Anna Maria, thank you for joining us today on a topic that a lot of people don’t know much about. Can you tell us about what you do, and how you got here?
Thank you for having me.
We’re a third generation family owned business. My grandfather started our company in 1938.
We help individuals as well as businesses with their insurance needs.
An example is business insurance. Whether it’s a startup or a business up to $100 million, we can help them with property, general liability, professional, cyber, and other types of insurance policies.
How does your work intersect with the startup world?
I try to help educate startups, because most startup founders have not run a business. So I try to guide them on what they need for their insurance needs. We give bare bones options and my clients decide.
I also try to explain in depth what they really need. Again, you don’t have to buy it all now, you can always buy it later. I want my clients to know the options that are available.
What do you like about your work?
I really love the work.
Because first of all, it’s different every day.
But I’m also helping people, which I really love to do. My mission really is to get information out to business owners, no matter how experienced they are, about insurance and what their needs are.
I know a lot of people feel anxious, they don’t understand it, they don’t want to deal with it.
I probably speak to four or five times a month, taking the mystery out of business insurance, and try to help people feel a little bit better about it.
Why do entrepreneurs miss thinking about insurance?
First of all, I know a lot of these startups are connected with small business development centers or incubators. And I know that if that a director or person who is directing that incubator doesn’t know about insurance, a lot of times they’re not going to discuss it.
So I’ve reached out to almost every small business development center and tried to give my presentation out to most people.
Another thing is that people don’t know what to ask.
I think they’re nervous.
Then again, when you call an agent, they should be asking you the questions, because we need to find out what you’re doing, what you think you might be doing, what are your plans.
Then we can develop and tailor a product that’s going to help cover you.
Are there examples from your work that come to mind?
Yes, I help at 1871 [a Chicago-based incubator]. Those are mostly tech companies.
When I review their policies, most of them have office policies, and they’re not even being insured for cyber-risk or if they were hacked, for ransomware.
Also, people aren’t informed. A lot of times, they’re 100% e-commerce or they’re 100% online.
If they get hacked and their website goes down, they’re going to have business interruption. You can include that in cyber liability.
One thing I’ve continued to hear for the last seven or eight years is “I wish I had met you earlier, I didn’t know I had to call 10 different people.”
That’s why I started a startup division in my office. Because even if you’re not launching your business, you can call us and ask us questions, we don’t charge anything.
I feel people don’t want to call insurance agents because they don’t know whether they’re going to get charged or not.
They’re not going to get charged, we get commission paid by the insurance company, not by the consumer.
Why do entrepreneurs need to think about insurance? Isn’t it too early?
A lot of startups that call me didn’t even know they needed insurance.
And anybody that’s listening or reading, you can get sued by anybody.
That is one of the reasons you should get insurance because some of these policies offer you an attorney and pay for that, pay for the fines and pay for the settlements. They’re being mentored, and the person that’s mentoring them didn’t discuss it, or even bring it up.
They are talking about marketing, they are probably talking about finances.
But if you don’t own a business and you’re mentoring someone, a lot of times it’s probably going to get missed, because you don’t realize that they need insurance.
So it sounds like it needs to be a checklist item, even for a Business Development Center or incubator.
Right. In the resource centers I work with, that’s one of the questions that they ask everybody, do you have insurance? Do you need an insurance agent or resource?
So they understand that it’s protecting them, the Resource Center.
Because if you know they don’t have insurance, the client or the member, and something happens, they might be the one that’s picking up the coverage for that.
What are the major categories of insurance entrepreneurs need to be thinking about? What do they need to know in each category?
Most businesses should have general liability for property damage, bodily injury and also its complete operations, that is product liability.
So let’s say you’re selling a product, and someone gets sick off of it or hurt because of it, that liability policy will help protect you, the company is going to offer you an attorney and pay for that.
Let’s say you have inventory stored, you should think about insuring that. If you have e-commerce, or you’re even partially using e- commerce as part of your receipts, you’re going to need cyber liability, so it helps cover you.
It is a law for a business to protect their clients’ personal information. A lot of people don’t know that.
Nobody can protect their clients’ personal information. So that’s why everybody really needs cyber insurance, even if it’s just a small amount like $10,000 or $25,000. It’s not that expensive.
Let’s say you’re advising or educating.
You need professional liability, that is, if you get sued because of your professional services. A lot of people don’t realize that.
Most consultants that come to me, they’ve never had insurance. They’ve been in business for 25 years.
And the reason they’re getting it is because whoever they’re working for or hired them, wants them to have it now and is asking them for it.
Are there more?
There are more coverages, for instance, to protect yourself from an employee.
