Massachusetts Business Insurance: A Guide to Understanding Your Options
As more and more companies make their homes in the Bay State, “MA business insurance” is an increasingly popular topic. Why so much commercial growth? Sources credit our region’s abundance of top-tier schools, educated graduates, a strong economy, and the overall high quality of living. In fact, one 2019 study found that Massachusetts is the best place to start a business in the U.S. So, if you’re fortunate enough to own or run a business in MA, what do you need to know about protecting it? The following info should help answer your biggest questions.
- What Is Business Insurance?
- What Are the Required Types of MA Business Insurance?
- How Much Does Business Insurance Cost?
- The Role of Business Insurance Agents
- How Much Insurance Coverage Does Your Business Need?
- How to Get Business Insurance Coverage
- Other FAQs
What is business insurance?
Business insurance is essentially a protection plan, designed to ensure that a company doesn’t suffer serious financial losses in the aftermath of a physical disaster, an employee injury, or a customer lawsuit. Lots of other things can go wrong within a business, of course, but these are some of insurance’s most common use cases. Recent data suggests that a small business has about a 40% chance of incurring a significant property or liability loss in a ten-year period.
Most often, having “business insurance” means having a collection of different policies. These individual policies address different types of business risk, or exposures. Some policies are required by law; others just make good financial sense. Major categories of business risk (along with their prevalence among small businesses) include:
In addition to buying policies for after-the-fact protection, small business insurance should include some element of risk management and loss control services. Risk management is a proactive part of any good business insurance program. It should be implemented by a knowledgeable business insurance agent. Learn more about the value of business insurance agents below.
What kind of insurance does a small business need?
Small business insurance is an incredibly varied product. The coverages needed depend on the size and type of business at hand. Very small companies may be able to bundle all the required/recommended types of coverage into a single “BOP,” a.k.a. a business owner’s policy. Larger companies (or those with unique risks) may need a more tailored approach—buying some combination of standalone policies to address very specific exposures. A landscaper, for example, may need coverage for pesticide and herbicide application, which a retail store or restaurant owner does not need. Conversely, the restaurant owner might need coverage for liquor liability, which the landscaper doesn’t need.
To make matters a bit more complicated, different business insurance carriers slice and dice their product offerings in different ways—some offer an a la carte menu; some offer comprehensive, specialty programs that cater to specific industries. As new risks emerge, and as commercial insurance offerings evolve, business insurance agents have become essential partners and advisors—available to help you navigate today’s many options.
Contact our team of business insurance advisors—508.339.2951—to learn more about the types and levels of coverage your business should consider.
How much does business insurance cost?
Business insurance costs, per year, run an enormously wide range—from a few hundred dollars at the least, up to millions of dollars for the largest corporations. Broadly speaking, the cost of your business insurance will depend on your industry, the size of your company—in terms of gross sales and payroll, and your insurance track record (i.e. any past claims filed or safety issues on record).
Some business insurance coverages are priced according to very specific underwriting or “rating factors.” The cost of workers’ compensation coverage, for example, is determined by how many employees you have and the type(s) of work they perform. Each worker is assigned a class code; different class codes are more or less expensive, depending on how risky the work is (e.g. clerical work versus electrical work). Commercial auto insurance pricing, meanwhile, is primarily based on the number and type of vehicles or heavy equipment your company uses. Again, your loss history also plays a role in these annual premiums.
For a closer look at the rating factors that influence cost, read more about each type of business insurance (listed below).
What do business insurance agents do?
Business insurance agents act as advocates for company owners and leaders, by securing all the necessary types of protection, with optimal coverage limits. The best business agents have access to many different commercial insurance carriers (we work with three dozen!), which translates into more options and more competitive rates. Thanks to longstanding relationships with top-tier carriers (and their underwriters), agents like ours also have leverage to negotiate. For businesses with less-than-ideal loss histories, complex risk profiles, or startup status (owners looking for first-time coverage), an experienced insurance agent is an invaluable resource.
Business insurance agents also act as advisors. They help businesses evaluate and adjust certain aspects of operations that may be creating unnecessary risks. (Employee training, safety manuals, or lack thereof are good examples.) This kind of support—also known as risk management—helps companies reduce the number of loss events they suffer, which in turn can help to lower their insurance rates, year after year.
Business insurance agents can actually improve a company’s bottom line, too. In part, agents boost businesses by providing proof of insurance to prospective customers, or recommending safety procedures that help a business outshine its competitors. For larger companies—e.g. builders and contractors who bid on multi-faceted jobs—insurance agents make sure all the coverages in place align with the project’s requirements, which can help in winning contracts.
Finally, good agents help businesses stay in front of emerging risks. As tools and technologies advance, and as the world around us changes (think of the recent coronavirus pandemic, increasingly sophisticated cyber attacks, the MeToo movement, political riots, etc.), business owners need partners who will anticipate gaps in their coverage.
