Many people are now running businesses out of their homes. With the advancements in computers and telecommuting technology, and the need by more families for two incomes, home-based businesses have become widespread. Recently, The Academy surveyed agencies to determine how they're uncovering these exposures and providing coverage for their clients and prospects. Let's go through some of the survey's results:
Agencies estimate that, on average, about 7.5% of their Homeowners accounts have a home-based business exposure. The actual percentage could be higher. If so, these situations could lead to some uninsured claims. About 7% of the responding agencies said they had experienced an uninsured claim because a client had a business in the home that the agency didn't know about. In actuality, most agencies will have situations like this. Fortunately, according to survey results, many of those claims did not go unreimbursed.
However, this trend could easily change. Many of the home-based businesses that agencies do know about produce significant revenues. Agencies estimated that about 65% of their home-based business insureds generate revenues between $20,000 and $60,000. Obviously, many of these businesses are more than part-time endeavors: They may have employees, and there may be significant customer traffic through the residence. However, even a small, part-time business can have significant exposures. A small day-care facility has great liability exposure, even if only a few children are attending.
Some major problems with home-based businesses are caused by insureds who don't know they have an exposure; others know they have a risk but are unwilling to divulge that information.
Agencies could be slapped with E&O claims if their insureds have a home-based business exposure that isn't covered properly. For their clients' sakes as well as their own, agencies should question these business owners to uncover these exposures. As many as 91% of agencies surveyed question their clients regarding home-based businesses when writing new Homeowners policies. However, when renewing these policies, only 35% of them question their clients again. To prevent E&O claims, agencies should continue to ask about business exposures on renewal. After all, people will continue to change jobs frequently, often taking on a new home-business exposure.
The Academy's study on home-based businesses covers, in detail, the different methods agencies use to cover these exposures. It shows that agencies use a variety of methods to cover home-based businesses-often using more than one particular policy or endorsement in a single agency. The Permitted Incidental Occupancies endorsement and a Commercial policy are used most often.
Agencies will continue to face challenges regarding home-based business exposures. Part of the challenge is to uncover these risks, and part is to provide the best coverage option for each situation. Agencies will need to stay up to date as changes in this area continue. This will allow them to prevent E&O exposures and provide the best service and coverage for their customers.