Q: I'm starting a homebased
business that does background checks. Do I need errors and
omissions (E&O) insurance? I'm having a hard time finding
someone to carry my tiny business.
A: Your business will definitely
need E&O insurance and for two reasons: First, in today's
employment environment, it's not uncommon for lawsuits to arise
related to background- checking issues if something's been
missed or overlooked. Second, clients feel greater safety in
working with firms that have insurance protection, which gives you
a definite edge. Many such firms promote that they're insured
and bonded on their Web sites, business cards and vehicle
signage.
Business owners are often so passionate about their new
businesses that they tend to overlook the liability risks that
being in business can bring. So you're to be commended for
attending to such matters now, as you start your business.
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When you're ready to find a policy, try these suggestions,
which will work for almost any kind of business:
1. Go to your
industry's trade association. Typically, trade and
professional associations, business organizations and, sometimes,
even local chambers of commerce offer the best buys on E&O
insurance, so look here first. While there doesn't appear to be
any trade association specific to firms that do background checks,
there are more than a dozen organizations for the professional
investigation and security industries, such as the National Association of
Legal Investigators. You can contact these organizations and
determine if joining will enable you to get insurance, or they may
point you in the right direction to find brokers who specialize in
your industry.
2. Start your own
association. Since there's no organization for the
background-checking industry, you might consider starting your
own-that's what Donna Maria Coles Johnson did. When she
couldn't find an existing association to provide coverage for
an aromatherapy business she once owned, Coles Johnson took matters
into her own hands and formed the Handmade Beauty
Network, a beauty products trade association. She then located
an insurance broker specializing in insuring natural and herbal
products who would work with her association members. If you have
leadership skills and would enjoy such a challenge, you might do
the same in your field.
3. Minimize your risk
of personal exposure by how you organize your business. The
two primary ways of doing this are by incorporating your business
or by structuring it as an LLC. You can read more about it in
Form Your Own Limited Liability Company
by Anthony Mancuso. In this book, Mancuso, who has also written a
book on forming a corporation, compares LLCs with other business
forms.
As your firm gets beyond the startup stage and generates
revenue, it will be easier to get insurance. For example, InsurePro is an
online agency specializing in various forms of business liability
insurance. It has a page on its Web site that discusses the risks
inherent in background checking. Though located in New York City,
it's licensed in most states, but only works with companies
that exceed $1 million in revenue. Professional Liability Insurance Services is
another firm that specializes in E&O insurance, and it lists
more 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.