If they sue you for sexual harassment, wrongful termination or discrimination, it’s called Employment Practices Liability, that’s going to protect the employer from the employee, if they sue them.
It also protects the employer if their client sues them because their employee supposedly sexually harassed or discriminated against them.
There’s also directors and officers coverage if you’re a not for profit.
You should never get on a board for a not for profit, unless you have directors and officers insurance.
I would always ask, are you going to be funded by an angel investor or private equity firm? Well, if you are, you’re acting like the board of directors.
And if you don’t have that coverage and something goes wrong with the company, for instance it goes out of business, or it made a bad loan, that private equity firm or angel investor can sue you individually as its owner.
So that’s why you should have directors and officers coverage, or you should be having a conversation with whoever is going to invest with you and say: let’s split this.
I’m surprised private equity firms don’t pay for it. Because if that business owner goes out of business, how are you going to sue them? For what?
So, what is the baseline for an entrepreneur to be thinking about this?
Just remember, anybody can sue.
If you are running a business, and you get sued, do you want to go and pay an attorney five to $800 an hour to either get it thrown out or protect you? Or do you want the insurance policy to help you and pay for it?
I’d rather pay $500 to $1,000, for very small startup a year for insurance, and paying 500 to $800 an hour for an attorney plus all the other documentation and paralegal costs. It makes a lot of sense.
What else should an entrepreneur be thinking about in considering insurance?
There are a lot of things.
There’s employee dishonesty.
Let’s say you have a restaurant and you’re serving liquor, you really need liquor liability. Because if you have a liquor related injury or a lawsuit, general liability is not going to cover that. They are only going to cover if somebody gets sick off your food.
Or let’s say they trip and fall in your dining room. So there are a lot of other little coverages, but those are basically the main ones.
Do you know of any good resources that an entrepreneur can check out on this topic?
There’s nothing really. You could google the subject but there is nothing that I know of.
You just want to get a relationship with an agent. That’s one of the other things I talk about in my presentation.
Look at your business insurance agent or any type of insurance agent like you look at your doctor. The emotional, physical and mental health your doctor is helping you with, if they don’t give you the right medicine or right advice, things can really go wrong,
We’ll look at your business insurance agent, they’re helping you with the health of your business, if they don’t give you options with the right advice and something happens, you can lose your business, you can lose a lot of money.
So you should find someone that is asking a lot of questions.
Another thing I like to say is, do not look at the price first. Look at what it is covering, then look at the pricing.
Can you lay out the essential insurance coverage for different types of businesses?
Sure. We’ll start off with technology. As I said, everybody needs general liability, but they really need cyber liability. They don’t just need expense, they also need business interruption, and liability that is included in that cyber.
They also might need social engineering, social crime or social fraud. That’s basically it for technology. Are you giving advice, then you would need the professional liability.
Can you expand on these terms a bit?
Cyber liability to me is like a cheese pizza, it starts off with expense.
For instance, I don’t know if you’ve ever received a letter from Target or Home Depot saying you were hacked. I know I have. They also offered me credit monitoring. That’s an expense.
But then you can be sued because as I said, it is a law for a business to protect the client’s personal information. So, you want to have liability added on to that.
Let’s say you’re 100% online, you get hacked and your website goes down, you should have business interruption.
If you are one of these tech companies that are taking money online, you need to make sure that PayPal, Stripe, or any of those third party platforms have coverage if they get hacked.
How are they going to handle that? Are you going to have to use your cyber liability? Or are they going to help you with that with your clients? That is really about it.
Now for technology. Now, we could talk about an IT person, let’s say they give advice about something and they don’t give the right advice. They need tech.
For instance we don’t have a 100% IT person on staff, we hired someone to come in.
And if anything happens they’ll help us. For instance, if we need new monitors, or if we need to set up a new computer.
Let’s say you’re in retail.
I like to tell people to never sign a contract or lease without showing your insurance agent the insurance requirements.
Because in these requirements, a lot of times it’s an attorney who’s trying to protect their employee. They are asking for every type of coverage, sometimes for three, four or $5 million, which is a lot.
For instance, I had an architect show me their contract.
The people that were hiring him for the project wanted him to have a million dollars of cyber liability.
Now he didn’t need that. That’s overkill for our project. So I said, have them ask if $50,000 would be okay. Or waive it?
Guess what, they waived it. If he didn’t do that, he would have been paying thousands of dollars more than he needed to. So that’s why it’s important.
Are there more examples for other businesses you can offer?
Take a retail store. You need to have a lease.
There are requirements in that lease. So if your agent didn’t ask you to look at the lease together, we’re not attorneys, but we can see what they want. There might be things in there that we miss out if you don’t show us. We’re not going to be able to protect you with that insurance policy.
