Does your business client have the right amount of liability insurance coverage?  What is a co-insurance penalty?  Is your client covered for a product recall?  What is cyber liability coverage and should your client have it?

If your business client has these or other insurance questions, it's time for an insurance audit.

What is an Insurance Audit?
An insurance audit is an examination of a business's liabilities and insurance policies performed by a professional who is knowledgeable with regard to both.  Members of McNees Wallace & Nurick LLC's Insurance Recovery and Counseling Group regularly perform insurance audits. 

How Does the Insurance Audit Work?

In our practice, an insurance audit involves the following steps:

• An initial meeting or phone conference to discuss the business and its insurance or risk management concerns;
• We then send an insurance audit checklist, which requests the following information:
  • a summary description of the business organization;
  • all insurance policies and endorsements that we are to review;
  • all policy declarations in effect;
  • any summaries of coverage prepared by the business's insurance company or broker; and
  • the company's claims history for the past five years;
• If requested, we physically meet at the business's facility or facilities.

• After reviewing the information, we prepare a written memorandum:
  • summarizing all insurance coverages and liabilities;
  • making recommendations to close any loopholes in coverage and save money on insurance premiums; 
  • advising as to the scope and amount of insurance coverage the business should have.

What are some Hot Insurance Coverages and Liabilities heading into 2014?
The overwhelming majority of business enterprises have coverage for commercial liability, commercial property, and workers' compensation.  But, what are some hot issues and coverages?

• Employment Practices Liability ("EPL").  This coverage protects against claims by prospective, current, and former employees who allege some wrongful conduct in the employment relationship.  Employment claims are a fast growing area of litigation.  More than 60% of businesses now have EPL coverage.
• Cyber Liability.  This coverage protects businesses from hackers who gain unauthorized access to electronic or non-electronic data containing information on customers, such as credit card and social security numbers.
• Directors & Officers Liability ("D&O").  If a business has a board of directors, or people who sit on the board of directors of a profit or not for profit entity, board or individual decision-making could be challenged by a third party through litigation.  D&O covers this liability. 
• Telecommuting.  If a business allows personnel to work remotely from their homes, there are a number of insurance issues raised by this arrangement.  Are these personnel considered employees or independent contractors?  The difference could determine whether they are covered by a workers' compensation policy.  Are there liability concerns within their residence?  Has the business discussed with its broker or company a potential liability claim arising from an employee's residence?  A liability insurer may not consider an employee's home covered under its commercial liability policy. 

These are just a few of the insurance coverage and risk issues facing businesses.  But, keep in mind that every business is unique.  Your client's business may have specific risks and coverage concerns that are not necessarily shared by most business entities.  An insurance audit  is particularly helpful in addressing these unique concerns. 

How Often Should Businesses have an Insurance Audit?

Most businesses should have an insurance audit conducted every two to three years.  If a business has experienced particular growth in revenues, locations, or employees, an insurance audit should be conducted more often.