What are the requirements for Massachusetts business insurance?
In the state of Massachusetts, there are only two required types of business insurance:
- Workers’ compensation insurance
- Commercial auto insurance (unless your business never owns or hires any vehicles)
Beyond these two Massachusetts commercial insurance requirements, many companies opt to purchase a series of recommended coverages. Below is a closer look at the required and recommended coverage for business insurance in MA:
WORKERS COMP INSURANCE
Is workers’ comp required?: YES
What does workers’ comp cost:? Several hundred to several million/year
All Massachusetts businesses—regardless of size or employee count—are required to carry workers’ comp insurance. (There are a few rare exceptions to this rule.) Workers’ comp is designed to pay your employees’ medical expenses and/or lost wages, in the event they are injured or become ill as a result of job-related duties. In most cases, when workers’ comp is in place, an injured employee cannot additionally file a lawsuit against your company for damages.
Workers’ comp insurance is one area that demands an expert advisor. The formulas used to derive your workers’ comp premium are complex. Class codes are often misused. Annual audits often contain errors. Without an attentive agent in their corner, many businesses overpay, year after year. Read more about Massachusetts workers’ comp.
COMMERCIAL AUTO INSURANCE
Is commercial auto insurance required?: YES (if you register any commercial vehicles)
What does commercial auto insurance cost? Several hundred to several million/year
Commercial auto insurance is compulsory in Massachusetts. You need this coverage in order to register and drive a commercial vehicle. The Bay State sets minimum required limits as follows: Bodily injury liability: $20,000 per person / $40,000 per accident; property damage liability: $5,000 per accident; uninsured motorist coverage: $20,000 per person / $40,000 per accident; personal injury protection: $8,000.
When it comes to protecting employee drivers and larger fleets, it often makes sense to secure higher limits and added coverage (i.e. an umbrella policy), above and beyond what the state requires.
Business owners should also be mindful of commercial auto exposures that exist when employees take company vehicles home for personal use, or conversely, drive their own cars for work purposes. Read more about insurance for commercial trucks and commercial auto insurance in general.
BUSINESS OWNER’S POLICY (BOP INSURANCE)
Highly Recommended for Small Businesses
What does BOP insurance cost?: Several hundred dollars to several thousand dollars per year
A business owner’s policy is an insurance package designed for small business owners. Typically, a BOP bundles together key coverages like general liability, business income, commercial property and equipment coverage. Companies can also purchase add-on coverages (like the examples below) to supplement a basic BOP. Notably, a BOP does NOT include workers’ compensation insurance or commercial auto coverage.
GENERAL LIABILITY INSURANCE
What does general liability insurance cost?: Several hundred to several million/year
Commercial general liability (CGL) coverage is designed to protect your company against third-party claims of property damage, bodily injury, or advertising injuries/reputational harm. If you own a store for example, and a customer breaks her hip on your wet floor, general liability steps in. If you’re a contractor, and you smash a window while carrying plywood into a client’s house, general liability steps in. If your employee falsely accuses a competitor of bad practices, inciting lost business and a lawsuit, general liability steps in. According to a 2015 business insurance survey, 35% of all general liability claims result in lawsuits. These lawsuits, in turn, average $75,000 to defend/settle.
CGL coverage can be purchased as part of a BOP or on its own.
COMMERCIAL PROPERTY INSURANCE
Whereas general liability covers other people’s property, commercial property coverage is designed to protect your place of business and the contents it contains. Commercial property coverage most often addresses fire damage, burglaries, extreme weather damage, and vandalism. In fact, between 2010 and 2015, fires affected one in ten small businesses—with an average cost of $35,000 per claim. Even if you run a home-based business out of your basement or garage, commercial property coverage is worth exploring.
Commercial property coverage can be purchased as part of a BOP or on its own.
PROFESSIONAL LIABILITY INSURANCE (E&O)
Professional liability insurance exists to protect your company against mistakes, negligence, and bad advice. Whereas general liability most often pertains to physical damage (a broken bone, a smashed window), professional liability losses are often financial in nature. But that doesn’t mean this type of coverage is reserved strictly for lawyers, accountants, and financial advisors.
Let’s say, for example, you run a painting company. Your crew accidentally applies oil-based paint over a coat of latex, which later results in bubbles on the surface. Your client’s property isn’t immediately damaged, but it will cost money to re-do the job correctly. This is where professional liability steps in. It’s worth noting that professional liability policies can be written for specific projects (e.g. large construction or design projects), and may be created with “long-tail” reporting periods of up to 10 years, for damages that develop over time.
