (“premium”) for insurance; in exchange, if you face a legal claim, the insurance company would pay legal fees that could easily exceed the amount of premium you pay.
The second benefit that comes from business insurance includes both emotional reassurance and practical expertise. In addition to the monetary cost of defending a lawsuit, there is the emotional stress that comes along with any lawsuit. When sued, a person or business is obligated to defend themselves in some fashion—even if to legally acknowledge fault. The benefit afforded by insurance is the “duty to defend.” It’s much less stressful when you have experts to help you respond, including your broker, the insurance company, adjuster, and, if needed, your legal team.
Contract Insurance Requests and When to Push Back
Your clients may ask you to send proof of coverage for general liability, workers’ compensation, and/or professional liability insurance. You may also have a contractual obligation to a landlord, or statutory requirements such as state workers’ compensation laws. It’s worth knowing that while they may give you expectations for kinds of coverage and a desired limit, there may be room to negotiate some coverage requests. This is because many businesses send vendors boilerplate insurance requirements with one-size-fits-all limits. Share these requests with an insurance broker who can help you appreciate where the request may be more than is needed for a business like yours. You can then have a basis to approach your client with a reasonable and thought-out request to adjust those requirements. This can save you the headache of trying to secure $4 million in coverage for a contract that is going to earn you five figures.
Insurance Coverages and Products
A. General Liability/Business Owners’ Insurance
This is the most common insurance requirement you will be asked for. It is also the most common and affordable insurance for small-business owners.
A business owners’ policy (BOP) is a packaged policy that includes both general liability and property coverage. General liability coverage is triggered by causing physical damage to someone else’s property or causing bodily harm to someone. Property coverage is coverage for your own business property, such as your office furniture, computers, and even digital property.
For contract purposes, general liability coverage will be the most commonly requested, and also the request least likely to be waived. Fortunately for you, it is also the least expensive. On the other hand, it is also the insurance you are least likely to use. Due to the nature of your business, you are not very likely to cause physical damage to the property of others, have someone get injured at your place of business, or have an employee suffer a severe work accident.
When to Buy and What to Ask
If this coverage isn’t required by a contract, you likely aren’t going to use this insurance, so this is a good place to save some money. However, when operating a small business, make sure to ask your personal insurer (i.e., regarding your homeowners’ or renters’ insurance) what coverage you have for your business property at your home, and if there are any exclusions on your policy.
B. Professional Liability/Errors and Omissions Insurance
This type of policy is common among businesses providing a professional service to others; lawyers, insurance brokers, and research consultants like you are all professionals who would commonly purchase professional liability insurance. These policies have their coverage triggered by a third-party financial loss caused by an error or omission made by the insured.
As an example of a covered claim that could lead to a financial loss, an accounting firm could make a clerical error while filing taxes, resulting in penalties to their client. Any analogous situation with QRCA members’ contractual obligations and professional services would probably result in a client loss that is less direct, and also more complicated to precisely estimate. However, as an outside vendor providing professional services, if a loss occurs, clients could potentially look at their vendors and partners to cover any real or perceived damages.
When to Buy and What to Ask
This type of coverage is much more likely to be useful to you. As a professional providing a service for a fee, you can ask yourself two simple questions. “If I make a mistake, will it cause financial damages to my client? Furthermore, are my clients likely to seek damages through a lawsuit?”
Whether or not you feel a claim would be justified, the “duty to defend” benefit of carrying insurance alone may give you reason enough to consider the value of the policy when weighed against the premium.
C. Cyber Liability Insurance
Broadly, cyber liability insurance provides coverage for breaches and loss of private data—including clients’ data in your care. Such data could possibly include things such as a client’s list of key opinion leaders and their contact information, or confidential details about their upcoming products or services.
Many cyber policies will also cover other types of hacker attacks even if they don’t come directly for your data, such as email and phone phishing. For instance, some policies cover you if someone posing as your client through the phone or a fake email address tricks you into sending them private information.
You might be thinking, “I’ve been very careful about how I share information. I already take steps to protect mine and my clients’ data via password-protected laptops, two-step authentication, cloud storage, and more.” These steps clearly reduce the likelihood of a breach, but they do not eliminate the possibility. Despite the rapid adoption of all these hack protection technologies and steps, data breaches have risen by 15–20 percent every year for the past five years. In fact, these types of breaches have become so common that most homeowner carriers now also offer cyber coverage options.
Cyber policies protect more than client-related data losses. These policies also provide coverage for your own data. Common types of cyberattacks will lock your computers and hold them for ransom, or even threaten to wipe all your data. Cyber coverage can help replace the cost of your own lost data, and can also include coverage for lost business income, while you attempt to redo your lost work.
This is the most complicated coverage with the broadest terms, and it often has some crossover with professional liability. A broker can help you understand the different product options available to you.
When to Buy and What to Ask
Purchasing cyber insurance coverage is one of the more critical insurance types to purchase if operating a business that handles third-party data—as many consultants do. But how much do you need?
In the event of a data breach, QRCA members will not stand alone; you are part of a team that includes your clients, colleagues, and vendors. All of them should carry their own cyber policies. Furthermore, there should be a clear policy of handling data transfer and storage among partners on a project. Things like using a cloud solution for transferring data back and forth, or public workspace policies, should be discussed before starting a project.
How Much Is Too Much or Not Enough
Just like with professional liability, the limits you purchase should be in line with the size of your business. While $1 million general liability limits are fairly standard, cyber liability insurance costs can go up significantly when raising your limits from $100,000 to $1 million.
Closing Take-Aways
Given all the above, it is critical to review quotes from an insurance broker for all these coverages and to make a cost-benefit analysis for your business. Due to differences across businesses (e.g., size, research services offered, nature of data handled), it’s nearly impossible to give a specific answer that will be appropriate for all qualitative consultants regarding how much insurance to buy.
You should feel free, however, to question and push back on insurance requests from your clients. Are you a sole proprietor? If so, you really shouldn’t need to carry policies such as workers’ compensation. Are you doing all your work remotely? Then you really shouldn’t need auto liability.
Just as with any other business expense, companies and people selling business insurance to you will often sell you as much as you are willing to purchase. Just because higher limits or additional coverages are made available to you, it does not mean they make sense for your business. It is important to have a comprehensive discussion about your business’ risks, your risk threshold for your business, and your financial flexibility to purchase insurance in order to transfer that risk. Your broker can and should tailor policy recommendations based on your specific business. Insurance agents are not just there to be a transactional method for you to purchase insurance. We are there to present options and offer insight and advice on what each insurance product is for and what your specific business may need.
