Insurance coverage for designers

Christina writes:

I am a regular reader of your blog, and poring through your book for the third or fourth time – what a resource! I’m realizing how much I need to learn about the industry.

I had a question. In my research, I’ve been unable to find much in-depth information about insurance for DEs. I was wondering if you could do a blog post on suggested insurance packages for DEs? If I’m working from a home office and having the clothes made overseas, what type of insurance would you suggest? Property, insurance to cover the shipments… How much should a startup be willing to spend?

The issue with work stoppage insurance that I discussed in the book, is that -simplistically summarized- this is limited to employees carried on your policy. If you’re using off shore contractors, you can’t cover them (yet another disadvantage of producing off shore). While I won’t go so far as to say this sort of coverage is impossible, I’d think it’s difficult to acquire if you’re a small operation (there are alternatives via your doors, none pleasant). Rather, again as I mentioned in the book, part of the criteria in selecting a contractor, is based on their insurance coverage in the event of a trade disruption.

Perhaps a useful guideline is to confer with your state’s legislated required insurance coverage. In the interests of being more specific, I tried to look up your state of residence but I don’t find you in my customer database. So all I can suggest is that if insurance beyond worker’s compensation is required in your state, it’s not very difficult to find authorized carriers being a required matter.

Insurance to cover shipments is a matter of discussion with your supplier. It may be included as a matter of course but don’t assume it is. Make sure the coverage is sufficient to cover replacement costs. In other words, if your supplier only did the cut and sew portion and you sourced the goods elsewhere, the insurance should cover the full value of the shipment.

If you owe money, having taken out a loan (even purchase order financing, again as mentioned in the book), it’s possible you have limited coverage under the terms of the loan agreement. Not that I’d imagine you could expect to receive remuneration yourself but it would cover the party loaning you the money. This means your liability would be limited, reducing your need to come up with funds to service the debt for the duration of your difficulties.

For coverage of your home office (see the book, much of this is discussed there), confer with whomever carries your home owner’s policy. This is not nearly as difficult to add on as it used to be. Home businesses are commonplace these days.

In my personal situation, I recently requested an insurance quote from the company that carries our home owner’s insurance policy even though I’m not working from home. This is suggested because you may qualify for discounts for multiple policies even if you have a separate business location like I do. I wasn’t pleased with the quote I got. Not because it was expensive but because it wasn’t. Rather, it was suspiciously inexpensive. I don’t own the building but the quote barely exceeded $50 a month for coverage. So, I requested more in depth information about the coverage details. Would it cover replacement value? I was glibly assured it would. I mentioned that some of my books cost hundreds of dollars, some I suspect are irreplaceable, to which the agent said “you’d want to replace books?” I guess she doesn’t read. She promised to forward the details but I’ve yet to receive it. I need to call back. I have a dongle to insure. That alone is several thousand dollars.

Ideas anyone?

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  1. Esther says:

    Insurance is one of my pet peeves. Anyway, your insurance quote will partially depend on your business entity and product. A sole proprietor quote will be far less than an LLC, for example. My insurance agent did not understand my business and thus offered a policy that wasn’t appropriate. There are so many variables that go into an insurance policy that it is necessary to do a lot of research.

  2. J C Sprowls says:

    I follow suit with Esther and suggest that basic Property and Casualty (P&C) brokers – the ones who sell Homeowner’s Insurance – are not well-versed in manufacturing. They typically see household-scaled sewing rooms, craft studios, artist spaces and home-based offices in their line of work.

    The broker needs to explain to the Underwriter that your policy is not a standard product (i.e. renter’s insurance for $25K/$100K for $60/mo). To do that effectively, the broker really needs to “get it”.

    I took my broker on a tour through my basement, pointing out and explaining that my electrical requirements were different. I also explained that I had to collaborate with the electrician to ensure code was achieved and my needs were met. I made her touch the cutting table, the cutting equipment, machines, reference materials, etc.

    It’s amazing the power of touch. I think she gets that my livelihood is on the line in the event of catastrophe. In my case, I was able to “up” my homeowner’s coverage – not that every state will permit that – for about $120 more per month. The rider I have does not cover work stoppage, though.

    I’m simply not big enough nor have enough consistent volume behind me for carriers to rate that. Work stoppage policies will likely need to come from a different carrier who provides General Liability, Errors & Omissions, Product Liability and other Business-related policies.

  3. Alan says:

    I’ve gone from production in the US to offshore in the Dominican Republic and this how we’ve changed our insurance.

    When producing in the US these were standard riders on our commercial policy:

    1) $x dollars/incident covered for goods in transit (ie on a truck from a contractor to our warehouse)
    2) $X dollars for work in process at third party facilities if the facility was designated on the policy.
    3) Raw materials and finished goods in the warehouse were covered under standard hazard insurance with a brand protection and purchase order rider.

    Here’s how it changed when we moved offshore:

    1) You need to buy a separate policy to cover inbound international shipments and the coverage amount/incident is limited to what is declared for customs purposes. Any commercial broker should be able to write this policy.
    2 & 3) Typical commercial coverage for work in process and for raw materials held in offshore facilities are not covered by your US policy. I had to buy a policy written by a Dominican Republic Insurer to cover this. It was more expensive than insurance in the US, but you can do due diligence on the insurer and have peace of mind.

    Keep the brand protection and purchase order rider on your US policy. This is very important. For instance say you have $300,000 (at sales price) of product that is damaged by smoke. So its time to settle with the insurance company. If you have a purchase order rider, the insurance company will pay you the amount that the product would have sold on the purchase order and not the product cost. If you have a brand protection rider the insurance company won’t take the damaged merchandise and liquidate it in the wrong channels, they are required to destroy the damaged inventory.

    I hope this helps.

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