Good insurance part of smart planning that helps bring some businesses back to the water that keeps pushing them away

The Journal of South Mississippi BusinessJune 10, 2014 

About this time of year, Dr. Mike McCabe gets a little uneasy. He and hurricanes don’t get along very well. One could say he asks for it. But, despite the danger of getting whacked a third time, the same water that has pushed his dental clinic around keeps pulling him back to 16th Street, one block off the beach in Gulfport.

It’s the same street where his father, Dr. Edson McCabe, lost his dental practice after Hurricane Camille came through in 1969. He relocated just down the street at the current location.

In 2005, Katrina once again destroyed the clinic. The McCabe family temporarily moved the practice north to an empty lot on Cowan-Lorraine Road, but rebuilt on the 16th Street property, opening on Oct. 11, 2011. In this case, twice bitten, still not shy.

“We came down here because we just kept looking at the water on pretty days,” McCabe said. “Actually, I like the seas rough; but not hurricane rough. It’s in our blood.”

The insurance

He rebuilt the clinic from 11 feet to over 19 feet to meet code. But he readily admits that should another Katrina-like hurricane come through, it won’t be enough to keep the flood at bay. Like other business owners, he learned a lot about daunting infrastructure issues after a hurricane. He also learned a lot about insurance.

After the initial shock of the destruction, McCabe said the loss of dental crowns he had for his patients was equally devastating.

“I got a bill for almost $10,000,” he said. “It just slapped me in the face. It was, ‘Oh, my God. I’ve got to pay this bill then another $10,000, and I’ve got to get those patients in and new impressions made. The insurance didn’t pay for that.”

But, despite some issues, “We came out well with insurance. Because of what my dad had gone through, we had excess flood insurance.”

A significant problem, he said, was that the insurance company said business interruption was tied to wind and refused to pay anything. It took eight months for a judge to rule that the insurance policies were ambiguous. “He said that if flood comes, it doesn’t matter what comes before. When he made that ruling, the same company that wouldn’t pay wanted to settle. It took a good while.”

Now, McCabe said, his office is “completely and totally covered for flood insurance. The cost of equipment and the building is 100 percent covered.”

He did say he is paying about 9 to 10 times more in premiums that he had been paying. He also has wind coverage.

He went into the private sector to get extra flood insurance, but he warns that flood insurance not offered by the federal government could be about five times more expensive.

McCabe said what helped offset the insurance costs was a temporary tax abatement by the city of Gulfport. He recommends that anyone hoping to build or rebuild should check into any possible tax abatement policies as a small business development incentive.

But probably the biggest lesson he learned in the process: Find someone with knowledge of the insurance industry to file the claim for you.

McCabe and his brother and business partner, Dr. Tim McCabe, filed the initial insurance claim on their property. But with the second go-around, they hired a risk management group.

“The claim was three times what we had filed,” McCabe said. “They (the risk management group) were worth their money. Actually, they were underpaid. What they got us versus what was paid to them was miniscule. “I will never attempt to file a claim again.”

Back in the harbor

Steve Pucheu never gave up his dream of rebuilding his restaurant, Steve’s Marina, back in the Long Beach Harbor. It took seven years, but he says it was worth the wait.

“I didn’t just want it to die and go away,” he said. “There’s nothing else like it on the Coast. It’s one of the best locations. People are just drawn to the water. It’s been our home.”

The delay in coming back was more about infrastructure issues at the harbor than insurance. But he’s well aware of the need for insurance of all kinds. He has flood and wind as well as liability and workman’s comp. His main tip: Buy insurance, but buy smart. Do your research, shop around and know what you are getting.

“I shopped it nationwide, and I shopped it through several people,” he said.

Also, build smart.

His new restaurant is built to withstand 160 mph winds and is above flood grade. He had a good test with Hurricane Isaac in 2012.

“We had a good surge, but it didn’t get to the bottom floor,” Pucheu said. “It tore up stuff that was meant to be torn up. And we built back.”

Some advice

One of the most important steps in the process of starting a business is to do a cash flow project, said Mitch McDowell, business counselor with the Small Business Development Center in Biloxi. “If you do a cash flow, you need to plug into it how much your insurance is going to run.”

He defers to the insurance experts for specific advice, but he does offer suggestions on how to find what you are looking for.

Web-based searches can start with recommendations from the industry related to your business, he said.

“I was in the health and fitness industry, and when I got my insurance, I went to the preferred provider list that specializes in insurance for health clubs,” McDowell said. “The industry website should have a prescreened list. Chambers of commerce are other options to check.”

He recommends getting two or three quotes to better compare pricing and coverage.

While there are many specific kinds of insurance for businesses, one of the most important for those with physical locations on the Coast, he said, is for business interruption in case a storm closes the doors for a significant amount of time.

But what some business owners don’t consider, McDowell said, is adding additional personal insurance.

When people start taking on more liability in their business, McDowell said, they may want to consider additional personal insurance to cover family needs should the owner become injured or disabled. The biggest advice he gives: “Find an agent with whom you feel comfortable – not one who is in it just to make money.”

Legacy of preparation

Hurricane awareness has become part of the McCabe family tradition.

Said McCabe: “My dad went through Camille. I went through Katrina. My son (Dr. Matthew McCabe) said, ‘What about me?’ I said, ‘Yeah, you’ll have to deal with it.’ He’ll learn from us.”