BUSINESS INCOME INSURANCE
Business income insurance, a.k.a. business interruption insurance, is coverage that steps in during a business slow down or shut down. Common triggering events include natural hazards like hurricanes, blizzards, etc. But fire is the most likely culprit, with nearly 60% of all business income claims resulting from fires or explosions, according to a 2018 global claims review. Not every type of business interruption is covered by a standard B.I. policy. (At the moment, a well-known exclusion is the coronavirus pandemic.) But generally speaking, B.I. coverage is designed to keep you and your employees afloat—by addressing lost income, regular operating expenses, and payroll—until normal operations resume.
CYBER LIABILITY/DATA BREACH INSURANCE
Today’s small businesses (those with fewer than 1,000 employees) are increasingly popular targets among cyber criminals. Two-thirds have already experienced a cyber attack; more than half (58%) have suffered some sort of data breach, according to a 2018 survey. Given the new requirements about how business must report cyber attacks, it’s important that owners fully understand what they are, who’s at risk, and how cyber attack insurance can address the resulting losses—which now total $36,000 – $50,000, on average—as well as help to prevent attacks from happening in the first place.
EMPLOYMENT PRACTICES LIABILITY INSURANCE
Employment practices liability insurance (EPLI) is a type of coverage that virtually every business needs, but most (roughly 70%) do not have. EPLI addresses claims of wrongful employment practices—including sexual harassment, discrimination (based on race, sex, age, and other protected categories), wrongful termination, breach of employment contract, wrongful discipline, denying a promotion or other career opportunity, illegal background checks, and more. EPLI protects business owners from employee lawsuits—stepping in to cover legal defense and settlement costs—as well as claims against company managers and supervisors.
COMMERCIAL FLOOD INSURANCE
Many business owners don’t realize that flood insurance is not automatically included in their commercial property coverage, and needs to be purchased separately. Flood coverage can protect your building’s structure (including electrical and plumbing systems) and valuable contents. Commercial flood insurance is important to have, even if your business is not located near the coast or in a flood zone; downpours and rapid thaws can happen anywhere. And according to FEMA, the average commercial flood claim now totals $90,000—a significant sum to pay out of pocket. (Note that not every type of water damage counts as a “flood,” and not every aspect of property is covered. Ask your business insurance agent how best to address common exclusions.)
COMMERCIAL UMBRELLA INSURANCE
Commercial umbrella insurance functions as an extension of your other business liability policies. Remember, each policy has its own limit. If a loss event results in damages that exceed the limit, an umbrella policy can step in the bridge the gap. Commercial umbrella insurance can “sit on top of” several different business insurance policies, which makes it more efficient than simply increasing the limits on all of them.
Not every business needs this extra coverage, but it often makes sense for companies that perform work on other people’s property, are open to the public, or provide dangerous services (roofing, construction, tree service, etc.). In some cases, it makes sense to purchase commercial umbrella coverage from a different carrier, rather than the one who handles your other business policies.
For contracting businesses, surety bonds are another required protection—in addition to liability and workers’ comp insurance. Bonds fall into two broad categories: contract bonds and commercial bonds. In the first case, contract bonds are designed to protect against financial losses if a contractor fails to meet contract requirements. Types of contract bonds include bid, performance, and payment bonds. In the second case, commercial bonds are more regulatory-related. When it comes to business insurance, the most common type of commercial bond is a license or permit bond, which ensures that contractors follow all the relevant laws and regulations associated with a given project. It’s important to note that bonds aren’t really insurance policies. They function more like a line of credit in the sense that, if they are tapped, the contractor needs to pay the bond issuer back eventually.
How much insurance coverage does a business need?
The amount of coverage you have available through a particular policy is your policy limit. Commercial insurance policies often come with two types of limits: per occurrence and aggregate limits. Per occurrence is the maximum amount of protection you have for any individual incident. Aggregate is the maximum amount of coverage you have for the entire year (or the length of your policy term). So, if you have $1 million in both per occurrence and aggregate liability limits, and you experience a loss event that costs $1.5 million, you’re effectively paying $500,000 out of pocket for this loss…and any future losses that crop up within the year. (Unless you had umbrella insurance.) Needless to say, it makes sense to review both sets of limits carefully, with an agent who has experience in your industry.
Just like price, recommended coverage limits are dependent on a variety of factors unique to your company. In some cases, third parties (like your landlord or your clients) may require you to carry certain levels of coverage. As your business grows and evolves, it often makes sense to revisit your various policy limits—another reason your business insurance agent should check in with you regularly, throughout the year.
How can businesses get insurance policies? Where and how to shop?
Before you shop for business insurance, you’ll want to shop for a reputable business insurance agency. There are several reasons to find an agent before attempting to buy the actual coverage. First, many commercial insurance companies don’t sell directly to customers. They rely on agents, who understand the underwriting process, to gather required information and present it in a standardized way. Even in cases where carriers are willing to work with commercial clients directly, you lose the advantage of competitive terms and pricing when you go directly to one insurer. An independent agency will work on your behalf to find the best options