Another thing you should have coverage for is the product or the merchandise you have.
Let’s say there is a fire. Many times a lease is asking you to be responsible for the betterments and improvements like lighting, flooring and the paint.
If you don’t know what the lease is asking you to be responsible for, you might not have the right coverage for that.
Also, for employees, you will need workman’s compensation that protects the employee if they get hurt on the job.
It’s also based off of payroll and what that employee is doing.
If somebody is stealing something from you like cash or merchandise, you should have employee dishonesty, also forgery. Somebody might be able to know how to take the money from someone and not register it in the POS system. There are so many creative ways, so you need forgery coverage.
Theft is usually included in the coverage, if you have coverage for property or merchandise.
But then how much merchandise do you have? Are you not only insuring the merchandise?
Now remember, you have to add up the merchandise for the wholesale price.
But then you probably have racks and equipment, you need to give that agent the replacement cost.
So you should add all that up and make sure you have enough if there’s a total loss.
Now I tell people, it’s not the fire. It’s the smoke damage.
So usually, if you have a retail store selling clothing and there’s smoke damage, you have to get rid of all of it. You have to replace everything.
I do a lot of food manufacturers and any manufacturer needs general liability.
Look at the product they are manufacturing. Whatever it is, if it goes out to the consumer and something happens and the consumer sues them for some odd reason that they felt that it was their fault, general liability is going to cover that up to the limit that they have.
It needs to be remembered that all insurance coverages have a limit.
For manufacturers and even the retail store, you should have business interruption.
Because if you have to stop production, if you have to stop selling clothing and close your store up for a while, that business interruption is going to help you and they will help with any of the revenue that you lost.
They will help pay for the employees that can’t work. They’re also going to help you with operating expenses like rent, lighting, electric and so on.
However, the insurance company doesn’t want to you to go out of business. So they continue to financially help your business while you’re waiting for it to be rebuilt.
Somebody that offers financial advice, they want general liability, but they will also need professional liability. If somebody feels that they told them to put their money somewhere and it didn’t work out. You know, it’s covered in professional liability.
For health, wellness and personal services, you want general liability and professional liability.
I know a lot of hairdressers who do not own the business but they are renting a chair.
Many times they think that they’re the owner, that their right to the chair is covering them, but nine times out of 10, they’re not. So they’re going to need general liability and professional liability. And they might need workman’s compensation if they have someone else working for them.
Have you seen any evolution in the way insurance products are designed after the lessons learned from COVID?
Not yet. They changed that and added exclusive exclusion in for a pandemic after SARS, previous to the COVID pandemic.
You can get terrorism coverage. And workman’s compensation is included already.
Because of 9/11, they included terrorism. So you can purchase it or reject it.
If there’s a terrorist attack and you rejected it, you’re not going to be covered, if something happens.
Can an entrepreneur pick a pre-packaged insurance deal based on the type of business they’re starting up? That would make this topic a lot easier.
It’s the add-ons.
You start with general liability, you can add some business, personal property and business interruption.
But what are the other add-ons that you can include?
For instance, a restaurant can add food spoilage. Some companies don’t include foods but if that’s important to you, and you deal with a lot of fresh food daily, you might need to have that kind of coverage.
So it’s built into the design of how you come up with the right policy and coverages after starting with base choices. And then you add things on.
Can you talk about how an entrepreneur should pick the coverage limits? How much is enough?
First of all, I don’t want anybody to be insurance poor, so I would rather see them have something than nothing.
I have a lot of startups that are selling products online. I’m offering them $25,000 of cyber now.
Is that enough? Well, you have to weigh it out. Remember, you can always increase it later. The agent should be reaching out to startups especially after four or five months, to see how things are going and if it should be increased.
Another thing is workman’s compensation. Some of these general liability policies are based off of sales. So how do you know how much you’re really going to sell?
What happens is, after that policy period is over, the company comes back to you, does an audit and says, prove to me what you paid your employees, prove to me what your sales are.
And if you underestimated what you’re going to be paying at the end, if you’ve overestimated, you’re going to be getting a credit. But we like to have it be even. So that’s why we check in with you to make sure you’re on line.
What are the differences between existing business owners versus new startups on insurance coverage?
First of all, I give my presentation to startups as well as companies that have been in business for 20 years.
I do feel that the experienced business owners, because they are experienced with actual business, can ask more questions than someone that’s brand new.
I feel that I am giving them resources and more real life experiences of what could happen versus someone that’s been in the business and knows what can happen.
So with the voice of experience, in the case of an existing business, you’re almost nudging them to say you already know these five things can go wrong, and maybe add on one or two things that they may not be aware of.
