The risks of remote workplaces
Americans’ houses have increasingly become a hodgepodge between a home and an office. It’s believed that there are more people working out of their homes now than at any time in history. And experts say it’s time that the property/casualty insurance caught up with this trend.
By the numbers, the home-based economy is massive. There were roughly 7 million self-employed people who worked out of their homes in 2004 — the most recent year for which Department of Labor data are available. About two-thirds of those people had a home-based business, one that is run solely out of their house. Of those, the average home-based business owner worked about 25 hours per week.
The trend toward working from home — be it consulting or running a standalone home business — is overwhelmingly the providence of professional service occupations like finance, law, management, education or even health care. Workers in those fields make up about of 45 percent of self-employed, home-based business owners. Another 16 percent are employed in sales or a similar occupation. Contractors, too, are a significant piece of the pie, comprising about 18 percent of home-based business owners.
Many things are spurring this trend. Inexpensive computer technology and broadband penetration has made telecommuting and teleworking easier, especially over the last half-decade. Another major driver is the age of the workforce: As increasing numbers of baby boomers enter the latter stages of their careers, many have opted to work from home, either consulting or running their own businesses.
The growth in number of home-based businesses is reshaping the meaning of what “house” means — at least as far as insurance companies are concerned.
Right type of coverage
Typical homeowners policies do have endorsements that can cover limited amounts of home-based business exposures, but often these are too small or inadequate for home-based businesses. As more and more commerce is based in houses rather than offices, insurance agents need to be aware of their clients’ exposures — from covering business property like computers, BlackBerries and home-office equipment to general and professional liability — which may not be as obvious or cut and dry as they have been in the past.
“There certainly are more home-based businesses starting up, and the market is not necessarily out there to cover those exposures,” said Susan Monson, commercial lines manager for Rogers & Gray Insurance Agency in South Dennis, Mass. “We are finding often that the markets best serving us are excess markets.”
Part of that, she said, is a function of geography. Most of her agency’s clients are on Cape Cod, where most homeowner’s policies are written through the Massachusetts Property Insurance Underwriting Association, the Bay State’s FAIR Plan. That leads to a situation for home-based businesses where they must segregate business-covered property from homeowners-covered property.
The rustic New England antique shops that dot much of the Cape are a perfect example, she said. Most are home-based and open seasonally, and during the summer months draw significant foot traffic. Usually, she will write those exposures with a BOP.
Pamela Creasey, an agent with Blaine Insurance in Blaine, Wash., said that for most home-based businesses, a small BOP is usually sufficient.
“We do write coverage for home-based businesses and we do have companies available,” she said. “We just haven’t had that many inquiries about less traditional home-based businesses — things like small crafts. We don’t have many at all.”
Many agents say the same thing: Not many customers are asking how to cover their home-based businesses.
Sharon Davis, founder of Web site 2Work-@-Home.com, a resource for home-based workers, said many who start a business from their house are reluctant to discuss it with their insurance agents. “They assume the insurance will be out of reach for them on top of the expenses of starting a business.”
David Myer, senior vice president with Dawson Cos., a Cleveland, Ohio-based agency, said agents are increasingly discussing home-based business activities with their clients in the day-to-day course of writing policies — a trend that has evolved in the last five or so years.
“These days, more homeowners carriers are going through a checklist with their clients and home-based business activities tends to be one of those things on the checklist,” he said. “The other side, however, is that some clients don’t want to tell you they are running a business out of their house because they are trying to be discrete.”
But silence doesn’t help. Many home-based businesses are out there, and many of their exposures are going uncovered.
A 2004 survey by the Independent Insurance Agents and Brokers of New York found that tens of thousands of home-based businesses in New York and eight other Northeast states were at potential liability risks because their owners believed they did not need insurance or were covered by another policy.
There were roughly 1.5 million full- or part-time home-based businesses in the Northeast — and nearly 900,000 went uninsured, IIABNY found. Of those, nearly 70 percent said they lacked coverage because of a mistaken belief their homeowners or another policy protected their businesses’ assets or provided liability protection.
