If you’ve ever run a small business, you know that the excitement of signing a new client can make you gloss over things like performing a thorough contract analysis. This could be a huge mistake as most business contracts delineate which parties should be insured against the particular risks that arise from the relationship.
In some cases, for example, a contract review will reveal that risks have been transferred from one party to another or that one party has assumed risks it would not typically bear. These are the types of things you need to know in order to properly safeguard your company.
If the worst-case scenario happens to your business when it is not adequately insured, that oversight can end up costing more than you ever imagined. Today, we’re sharing some of our top contract analysis and contract review tips to help keep your business safe.
Rely on Insurance Professionals to Assist with Contract Analysis
The best thing you can do prior to signing a new client is have an insurance professional perform a contract analysis of all the agreements that define the relationship. While insurance professionals won’t be able to give you an opinion on all of the legal ramifications of your contracts, they will be able to flag risk management issues and assess whether your current portfolio sufficiently covers any new risks.
Involving an insurance professional from the outset will help you remedy any insurance deficiencies before a problem arises. Moreover, if an insurance professional performs a contract analysis before you sign on the dotted line, you can potentially avoid situations where the risks you’re being asked to assume outweigh any profits or other benefits you might receive from that agreement.
Contract Reviews: Know What to Look for and When to Look for It
As part of your regular contract analysis procedures, we advise asking potential clients or other business partners whether they have a list of standard insurance requirements. When it comes to dealing with larger companies or governmental agencies, many will publish these requirements for you to consider before you even begin negotiations.
Some of the most common insurance requirements include:
- Workers’ compensation
- General liability
- Professional liability
- Cyber risk
- Auto liability
Each potential client will have different policy requirements and coverage limits. Knowing these things early on in the negotiation process (and involving your insurance professional in contract analyses and reviews) can help you avoid contracts that have unreasonable insurance demands.
Get the Insurance Coverage your Business Needs
If you think you have a sufficient insurance portfolio based on past contracts with similar clients and vendors, the business landscape has changed and old policy limits may not satisfy current requirements. Even when signing a new contract with an old client, it’s in your best interest to perform a thorough contract analysis to confirm that your existing policies fully cover all of the risks set forth in the new agreement.
Once you have a handle on all of your current insurance needs, you can again turn to your insurance broker to update any areas of coverage that are deemed deficient. All of these tactics are aimed at making your liability exposure as minimal as possible so that your business can succeed despite the risks.
New client agreements are exciting, but they can present challenges—especially from an insurance standpoint. Contact Roger for more information on contract analysis and review, or any other issues you may have surrounding your insurance needs.