CHICAGO — Insurance coverage is essential for every small business, but just how much do you know about it? Do you understand the difference between property and liability coverage? The relationship between your deductible and your premium? Where your coin laundry is most at risk of a claim?
American Coin-Op invited representatives from the industry’s major insurance providers to answer some basic insurance questions that the average self-service laundry owner might have.
Q: Describe the relationship between the deductible and insurance premiums. How can one ensure a small business is adequately covered while choosing a plan that's affordable?
Jodie Millino, account executive, Wells Fargo Insurance Services: When purchasing business insurance, remember that premiums are determined by many factors, some of which include receipt levels, deductible sizes, construction of buildings, whether the store has an automatic sprinkler system, burglar alarms, cameras and, of course, what limits of coverage you choose.
Be sensible when selecting each item. We always recommend higher deductibles since it reduces cost but, more importantly, keeps you from turning in small nuisance claims, which can reduce your experience credits on renewal(s).
Ann Hawkins, underwriter/vice president, NIE: The typical small-business policy now has a standard $1,000 deductible. That deductible can be increased, but the savings to increase it is minimal. My suggestion is to buy the coverage you need to replace building, business personal property and loss of income, at the very least, along with liability coverage.
Remember that replacement of business personal property should include delivery, installation and taxes, because they are included in your limit and are paid at the time of a loss. I believe the $1,000 deductible is your best bet.
Larry Trapani, president, Brooks Waterburn Corp.: There is an inverse relationship between deductible and premium. The higher the deductible, the lower the premium. Typically, I suggest a minimum deductible of $1,000. If values are higher, I encourage higher deductibles like $2,500 or $5,000.
As an agent, I want to make sure you are protected from large, catastrophic-type losses. A $700 glass claim is probably not going to make or break a business. But if you put in several small claims, it will affect your insurability.
Insurance companies take a dim view on those who put in many small claims. They feel they are using the insurance as a maintenance policy rather than protection from catastrophic losses. Your rates will increase or, worse, you may not be able to secure insurance. The moral of the story is to keep a reasonably high deductible. It will give you a premium discount and prevent you from filing small claims.
Adam Weber, president, Irving Weber Associates (IWA): Insurance premiums vary based on many factors. One of these factors is the deductible chosen. Basically, the lower the deductible, the higher the premium. Therefore, it is important to weigh this in your choice of deductible.
For instance, if you save $500 on the premium by choosing $1,000 deductible, in two years (without a claim) you could have made back what the deductible would be in the event of a claim.
Q: Where are the greatest areas of risk in and around the average coin laundry?
Weber: When looking at the risks involved in operating a coin laundry, probably the biggest risk would come from liability, meaning someone getting hurt on the premises due to negligence, such as someone slipping on water on the floor, or mats causing tripping, etc.
Also, large storms can be a problem, causing damage to the premises, glass and signs as well as causing the business to be closed for a time, with loss of income.
Hawkins: The greatest areas of risk in a coin laundry are usually related to lack of maintenance.
Lint should be cleaned from dryers on a daily basis, because lint is the leading cause of dryer fires. All equipment should be checked for sharp edges on a regular basis to be sure that customers do not cut themselves. Leaking machines are the main cause of slip-and-falls. Unsteady furniture can also contribute to bodily injury, as can stools that are used to reach machines with controls that can’t be reached from the floor.
Millino: Interestingly enough, the two largest and most costly types of claims are fire (property-type losses) and, as you would expect, slip-and-falls and large property-damage claims to buildings in which you are a lessee (tenant).
Major property losses we have seen over the years come from poor maintenance, faulty wiring and unmaintained equipment; dryer ducts that have not been cleaned professionally; overheating in dryers with flammable materials put inside by customers; storage of flammable cleaning supplies around hot water heaters; and, in some cases, arson by vandals in unattended stores.
Liability claims range from slip-and-falls as a result of improper store maintenance, and bodily injury to customers by leaving equipment open to the public, to large fires starting in the laundry and burning down other businesses, and structure damage within the building occupied by the laundry (property damage liability exposure).
Trapani: By far the greatest area of risk is dryer fires. Typically, these are caused when a customer puts in items that are oily or contain some flammable elements that were not properly washed out. The heat of the dryer ignites the material. Matters are made worse by opening the dryer and feeding it oxygen. A proper maintenance program can help reduce the risk of dryer fires. For example, having vents professionally cleaned on a regular basis will greatly reduce the chance of dryer fires.
Another type of claim we see often are liability claims in which children pull down folding tables on top of themselves. While we hope parents are properly supervising their kids, often they do not. The solution here is to bolt the tables securely in the floor.
Q: What would you consider to be the minimum insurance coverage a coin laundry should have, and why?
Hawkins: I covered this in a previous answer. These are the minimum coverages, but many other add-ons can be taken such as money, sign, bailee, accounts receivable, valuable papers and many other items.
Millino: When purchasing insurance for a coin laundry, make certain you are in full compliance with your lease obligations if you are a tenant, that your limits of property insurance are adequate to replace your equipment and/or building (if you own the building). Also, make certain if you are borrowing or leasing equipment that your lender is protected and you are in full compliance with your purchase or lease agreement.