Other studies by the Independent Insurance Agents and Brokers of America have found similar trends — namely, a widespread lack of coverage among home-based businesses. “This lack of understanding illustrates the urgent need for the insurance industry to do a much better job educating a segment of the market that is only growing in importance,” said IIABNY President and CEO Richard A. Poppa.
The growth of home-based businesses is also breeding a few new products. Peoria, Ill.-based surplus lines broker RLI Corp. is now marketing a home-based business policy that will cover many of the most common businesses run out of the home, said Debra Blighton, agency operations manager for the company.
Most of the clients are service-oriented workers who have a part-time home business doing consulting work, she said, but they also write a significant number of policies for small craftsmen, such as jewelry makers who sell their wares at Renaissance fairs.
The typical home-based business owner has between $5,000 and $10,000 invested in his or her home office. With RLI’s policy many of those workers can obtain coverage for those items as well as liability for working outside of their homes. “We’ll cover everything up to their professional liability, which we don’t cover,” Blighton said.
It’s intended for micro business. “We have a $250,000 cap on product sales, or $500,000 if it’s a service type of business,” she said.
Premiums for the RLI home-based business policy — which is written on a BOP form — start at around $150 a year, with the typical policy costing around $300, she said.
About 25 percent of RLI’s policies for home-based businesses are written by independent agents, primarily in the Northeast.
Of course, in many sections of the market, the growth of home-based businesses is not a new trend.
The American Association of Insurance Services, which develops policy forms and rating information used by more than 600 property/casualty insurers, has been offering a limited home-based business coverage form that allows carriers to write certain types of business exposures on a personal lines policy, without having to use commercial lines rating and underwriting procedures.
Initially, AAIS had five classes of business eligible, mostly small retail and crafts businesses, although over the last 15 years, coverage for bed and breakfasts was added, and a personal umbrella policy form was created to extend coverage to some home-business pursuits.
“For a lot of businesses that don’t have coverage, if they’re not dealing with the public directly, they may not need it,” said spokesman Joe Harrington.
Of course, in some parts of the country, covering the home-based business is just business as usual.
John Prichard Jr., senior vice president for Heffernan Group in Walnut Creek, Calif., said that he routinely offers policies, usually BOPs, to many clients working in home-based businesses — from telemarketers and contractors to all type of professional services workers.
“I don’t necessarily see any more of a demand for these types of policies,” he said. “It’s always been pretty constant for us.”
Most of the policies he writes are with the standard big name BOP carriers like Safeco, Travelers, CNA or The Hartford.
But in other sections of the country, the topic of home-based businesses is something that is broached more and more.
“It comes into play when you you’re discussing with your clients the best way to get them covered,” said Lane Rubin, co-owner of Excel Coverage Group, a 10-person agency in Westbury, N.Y. “Certainly I find that more and more people are working from home and there are things they should be aware of in terms of their liability.”
What is needed, he said, is a new approach. That involves asking clients specific questions about the types of activities they are working on in their houses, Rubin said. For some, that may involve rethinking the way they interact with clients when writing a new policy.
“Are they running a home-based business?” he said. “Are people coming to see them?
Are they going out to see others? More and more, it’s an important to start asking these questions.”
Home-based business coverage
- Homeowners endorsements: Personal lines insurers usually offer endorsements to extend coverage for business personal property up to $2,500 or in some cases up to $5,000. Depending on the value of insured equipment and whether customers visit the home, this may be the most sensible product for many home-based businesses.
- In-home business insurance policy: Some insurers offer specific in-home business insurance policies that have some — though not all — of the same features as larger commercial policies, but lower policy limits and premiums. Generally at a price of less than $300 a year, a customer can insure business property worth $10,000 and gain general liability coverage not included on a homeowners policy. Some business interruptioncoverage can be included.
- Business owners policy (BOP): The BOP is a standard policy for most small business owners and includes broader property and liability coverage than an inhome business policy.
Source: Insurance Information Institute
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