SMALL BUSINESS INSURANCE GUIDE

Types of business insurance

Insurance coverage is available for every conceivable risk your business might face. Cost and amount of coverage of policies vary among insurers. You should discuss your specific business risks and the types of insurance available with your insurance agent or broker. Your agency can advise you on the exact types of insurance you should consider purchasing.

General liability insurance

Business owners purchase general liability insurance to cover legal hassles due to accident, injuries and claims of negligence. These policies protect against payments as the result of bodily injury, property damage, medical expenses, libel, slander, the cost of defending lawsuits, and settlement bonds or judgments required during an appeal procedure.

Product liability insurance

Companies that manufacture, wholesale, distribute, and retail a product may be liable for its safety. Product liability insurance protects against financial loss as a result of a defect product that causes injury or bodily harm. The amount of insurance you should purchase depends on the products you sell or manufacture. A clothing store would have far less risk than a small appliance store, for example.

Professional liability insurance

Business owners providing services should consider having professional liability insurance (also known as errors and omissions insurance). This type of liability coverage protects your business against malpractice, errors, and negligence in provision of services to your customers. Depending on your profession, you may be required by your state government to carry such a policy. For example, physicians are required to purchase malpractice insurance as a condition of practicing in certain states.

Commercial property insurance

Property insurance covers everything related to the loss and damage of company property due to a wide variety of events such as fire, smoke, wind and hail storms, civil disobedience and vandalism. The definition of “property” is broad, and includes lost income, business interruption, buildings, computers, company papers and money. Property insurance policies come in two basic forms: (1) all-risk policies covering a wide-range of incidents and perils except those noted in the policy; (2) peril-specific policies that cover losses from only those perils listed in the policy. Examples of peril-specific policies include fire, flood, crime and business interruption insurance. All-risk policies generally cover risks faced by the average small business, while peril-specific policies are usually purchased when there is high risk of peril in a certain area. Consult your insurance agent or broker about the type of business property insurance best suited for your small business.

Home-based business insurance

Contrary to popular belief, homeowners’ insurance policies do not generally cover home-based business losses. Depending on risks to your business, you may add riders to your homeowners’ policy to cover normal business risks such as property damage. However, homeowners’ policies go only so far in covering home-based businesses and you may need to purchase additional policies.

EMPLOYER Insurance requirements

Businesses with employees are required by law to pay for certain types of insurance: workers’ compensation insurance, unemployment insurance, and, depending on where the business is located, disability insurance.

Workers’ compensation insurance

Businesses with employees are required to carry workers’ compensation insurance coverage through a commercial carrier, on a self-insured basis, or through the state Workers’ Compensation Insurance program. Visit your state’s Workers’ Compensation Office for more information on your state’s program.

Unemployment insurance tax

Businesses with employees are required to pay unemployment insurance taxes under certain conditions. If your business is required to pay these taxes, you must register your business with your state’s workforce agency.

Five tips for buying insurance

Use these steps to assess what types of insurance are best for your business, and how to secure coverage to provide adequate protection and minimize risks.

1. Assess your risks. Insurance companies determine the level of risk they’ll accept when issuing policies. This process is called underwriting. The insurance company reviews your application and determines whether it will provide all or a portion of the coverage being requested. Each underwritten policy carries a premium and a deductible. A premium is the price you pay for insurance. Premiums vary widely among insurance companies, and depend on a number of risk factors, including your business location, building type, local fire protection services, and the amount of insurance you purchase. A deductible is the amount of money you agree to pay when making a claim. Generally, the higher deductible you agree to pay, the lower your premium will be. However, when you agree to take on a high deductible you are taking on some financial risk. So, it’s important to assess your own risks before you go shopping.

2. Shop around. The National Federation of Independent Businesses provides information for choosing insurance to help you assess your risks and to make sure you’ve insured every aspect of your business. The extent and costs of coverage vary from company to company. Some brokers specialize in insuring specific types of business, while others can connect you with policies specific to your business activities. For example, if you operate a tow truck service, you’ll want to find an agent that can help find policies that specifically cover automotive service businesses. Often specialist brokers can get you the best coverage and the best rates.

3. Consider a business owner’s policy. Insurance can be purchased separately or in a package called a business owners’ policy. Purchasing separate policies from different insurers can result in higher total premiums. A BOP combines typical coverage options into a standard package, and is offered at a premium that is less than if each type of coverage was purchased separately. Typically, BOPs consist of covering property, general liability, vehicles, business interruption and other types of coverage common to most types of businesses. BOPs simplify the insurance buying process and can save you money. However, make sure you understand the extent of coverage in any BOP you are considering. Not every type of insurance is included in a BOP. If your business has unique risks, you may require additional coverage.

4. Find a reputable, licensed agent. Commercial insurance brokers can help you find policies that match your business needs. Brokers receive commissions from insurance companies when they sell policies, so it’s important you find a broker that is reputable and is interested in your needs as much as his own. Make sure your broker understands all the risks associated with your business. Finding a good insurance agent is as important as finding a good lawyer or accountant. You should always look for one that has a license. State governments regulate the insurance industry and license insurance brokers. Many states provide a directory of licensed agents.

5. Assess your insurance coverage on an annual basis. As your business grows, so do your liabilities. You don’t want to be caught underinsured should disaster strike. If you have purchased or replaced equipment or expanded operations, you should contact your insurance broker to discuss changes in your business and how they affect your coverage. — www.sba.gov

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