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Good Insurance Is the Best Policy
One of the toughest challenges facing every facility owner is how to properly insure the studio jewels. We are all aware that it's a problem of too much or too little, and it always costs too much money for all of the restrictions that are imposed upon your studio. Most insurance agents, like most bankers, have no idea what happens in a recording studio and must be educated before they can really help you. For example, some project studios are under the mistaken impression that a homeowner's policy will take care of everything. Wrong!
If you are operating a commercial business from your home, and it has any revenue whatsoever, the rules change. You must, at the very minimum, submit a priced inventory of all equipment and improvements to the real property for approval by your insurance company and have it formally “bound” by a rider to your current policy or a separate policy. In most cases it will require an inspection by the insurance company's adjusters and a completely separate policy. Without going into too much detail, since insurance regulations differ by geographical area, let's explore how to properly insure your facility, no matter what its size, and suggest what is appropriate to limit your personal/corporate exposure without the costs becoming excessive.
Your insurance broker is as important to you, in many instances, as your banker or your CPA. You should call your competitors to find out whom they use. Don't try to reinvent the wheel and do basic research yourself unless you are fanatical about that sort of thing. If a peer in your geographical area has already trained an insurance broker about the workings of our industry, and has gone through a claim procedure with that broker, and been fairly paid for the loss, take his or her advice and get a quotation from that broker. Get several like quotations from other brokers to whom you are referred, and interview each of them before deciding which one to utilize. Be careful—the life of your business may depend at some time on your choice being the right one.
WHAT YOU MUST HAVE
To meet the requirements of all who utilize your facility or lend money or lease equipment to you, liability insurance is mandatory. Next comes insurance for fire, workers’ compensation, state unemployment, auto, equipment theft (usually with a huge deductible because of the high cost), and “fine arts” (which is the only way I ever found to assign client tapes in the vault an aesthetic as well as replacement value). If you rent equipment, you also need a rider to most of the policies mentioned above to cover the assets against theft and any possible damage incurred offpremises. You may not be able to afford this basic coverage, but to me it is optimum. Today, it is common in the equipment rental business to require your client to provide insurance to cover your equipment when it is offsite. A written insurance “rider” is necessary from the client to you to confirm that their insurance company is providing coverage. Many studios/equipment rental companies provide this insurance at an extra cost to save the client the time and trouble they must go through to ensure coverage through their insurance provider.
WHAT YOU SHOULD HAVE
Medical insurance with major, minor, pharmacy, possibly dental, and minimal life insurance for you and your employees at a price you can split with them is a major consideration. There are some good companies, such as Aetna and the like, and there is always Blue Cross, but in the medical insurance area, you and your broker must constantly investigate competitive prices to be certain you are getting the best group price for you and yours. Equally important is choosing an insurance company that will pay claims before you have to do so yourself and not waste your time telling you why they cannot pay. A low annual deductible for each covered employee helps a lot here. Today, a $1,000 deductible is a good choice to consider.
WHAT YOU WANT
A retirement or profit-sharing plan in which your employees participate goes a long way toward keeping the good people with you when your competition tries to recruit them. Business interruption insurance is wonderful if you can afford it. You only find out how good it is when you have a fire or other catastrophe and need those payments to cover payroll and other fixed costs. It saved my corporation on more than one occasion. Be sure to investigate this option, because the prices differ as much as auto insurance by geographical area. A recent studio consulting client of mine won a substantial arbitration award from their insurance company for flood damage to equipment they were collecting to build a new studio, which affected their total studio operation. Again, they had to educate the insurance company over time about how our industry operates. The insurance company did not understand and finally had to pay a substantial premium to my client once it was proven that the damages claimed were in fact justified. Travel and rental car waiver insurance is inexpensive if you have people who move around a lot. Disability and key man life insurance for yourself and your important people is also suggested and will probably be required by your lender or partner if they are at all conservative.
HOW MUCH?
Common sense tells us that the larger the amount for which you insure something, the more it will cost you. However, there is a point at which the cost of the deductible and/or the limits for any single occurrence will diminish to the point where the higher coverage cost is minimal. There is also the separate policy alternative of liability umbrella coverage, which takes over only when your other policies exceed their limits. Many times you will be required by your partners or your lenders to maintain minimum amounts. Car-leasing companies, for example, usually require $100,000 property damage and $300,000 public liability, and any building, or even improvements you have to cover, must be insured for its replacement value or the amount of the loan/ mortgage at a minimum. Cost of other coverage such as workers’ compensation and state unemployment insurance will depend on your location and the number of claims that have previously been filed against you by ex-employees.
You should always value assets at replacement cost for purposes of theft or damage insurance, because some insurance companies have a waiver in their contract that says if you fail to value an asset plus or minus 10 percent of replacement cost, they do not have to pay for its loss or damage! This is called a legal loophole. Because of this little surprise, you should revalue all assets once each year at insurance renewal time, by getting a replacement value appraisal from a recognized industry expert. If there are any items of equipment that are worth more or less than appraised value because of their rarity, be sure to declare that in writing to the insurance agent or company, and ask for a confirmation of the company's understanding and agreement to your recommended value. This is probably the only way you will be protected in case of loss.
FINAL TIPS
Liability and fire coverage often depend on the U.S. Department of Commerce industry designation your insurance company inspector puts you in (find which is the least expensive for you) and the condition of your premises. If the inspector has any suggestions for improvement, like an extra fire extinguisher or a brighter light bulb, be sure to conform to their request, as that can make a big difference in your annual insurance premium. Interview insurance agents and get at least three bids for your coverage before committing. This is a good rule of thumb. There are good and bad agents, and the difference in price between them for basically the same insurance coverage can be considerable, depending upon how they put the insurance package and quotation together when they present it to you.
Finally, if you are really happy with your insurance agents, share them with your competitors for the good of the industry. It will keep everyone's premiums at a minimum, because there are economies of scale in the insurance business, particularly if the agents understand just what you are doing when you make all of that noise in your studio and control room. They will quickly discover that there is more than one place in town that does the same thing. It is part of our job to educate those not in the know.