Avoid words in lease agreements and purchase/lease equipment agreements that say you must be insured on an “all risk” basis. There is no insurance policy that covers “all risks,” and every policy has exclusions, the biggest being earthquake and floods.
Trapani: For liability, I would like to see a minimum of $1 million of protection. If you do deliveries, include “Hired and Non-Owned” coverage. The reason for this is simple. In today’s litigious society, lawsuits are common and the cost of liability insurance is relatively low. It’s an inexpensive way to protect your business.
For property insurance, you should protect yourself for the full replacement cost of your equipment and buildout (if any). Ask yourself, “If my business burns down, how much would I need to make myself whole again?” A large deductible will keep the premium lower, but if you have to take a $50,000 hit because you don’t have proper insurance, it may mean the difference between re-opening or not.
Weber: The minimum liability coverage would be $1 million per occurrence and $2 million aggregate (over the term of the policy, usually one year). We also recommend getting an “Umbrella,” which will add to the coverage over and above the coverage of the regular policy. Umbrellas can be inexpensive, therefore we suggest as high an umbrella limit as you can get. As far as property coverages, that would depend on the cost of the building and equipment.
Q: What aspect of small-business insurance is the most misunderstood?
Millino: Many times, when a claim does occur, the owner is in a bit of shock, has normally never experienced a large claim and needs guidance through the process. Most important is that you keep adequate records of receipts, expenses, costs, payroll components, etc. Even with documentation, we see the coverage under property that is commonly misunderstood is business income loss.
It is not your gross sales but net income plus continuing expenses, including some payroll. You will need to prove your loss on this coverage by records, bank statements, prior receipts, deposits, etc. Insurance carriers historically will tell you what you need to prove your actual loss, but your word alone will not settle the claim.
Trapani: The hardest question that I have to answer is “I haven’t had any claims, so why are my premiums going up?” That’s a good question. After all, it hardly seems fair to raise your rates if you run a good shop and don’t put in any claims. The answer to that is not easily understood.
Basically, for small businesses, insurance companies consider the class of business as a whole rather than the individual risk. If the Laundromats class as a whole is not doing well, the insurance company will raise the rates for the entire class. Sadly, many insurance companies have found this to be the case. They are losing money on Laundromats and have either raised premiums or, worse, stopped writing them completely.
Weber: Small-business owners are usually careful how they spend their income, which, in this day and age, is understandable. They see the cost of business insurance, and they look for ways to save. Sometimes, in an effort to save money, the business owner will not get proper coverage. In the event of a claim, the savings they thought they were getting could actually destroy their business.
Coin laundry owners need to understand the importance of properly protecting their business, which is usually the biggest asset they own.
Hawkins: I believe the most misunderstood aspect of small-business insurance is the insured asking for the limit of his loan and not the limit of the equipment he has. At the time of a loss, the insurance company will only pay for the equipment, and often the equipment is overinsured due to a loan that includes start-up costs and not just equipment.
Q: What is the single most important thing to remember regarding small-business insurance?
Trapani: The most important thing to remember is that small-business insurance is about protecting your biggest investment. You invested your life savings into this business. You work many hours in making your business successful. Take the time to become educated and protect your investment. Sit down with an agent who has experience in your industry and together come up with a protection plan that will help you sleep at night.
Weber: Business insurance is in place to protect the business owner as well as their customers. Without proper coverage, a single claim could completely wipe out an entire business.
Hawkins: The most important thing to remember regarding small-business insurance is to ask questions when you are buying the insurance and then read the policy when you receive it. No one likes a surprise after they have had a loss.
Make sure you and your agent have the same understanding of the coverage you have and don’t have. If you don’t take time to read the entire policy, at least read the exclusions so you can add on anything that may be important to you. Most of the exclusions can be added by endorsement for additional premium.
Q: Do you have any other comments regarding small-business insurance and coin laundry coverage that you'd like to share?
Hawkins: Coin laundries often have an independent contractor doing wash/dry/fold at their facility. These contractors are not employees, and they keep the money they make on the wash/dry/fold. There is usually not an actual “contract” written up between the owner and the contractor, which is not ideal. If this person is hurt on the insured’s premises, he or she can sue the insured. Rather than have a “contractor,” hire this person as an employee and purchase a workers’ compensation policy for them. That way, injuries will always be covered.
Millino: It would seem important, in a specialized industry like the coin laundry business, to discuss your insurance needs with a broker that understands the class.
Trapani: Insurance-wise, these are not the best of times for Laundromats. The reality is that insurance companies are not making money on Laundromat insurance. That means they are paying out more in claims than they are taking in premiums. Regardless of why it is happening, it means higher premiums and fewer choices for you.
What can you do about it? First and foremost, don’t hide any information such as loss history, attended vs. unattended, or hours of operation from your agent or insurance company. While it may save you a little money in the short run, it may result in a claim being denied. Also, the insurance companies will lose money and eventually stop writing the Laundromat class of business. In the long run, it will cost you more.
Second, run a good operation. Have a safety program, keep the place clean and well-lit, and have a security system that includes a central station alarm and cameras.
Bottom line, if we all work together to keep our risk of loss to a minimum, insurers will flock to our industry and insurance premiums will go down.