OK, ALL you aging Hollies fans, sing along with me: "Look through any window, yeah, what do you see?" I'll tell you what I see. UPS trucks, FedEx trucks, DHL trucks, scurrying all about our neighborhood.
What is generating all this activity? Christmas is long over, yet still they come. There can't be that many birthdays at that many houses that often. Although I am a huge fan of shopping on the Internet, even I can't eat that many Aunt Sallie's pralines. Could all this activity be from . . . home businesses?
Apparently not, if you ask insurance agents. Although UPS thought enough of the exploding home- and small-business market to snap up Mailboxes, Etc., and FedEx gave the same explanation for buying Kinko's, the impression I get from agents and company folks is that this entire home-business thing is considered a no-show. When I ask students in insurance classes to guess how many of their homeowners clients have home businesses, I get mostly blank stares, then guesses between 10% and 80%. I believe the term for these estimates is "WAG." ( "W" for "wild" and "G" for guess. I'll leave the "A" to your imagination.)
The correct answer depends on how you define home-based business: as purely small operations (such as network marketing and consulting), or as including any size of business that operates from a home (such as a contractor that keeps all its trucks parked in the pasture behind the house). Organizations that either study the marketplace or serve home businesses report that the percentage of homes used for some type of business endeavor runs somewhere between 40% and 70%.
Using nice, round numbers to make the math easy, let's assume your agency has 1,000 homeowners accounts. At the lower estimate, our statistics tell us that 400 of your homeowners clients are operating home- based businesses. These are just averages: For all you know, 95% of your clients are running such ventures.
Do you know how many of your current accounts are operating a home business? If you're not sure, shouldn't you be? If you have good relationships with your clients and keep in touch on a regular basis, wouldn't you have at least stumbled across any indications of business activity? If you haven't, you're leaving a lot of potential business on the table, while risking a large exposure to E&O claims when your clients learn they lack necessary coverages.
For example, if 400 of your clients operate home businesses, for how many are you writing some form of home-business coverage? How many HO business-related endorsements, such as the HO 04 42 or HO 07 01, would I find in your files? How much commission might you be generating, and E&O exposure minimizing, if you were properly adding the necessary business coverages to those 400 homeowners accounts?
Perhaps the reason so many agencies and carriers don't consider this coverage more crucial is the mistaken belief that the exposures are not that significant. For the sake of argument, let's put aside the entire property coverage issue, since many of my students have asserted-perhaps correctly for the smallest businesses-that a great deal of coverage is available under Section I of the HO policy. If you don't know how many home businesses are represented in your current homeowners book, and thus have no idea how large the property exposure may be for each, I'm not sure how you can be comfortable with such an assertion, but for now I'll yield that point.
The key, and perhaps catastrophic, gap in coverage lies in Section II, "liability." Here is the key exclusionary language from the ISO HO 3 (edition 10 00) form:
"2. 'Business': a. 'Bodily injury' or 'property damage' arising out of or in connection with a 'business' conducted from an 'insured location' or engaged in by an 'insured,' whether or not the 'business' is owned or operated by an 'insured' or employs an 'insured.' This Exclusion E.2. applies to but is not limited to an act or omission, regardless of its nature or circumstance, involving a service or duty rendered, promised, owed or implied to be provided because of the nature of the 'business.'"
The same form defines "business" as: " a. A trade, profession or occupation engaged in on a full-time, part-time or occasional basis; or b. Any other activity engaged in for money or other compensation, except the following...:"
So how much liability coverage is provided under the standard ISO homeowners forms for a true home business, in which the insured is pursuing real income (not just running a garage sale every six months)? Nada. Zip. Nothing. What will a homeowners adjuster say when a client of the home business falls on the front steps? No coverage. When someone at that network recruiting seminar at the local hotel slips in the meeting room? Take a hike! When that business product causes harm or that completed operation goes south? Get outta here!
"Oh," I hear some asking, "but since many of these businesses are likely home offices, and the insureds only meet clients at the local Starbucks, isn't the liability issue really minimized?" Well, that assumes that when a homeowner's client slips on the foam from that overflowing latte that they only sue the coffee house, and not the insured homeowner. If your client is included in the suit-get outta here! And for those purely office exposures, it's also possible that the business consists largely of providing consulting or other professional services. The HO folks at ISO thought of that as well, thoughtfully including the following additional exclusion in Section II:
"3. Professional Services: 'Bodily injury' or 'property damage' arising out of the rendering of or failure to render professional services."
Endorsements and separate business policy coverages are available to provide the needed protection for home-based business exposures. The proper solutions vary by type and size of the business. For those exposures for which no simple solution currently exists (a one-person professional exposure can be a bear to cover), perhaps the size of the opportunity may inspire some of the more creative among you to get with a carrier and develop the next breakthrough insurance product.
The home-based business opportunity is huge, and it's growing ever larger in today's economic climate. Business resource providers from Costco to Staples realize it and are making it a major focus of their future success. How about you? Joining with these giants of retailing may just, as another Hollies classic put it so well, "Pay you back with interest." For those with a more altruistic bent, remember-"He ain't heavy, he's your homeowner."
