Liability Insurance Coverage
Alternatives to Buying Liability Insurance
You do not have to buy liability insurance from an insurance company. Instead, you can go without liability insurance, self-fund, join a risk retention or risk purchasing group or look for coverage in the surplus lines market.
You should not go without liability insurance without careful consideration. While going without insurance may save you some premium dollars, it also exposes your business assets and perhaps your personal assets to paying for damages should you ever be found liable and to paying legal defense costs even if you are not found liable. Moreover, federal and state law requires certain businesses to have liability insurance as a condition of doing business. If yours is one of these businesses, you must have liability insurance.
Self-Funding
Risk Retention and Risk Purchasing Groups
Surplus Lines Insurers
Self-Funding
Instead of paying an insurance company to assume your risk, you may retain the risk by periodically setting aside money to pay damages or by paying damages with current operating revenue should you ever be found liable. This is called self-funding. Again, the decision to self-fund should be made carefully. Most small businesses will not have the needed resources to properly fund and manage a self-funded program. Moreover, you will probably have to hire an administrator to manage your self-funded program properly.
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Risk Retention and Risk Purchasing Groups
Federal law allows businesses to form risk retention groups or risk purchasing groups to obtain liability insurance. A risk retention group provides commercial liability insurance to its members. Generally, members are professionals with similar businesses or engage in similar business activities and have similar liabilities. Risk retention groups insure their liability risks by forming an insurance company.
A risk purchasing group is a group of businesses that engage in similar or common business activities and that buy insurance as a group rather than as individuals. Risk retention and risk purchasing groups may provide liability insurance at lower prices than you could find if you bought insurance from an insurance company or as an individual. Since these groups are exempt from most state insurance laws, however, you may not receive all of the protections afforded by the Wisconsin insurance rules and regulations.
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Surplus Lines Insurers
The surplus lines market is an insurance market place that is established for the purpose of insuring unique or hard to place risks. Some of the rules and regulations that apply to surplus lines placements and surplus lines companies differ from those that govern coverage obtained from companies licensed in Wisconsin.
Standard insurance companies often reject high-risk applicants that do not meet their underwriting criteria, such as liability for day care centers. Surplus lines insurers fill this need for business owners who are unable to purchase coverage from standard companies. A surplus lines policy is a policy placed with an insurance company through specially licensed agents or brokers known as surplus lines agents or brokers.
An unauthorized (nonlicensed) insurance company is one that does not hold a valid certificate of authority to do an insurance business in Wisconsin. All risks, except title insurance, mortgagee guaranty insurance, and worker's compensation insurance risks, may be placed with unauthorized insurance companies. This applies to policies giving first dollar coverage, policies in the form of stop-loss or catastrophe coverage for self-insured risks.
OCI does not regulate the rates these companies charge or the policy forms they use. Therefore, if you obtain a surplus lines policy, it is important that you read it thoroughly. These policies frequently involve differences in coverage and deductibles not found in other policies.
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