Walking the Wire Tempted to forgo insurance because you're a startup? Think twice. It <i>is</i> possible to get the protection you need.
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Q: I'm starting a homebasedbusiness that does background checks. Do I need errors andomissions (E&O) insurance? I'm having a hard time findingsomeone to carry my tiny business.
A: Your business will definitelyneed E&O insurance and for two reasons: First, in today'semployment environment, it's not uncommon for lawsuits to ariserelated to background- checking issues if something's beenmissed or overlooked. Second, clients feel greater safety inworking with firms that have insurance protection, which gives youa definite edge. Many such firms promote that they're insuredand bonded on their Web sites, business cards and vehiclesignage.
Business owners are often so passionate about their newbusinesses that they tend to overlook the liability risks thatbeing in business can bring. So you're to be commended forattending to such matters now, as you start your business.
When you're ready to find a policy, try these suggestions,which will work for almost any kind of business:
1. Go to yourindustry's trade association. Typically, trade andprofessional associations, business organizations and, sometimes,even local chambers of commerce offer the best buys on E&Oinsurance, so look here first. While there doesn't appear to beany trade association specific to firms that do background checks,there are more than a dozen organizations for the professionalinvestigation and security industries, such as the National Association ofLegal Investigators. You can contact these organizations anddetermine if joining will enable you to get insurance, or they maypoint you in the right direction to find brokers who specialize inyour industry.
2. Start your ownassociation. Since there's no organization for thebackground-checking industry, you might consider starting yourown-that's what Donna Maria Coles Johnson did. When shecouldn't find an existing association to provide coverage foran aromatherapy business she once owned, Coles Johnson took mattersinto her own hands and formed the Handmade BeautyNetwork, a beauty products trade association. She then locatedan insurance broker specializing in insuring natural and herbalproducts who would work with her association members. If you haveleadership skills and would enjoy such a challenge, you might dothe same in your field.
3. Minimize your riskof personal exposure by how you organize your business. Thetwo primary ways of doing this are by incorporating your businessor by structuring it as an LLC. You can read more about it inForm Your Own Limited Liability Companyby Anthony Mancuso. In this book, Mancuso, who has also written abook on forming a corporation, compares LLCs with other businessforms.
As your firm gets beyond the startup stage and generatesrevenue, it will be easier to get insurance. For example, InsurePro is anonline agency specializing in various forms of business liabilityinsurance. It has a page on its Web site that discusses the risksinherent in background checking. Though located in New York City,it's licensed in most states, but only works with companiesthat exceed $1 million in revenue. Professional Liability Insurance Services isanother firm that specializes in E&O insurance, and it listsmore than 150 business categories it provides E&O coverage for.But because it places insurance through Lloyd's of London,don't expect any bargains.
