If you're in business today, everybody is trying to sell you insurance: Liability insurance, property insurance, errors and omissions insurance, life insurance, health insurance for your employees. Now there's even something called cyber risk insurance. And that's in addition to those types of insurance you're required by law to pay for, such as unemployment insurance. Which do you really need, and which are just a scam to milk more money out of you? What happens if you "go bare" or elect to self-insure? This article looks at the insurance dilemma from the point of view of the small or mid-sized MSP.
Insurance of any type is all about shifting risk – in this case, from your business to the insurance company, in exchange for which you pay a premium (usually monthly or annually). The insurer then assumes the cost of any loss you incur, within the limitations of the policy, which is a legally binding contract. Here are some types of insurance that the typical MSP should consider:
There are a couple of different types of liability insurance. Commercial General Liability generally covers the cost if someone else makes a claim against your business or sues you when they’re injured on your property, when someone acting under the auspices of your business damages their property, etc. Professional Liability is also called Errors and Omissions insurance. It protects you against lawsuits for loss or damages caused to your clients by your mistakes or negligent actions.
You may find that a specified amount of liability insurance is a condition of doing business with many organizations.
(Another type of liability, Product Liability, is probably not as relevant to your business as an MSP, since you provide a service rather than making a product).
Cyber liability insurance
Cyber liability insurance is a relatively new phenomenon that protects you from legal exposure in case of a data breach that exposes your customers’ credit card information, a virus that brings down your network and results in losses for your clients, copyright infringement claims against your web site, and other tech-related lawsuits. These items are excluded from many standard liability insurance policies. Check your regular policy to make sure you aren’t paying twice for the same coverage.
Umbrella coverage protects you in case of an astronomical jury award in a lawsuit against you or other large loss that exceeds the limits of your regular liability policy. Assess the practical likelihood, given the services you provide, that you are at risk for this type of potential extra-large loss.
This is the standard type of protection that covers physical loss, destruction or damage to your building, equipment and other property belonging to the business. It covers repair or replacement necessitated by such things as theft, fire, weather, etc. The policy might exclude things like floods, earthquakes, acts of war and other exceptions. Be sure to read the policy carefully to understand what is and isn’t covered.
If your business owns vehicles, you will of course need separate automobile liability and comprehensive coverage for them.
Insurance covering business owner(s)
If your MSP is a small or mid-sized non-public company, the company may want to provide life insurance for the business owner(s) to help ensure that the business can survive if one or more of the partners should die.
Insurance covering employees
Under the new Healthcare laws in the U.S., some businesses will be subject to penalties if they don’t provide healthcare insurance for employees. The law is huge and complex, so you may need an attorney to sort out what your obligations and options are. Many businesses provide employee health insurance as a benefit to help attract highly qualified employees. Some businesses also provide employee life insurance, subsidizing part or all of the cost.
Workers’ compensation covers the medical expenses and lost wages of your employees if they’re injured at work, or contract a disease or medical condition through their duties as an employee of your business. This reduces or eliminates the prospect of employees suing for negligence. All states in the U.S. have laws requiring employers to subscribe to workers’ compensation insurance and/or assume liability for workplace injuries. Workers’ compensation programs are run by the state in some states and privatized in others. Other countries have different laws regarding workers’ compensation, so you need to be aware of the law in your particular jurisdiction.
We live in a very litigious society, and employees sue employees for many reasons other than on-the-job injuries. Employment practices liability insurance covers lawsuits for sexual harassment, discrimination, wrongful termination and the like.
This is just a sampling of the types of insurance that a typical MSP may need to consider. For each type, assess your risk and make the decision based on a cost/benefit analysis based on your assets and potential exposure. It may help to talk to an independent professional in the insurance industry (someone who does not benefit from selling you insurance).