In my last article, we discussed property exposures. Now, let’s focus on something new, unpredictable, and hard to plan for: will it lead to property damage, third-party liability, or both? Will it affect our company’s reputation with customers and vendors? How did it happen, and who’s responsible?

We’ve covered insurance to value, setting general liability, auto limits, and adding umbrella coverage. We can buy workers’ comp, crime, and D&O insurance, and feel secure. But this exposure is like a ghost—it comes and goes, leaving us wondering, “What just happened?”

If you guessed cyber liability, you’re spot on. If you have a device connected to the internet, you’re exposed—and the risk could be much larger than you imagine.

Large businesses like retailers, manufacturers, and financial institutions have all been victims of cybercrime, but small businesses and individuals aren’t safe either. All 50 states, the federal government, and many foreign countries have cyber liability reporting requirements. Could you be required to report? And, what about your customers? Are they required to report?

Cyber incidents are happening more frequently and with greater impact. Someone in your organization opens the wrong email, your systems go down, and your financial data is encrypted. They demand a ransom. Do they have access to your bank accounts? HR says they might have employee info. Now you’re asking, “What just happened?” and “What do we do now?”

For property, liability, and workers’ comp losses, you call the insurance company. But now you’re wondering: Do we have cyber coverage? Are our limits high enough? Do we have coverage for fines and penalties? Heck, is our own data even covered?

Cyber threats are real and can come from anywhere. And while you handle all this, your business still needs to run!

If you have any questions, contact Tom at Tom.F.Franzen@gmail.com. Tom Franzen is the retained Insurance/Risk Management Consultant for FEMA Services, Inc. Franzen has 45 years’ experience on both the company and agency sides of the business.

In my last article, I promised to delve into “insurance to value” and “coinsurance,” and discuss options to work within the “coinsurance” requirements.

When insuring your commercial property, consider your buildings and personal property through two avenues: “actual cash value” and “replacement cost,” not “market value.” Market value, the cost to purchase the property, doesn’t correlate with insurance values, which are based on “location, location, location.”

Actual cash value (ACV) is defined as replacement cost less depreciation for age. Few properties are insured on an ACV basis because when your building is destroyed or damaged, you want things replaced new for old, without depreciation.

Replacement cost coverage is the cost to replace with like kind and quality at the time of the loss.

As material and labor costs rise, replacement costs increase, necessitating higher insurance levels to meet policy provisions like coinsurance. We’ll explore coinsurance further in the next article.

It’s rare to lose an entire building or all business personal property. So, why can’t we just buy enough coverage for probable losses? For example, if we have a $1,000,000 building at replacement cost, a likely loss might be $200,000. Why not just buy $200,000 of insurance coverage? It doesn’t work that way.

Insurance policies require full replacement cost coverage, 100%, or allow lowering coinsurance to 80-90% of the full replacement cost, making us co-insurers.

The principle behind this is that many people paying premiums cover the losses of a few. This has always been a fundamental insurance principle.
When your agent or broker discusses insurance to value and coinsurance, pay attention. If they don’t mention these terms, ask why and consider finding a different insurance representative.

If you have any questions, contact Tom at Tom.F.Franzen@gmail.com.

Tom Franzen is the retained Insurance/Risk Management Consultant for FEMA Services, Inc. With 45 years in the insurance industry, Franzen has experience on both the company and agency sides of the business.

Cyber liability insurance rates rose the most, up 21.3% in the quarter. Increases in other lines were more moderate, though some approached double digits.

Among the major coverage classes, commercial auto rates climbed 9%, umbrella/excess rates rose 8.7%, property and directors and officers liability were each up 8.3%, professional liability was up 5.6%, general liability rose 5.3%, and workers compensation rates increased 1%.

Midsized accounts — those paying premium of $25,001 to $250,000 — saw the biggest average increase at 7%. Small accounts, $25,000 in premium and below, were up 5.7%; large accounts, $250,001 to $1 million, were up 6%; and jumbo accounts, over $1 million, were up 6.3%, according to MarketScout.