Whereas you’re playing much more of a guide, a coach, almost an insurance coach with startups, opening their eyes to their blind spots and helping them protect themselves before they have had that experience. And hopefully not a negative one.
With the startups, it seems like a lot of them just want something to hold them over.
They might have a contract that they want to fill or a lease. Or they want to self insure. I have some that have equipment that they don’t want to insure, right then and there, they just want liability, they don’t care about the property.
And if something happens to it, you don’t get its cost.
What advice would you give entrepreneurs to be smart insurance shoppers? How should they go about buying insurance?
First of all it’s really the relationship with the agent.
There may be warning signs:
An agent isn’t calling you back. You feel like they’re unorganized. They’re not giving you advice. They’re not taking the time out.
That’s when you need to wonder if they are just selling it to make a sale or do they really have my best interest?
Because we should have your best interest. I feel if something happens to you, where am I? What’s going to happen to me? How am I going to feel? What’s my reputation going to be like?
So, the first thing I tell people is get a great relationship with an agent.
Are there other things to watch out for?
This is the first thing when someone calls me and tells me they have two or three other agents working on their quotes, I pass.
In business insurance, whoever gets their application in first to the insurance company blocks everyone else out.
There aren’t that many insurance companies to go around. Especially if you have a specialty market. Like cannabis.
There aren’t many insurance companies that want to write anything to do with cannabis.
So if there’s two or three people, there’s not enough markets going around.
So it’s important as an entrepreneur to be careful how I shop around. How would I make sure that I find the right agent in the first place?
I say, call your resource. Do you have a small business development center that’s around you?
Call associations. If you’re a food manufacturer, there’s the Hatchery. Ask them who their insurance resources are.
Ask other small business owners.
Do you have a mentor? Hopefully they know people.
I would ask that agent, what is your background? Who do you usually insure?
Get to know them.
Again, you can tell when you click and someone really wants to help you.
Are they just selling you insurance? Are they telling you that if you need anything, I can always help you? Do you have an attorney? Do you have a bookkeeper? That’s what I feel is someone that’s going to give me more than just selling insurance.
Once you find the right agent, what happens next? How can I get the best outcomes?
When someone comes here, especially if it’s a small business or startup, they always say they don’t know really what they need.
I tell them, don’t worry about it, let me start asking you.
So I ask them about what the rent is, how many years they’ve been doing it.
Tell me about your process, tell me about your services, I need to know as much as I can.
And then there might be an application they need to fill out, or I might need some of their sales information that they don’t know about.
So that’s the process, I need to get as much information as I can for the application, then I go and shop it. I would give an agent about five to seven days, if you can shop your insurance.
There are two types of insurance agencies.
One’s an independent, which represents many companies. And then there’s a direct writer that only has one.
So State Farm farmers, American family, they have one company, but the independent agent has many. So that’s why I’m saying give them five to seven days because it’s in your best interest.
Then I get the proposals back or quotes. I make a proposal up, I send it to my client, and then I tell them, you should review it as much as you can.
Then we set up an appointment to talk about it.
Do you need to have a lot of information prepared ahead of time?
Not at all. You need to know your entity name, your EIN number. But that’s really easy.
The biggest thing is, when I ask people that are startups, what are your thinking of your gross sales for the next 12 months?
I tell them to be moderate.
Don’t tell me what’s on your business plan or what you wish, because I don’t want anybody to be paying more than they have to in the very beginning. You can always adjust it later.
Is it possible to change coverage three months or six months?
Yes. and if you have a year policy, you can always adjust it either higher or lower, add things to it.
What should an entrepreneur or business owner do Monday morning to take action on this? Is there a list of five things they can do to get started so that they are in a position to come talk to someone like you.
I just tell people, there’s not really much you can really prepare.
I have people call me and set up new business calls.
I just say hopefully you know your entity name, you’re going to know everything else, it is your business. That’s the only advice I can give you, which is knowing your numbers, knowing that you need insurance, then finding the right agent and having the facts at your fingertips or floats.
One of the things I tell people is, you should probably look for an agent about a month or a month and a half before you launch your business.
Because it might take you time to find an agent. You might have to fill out an application. I told you about the process and you don’t really want to be rushed. So you should give yourself about 30 days if you can.
Any other last words of wisdom for an entrepreneur when insurance?
If you don’t feel comfortable on what coverages you have, maybe go back and talk to your agent and ask them to explain it. There are a lot of insurance agents out there, find someone else, or call your mentor or your resource and ask them who they advise for you.
Thank you very much Anna Maria. I’ve personally learned a lot and I’m sure our readers will too.
Thank you very much. It’s been a pleasure.