Businesses in Hawai‘i operate with risks common to all businesses. Still, they contend with risks specific to their region, including terrain, natural disasters, and liabilities associated with the tourist season. Most entrepreneurs know that adequate business insurance is an essential part of their risk management strategy. However, some make coverage mistakes that lead to costly out-of-pocket expenses due to insufficient liability limits or the wrong coverage.
A well-defined business insurance strategy helps entrepreneurs avoid costly missteps and protect their operations effectively from day one, without the growing pains of common insurance mistakes. This guide outlines these errors to give entrepreneurs in Hawai‘i insight into policy planning and the state’s regulations. By the end, owners should feel more confident in assembling an effective insurance strategy in Hawai‘i while avoiding costly errors along the way.
Failing To Update Property Coverage
Many businesses carry less property insurance than they need to remain adequately protected against common risks, including theft, fire, and natural disasters. Business owners may make this mistake without realizing it, often by keeping liability limits from when they first bought the policy or before they added a new service or location.
For example, if a coverage limit on a general liability policy is 5 years old, it likely doesn’t account for inflation or rising labor and material costs over the last 5 years. What used to be an adequate liability limit to replace the business’s property may not cover current repairs or replacements in today’s money.
Additionally, as businesses grow, they require updated property coverage to protect new structures, aging fixtures, or larger leased spaces. Inquire when the liability limits were last updated to gauge how coverage limits should be adjusted to match the new present-day value of your assets.
Buying General Liability Policies Without Additional Coverage
General liability coverage is the core of business insurance, but many owners mistakenly believe it covers every possible risk. General liability policies provide coverage for common incidents, including:
- Bodily injury
- Advertising injury
- Reputational harm
- Property damage
However, general liability is not all-inclusive, even in these categories. For example, customer injuries are covered, but employee injuries are covered under workers’ compensation policies. Another common error is assuming that general liability policies cover injuries or damage arising from company-owned vehicles. Vehicles owned by the business need to be covered by commercial auto insurance. Even then, vehicles used outside business activities often require policy extensions or individual auto policies.
Without additional riders and supplemental policies, general liability cannot protect a business from all possible incidents. Commercial auto, workers’ compensation, and other policies build on the foundation of general liability coverage to make sure the business is protected on all fronts.
Neglecting Business Interruption Coverage
In Hawai‘i, business interruption coverage is not optional. It is a necessary response to the inherent risks of operating a business in a state that relies on seasonal tourism and experiences natural disasters annually. Business interruption coverage protects businesses against the costs of temporary closures caused by weather, accidents, or global events, including lost income, temporary relocation, and customer settlements.
Entrepreneurs who neglect business interruption coverage in their insurance planning are making a mistake that worsens as they rely more on temporary or seasonal activity. For many businesses in Hawai‘i, especially in tourism, hospitality, and nonprofit industries, a few events or seasons during the year may represent the majority of their profits. Business interruption coverage protects them from the costs of losing these all-important seasons, which in many cases can be the difference between recovering in the next season or permanently closing the business.
How To Avoid Regulatory Compliance Mistakes in Hawai‘i
Business owners can make errors in their insurance planning based on their own needs, but they can also make errors with state-based insurance regulations. Entrepreneurs can avoid many mistakes simply by complying with these three basic rules, saving their operations from costly penalties:
1. Provide Adequate Workers’ Compensation Coverage
In Hawai‘i, workers’ compensation is required for all businesses with at least one paid employee, with few exceptions. Coverage must be active before employees begin work; otherwise, the business could encounter non-compliance penalties, including financial liabilities for worker injuries and potential stop-work orders until the requirements are met.
Note: Possible exceptions to the workers’ compensation requirement include charitable or religious work, unpaid volunteerism, education services, and more. See Section 386-1 of the Hawai‘i Workers’ Compensation Law for more details.
2. Extend Auto Coverage to All Vehicles
Businesses that own and operate vehicles for work duties must meet minimum coverage limits in Hawai‘i, including:
- At least $20,000 of coverage per person
- At least $40,000 of coverage per accident
- At least $10,000 of coverage for damaged property
These limits apply even if the vehicles are rented or leased. If vehicles owned by employees or volunteers are used for business tasks, Hired and Non-Owned Auto coverage may be needed to make sure those vehicles are covered. Operating any vehicle for business purposes without insurance is an unnecessary risk, even if volunteers own the vehicle.
3. Follow Individual Contract Requirements
In addition to state compliance, businesses in contract-based industries must also follow their client’s written requirements for insurance compliance. For example, general contractors are often required to provide general liability and property coverage. Additionally, vendors and landlords often specify minimum insurance requirements in their contracts before doing business.
Local Brokers Prepare Businesses for Common Insurance Mistakes
Underinsuring properties, overlooking Hawai‘i-specific weather risks, and failing to update policies as conditions change can leave businesses vulnerable to compliance violations and costly damages that insurance would normally cover. At Atlas Insurance, our team builds on over 95 years of experience to deliver customized insurance plans for business owners in Hawai‘i.
Contact our team to learn how to avoid costly missteps and structure a business insurance policy that protects your operations from any event, both foreseen and unexpected.