Ellen Roseman: Running a business from home? The right insurance policy is crucial

Working from home (WFH) has its challenges. When your internet connection cuts out at a crucial moment, you’re in charge of finding a fix. Same thing happens when your computer, printer, scanner or other hardware breaks down after the warranty has expired.  

As CEO of your small business, you have to protect your office equipment and key documents from risks that may occur at home – such as flooding, fire, theft, or accidental destruction. 

Do you have a good home insurance policy? Is the coverage enough for your home business? Even more important, have you told your insurance company that you may be working from home for an indefinite period? 

Cyber security is another thing to consider. As a WFH freelance writer since 2016, I learned about this risk firsthand when my website hosting company was hit by a ransomware attack and my blog posts (12 years’ worth) suddenly vanished. 

Ransomware is malicious software that infects your computer and displays messages demanding a fee – typically payable in bitcoins – for your system to work again. It has the ability to lock a computer screen or encrypt important, predetermined files with a password.

Small and medium-size businesses are not immune. Cyber attacks are on the rise in every sector and in every size of business, says a recent report. Negotiating with hackers is often a lost cause, since many organizations that pay a ransom do not get their files decrypted.

My web hosting company did not pay a ransom, fearing more threats to come. Instead, it used the internet archive of web pages saved over time, known as the Wayback Machine, to restore my blog.

Still, the crisis forced me to think about cyber risk. What if I’d lost information that wasn’t backed up properly? What if I’d stored confidential data in what I thought was a secure way, but was now in the hands of criminals? The outcome could have been serious and costly. 

I asked my web host if he had considered buying cyber security insurance because of the ransomware attack last spring. I was surprised to hear his reply. 

“I don’t have insurance,” he said. “Most small businesses don’t really like insurance and insurance doesn’t like them, either. They hire high-priced lawyers to find loopholes to say you’re not eligible for a claim.” 

This made me curious, so I asked a few WFH entrepreneurs about their insurance.

Different types of insurance for home-based businesses

A friend who runs a tutoring business said she carries liability insurance to cover the risk of accidents to children entering her home. She didn’t remember the insurance company’s name or the annual cost.

A friend with an online Etsy crafts shop said she’s planning to upgrade her home insurance. She wants to be covered for the $50,000 to $60,000 worth of jewelry supplies sitting in inventory that could be damaged or lost while waiting to be shipped to customers.

Another friend who’s an accountant pays his professional body for errors and omissions insurance. He told me that his home insurance policy covers only one office per household – a fact he learned when his wife was hoping to start her own home business.

Clearly, standard home insurance doesn’t provide adequate coverage for all WFH businesses. You can pay more to increase the dollar amount of coverage in key areas (such as inventory for an online retailer), but you might run into caps and limits.

Vanessa Barassa, a spokesperson for the Insurance Bureau of Canada, a national industry group representing Canada’s private insurers, has some advice for home-based entrepreneurs: 

• Remember that a home insurance policy offers a small coverage limit for books, tools and instruments necessary for a business, profession, or occupation.
• Talk to your insurance representative about getting additional coverage to limit the out-of-pocket cost of a potential loss.
• Ask about adding an endorsement or extension to your home business insurance that includes cyber coverage.
• Recognize that loss or damages related to a cyberattack or data breach of your business information will likely not be covered through your homeowner’s policy or home-based business coverage. 

If your business collects personally identifiable data and credit card information, you may find a commercial insurance policy is best suited to protect against data breaches. 

“A cyberattack is not just inconvenient or expensive, but can be an existential threat to any organization, even a budding new home-based business,” says the IBC. 

“For companies that sell products through e-commerce or maintain electronic data on their customers, a systems breach involving this information can cripple or ruin a business.” 

Consider a commercial insurance policy for your home-based business

Suppose you’re ready to look beyond home insurance. If you buy a commercial insurance policy to protect your small business, what coverage do you need? What will it cost?

I spoke to Danish Yusuf, CEO of online insurance broker Zensurance, which allows small business owners to request a quote 24/7 from more than 50 of Canada's leading insurance providers. The company operates across Canada, except in Quebec.

“We have 110 employees, double what we had before the pandemic,” he says. “Most of our customers earn under $100,000 a year in revenue and pay $50 to $70 a month for insurance. The average age is over 35 and about half are located outside the big cities.”

Zensurance provided examples of the annual cost of insurance for small businesses. Some of his examples involve people who were inspired by the pandemic to become solo entrepreneurs.  

• A fitness instructor who operates online and offline: $250 a year for a general and professional liability policy of $2 million.
• A person who sells face masks online, imported from China and sent to the U.S.: $800 a year for $2 million in general liability.
• A management consultant who earns revenue of $100,000 a year or less: $700 a year for $1 million in professional liability and $2 million in general liability.
• A coffee shop owner with the standard amount of equipment and stock: $1,300 a year for $2 million in general liability.
• A venture capital-backed software company, with less than $1 million in revenue: $1,500 a year for $1 million in directors’ and officers’ insurance.
• A paralegal with two years of experience: $500 a year for $1 million in errors and omissions insurance.
• A nail stylist who works out of other people's salons as an independent professional: $300 a year for a $2-million errors and omissions and general liability policy.

According to Yusuf, some businesses are difficult to insure at a reasonable price because of higher liability claims,  such as restaurants that serve liquor, sellers of baby clothes and teething toys made in China, cannabis companies operating in the U.S. (where it’s outlawed federally), and snowplowing services.

I don’t think these annual insurance costs are unreasonable. If I were starting a business that had the potential for liability claims by customers, I’d stop relying on my home insurance and start shopping for low-priced commercial coverage. Better safe than sorry. 

Be wary of underinsuring your home-based business

Canada is a country of small businesses, but up to 25% of them are underinsured or lack commercial coverage completely, according to a Deloitte Canada report on reimagining insurance and unlocking the small business opportunity. 

The research was done in 2016, but not much has changed, says Chris Duvinage, Deloitte’s senior manager of property and casualty insurance strategy. 

“The insurance industry still doesn’t see small business as a profitable market and hasn’t shifted to a model where it becomes vastly cheaper to serve these customers,” he says.

“It’s not cost-effective for brokers to spend time talking to small businesses about the risks they face and the types of coverage available – and to do it in language they can understand. 

“Businesses will happily go online and buy insurance if it’s done properly, but no Canadian carrier has yet cracked the nut and provided seamless advice to business online.”

Dan Kelly, president and CEO of the Canadian Federation of Independent Business (CFIB), echoes the need for change in the commercial insurance industry.

“There are major affordability issues for small business owners,” says Kelly. “Business insurance costs are rising dramatically. Our members are screaming about costs and some say they aren’t able to get access at all. Nobody is writing policies in areas hard hit by COVID-19, such as hospitality and transportation.”

Bottom line: The year 2020 taught us about unexpected risks. If you’re working for yourself in a home office, start learning about the business risks you may face. 

Talk to insurance companies, brokers and financial advisors about ways to cover the risks at a reasonable cost. Shop around and compare prices. Negotiate for the best rates you can get, both when you buy a policy and when it comes up for renewal.