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Solution Providers Show Why Getting Business Insurance Right Matters
If you've been through or tornado, or even if you haven't, having the right insurance can protect your solution provider business.
Nobody ever plans to lose their business. But it can happen, and when the threat arises, VARs and their customers need to have a solid understanding of their business insurance policies in order to protect their companies.
Without proper coverage, VARs could lose their businesses -- or at the very least a substantial amount of money -- should an unexpected but catastrophic event occur to a building, equipment or even a person. The following are the experiences of three VARs who agreed that having the right business insurance -- and keeping on top of it -- could be the difference between staying in business or losing it all.
When Nature Strikes
John Motazedi, CEO, SNC Squared
Having the right business insurance is a lesson that Motazedi almost learned the hard way. Joplin, Mo.-based SNC Squared's office was destroyed by a tornado in May, as were the offices of many of his customers.
Thankfully, Motazedi's house was spared and he was able to rebuild a small NOC in his basement before relocating to a semi-permanent office.
Although SNC Squared had business insurance to adequately cover most costs, he was hit with a few "gotchas," holes in either his insurance coverage or his business processes that forced him to use his own money or resources to help rebuild the business.
First, SNC did not have an updated list of IT equipment on site, both for its own use but also equipment that had either been purchased on behalf of clients and not yet delivered or equipment that was being repaired.
"Having a daily updated inventory is absolutely key," said Motazedi. SNC Squared was able to build an accurate inventory list, but it took time and resources away from doing something more productive.
Luckily, SNC Squared regularly scans receipts of everything it purchases and that data was recovered to allow the VAR to build the list of damaged equipment, down to staplers, pens and scissors for each engineer.
SNC Squared's final inventory spreadsheet was probably 2,000 rows or 6 or 7 pages deep, Motazedi said.
Also, Motazedi found that he'd have to talk to someone different each time he called the insurance company, so he quickly learned to document each conversation clearly to make sure there were no inaccuracies or miscommunication for the next time.
SNC Squared "got lucky," Motazedi said that he only had to pay for one client's workstation and a couple of laptops. His out-of-pocket expenses were about $4,000. It was worth the price to keep the customer happy, but the price could have been a lot higher had the tornado hit on a different day, he said.
"A lot of companies have $2,500 or $5,000 minimum deductibles. If you've got three or four clients' servers, that's $20,000 that I would have to write a check for. It is a tough pill to swallow. Smaller MSPs don’t have $10,000 or $15,000 to throw away in case of that situation. That would have been really bad," Motazedi said. "The thing you need to do is talk to your insurance company about [disasters]. Am I covered? I never thought about asking that question."
To keep track of their business and how their insurance is keep pace, VARs should also undertake an annual review of their insurance policy, he said. "As your business grows, you need more of it. And if you're a key resource you might want to insure yourself or some of your key staff because it could impact the business if something happened to them," he said. "If you do say $1 million in business this year, will your insurance pay you $1 million for that year [if the business is impacted by a disaster?]"
Next: The Challenge Of Relocation
Another challenge: when relocating to another office building, SNC Squared found -- as did some customers -- that insurance companies weren't so willing to pay for cabling that had to be done because it was likely a temporary location.
"You might be there only for six months while building the business back up," Motazedi said. "We had some customers who were told do you really need 20 drops? Can you get away with 10 drops or wireless access points and five drops?"
In another example, one customer, a doctor, had three patient check-in stations at his old office. The insurance company would only pay for one because of a cap on the continuity business insurance the doctor had. SNC Squared is also hoping the insurance company can pay for some of the company's electric bill in its new location, which has tripled to about $600 a month. "I believe they will be able to do that since its significantly cheaper than building an new building," Motazedi said.
Another area where VARs should ensure they have adequate liability insurance is with their processes around backing up customer's data. If a VAR doesn't correctly check the backups or blatantly disregard the contracted policy, they could be in big trouble.
"Those [contract] languages need to be clarified. We were checking them every day anyway, but we are having lawyers look at our contracts and we may give our existing contracts and addendum," he said. "One thing we were absolutely nuts about is backup. I know a lot of MSPs that don't do that. And there's a big difference between a hurricane or a tornado. A hurricane is something that's scheduled to get to you vs. I had 16 minutes. When something is scheduled, you can prepare. But if it's not, you have to be ready."
Of course, business insurance is a big area of concern for all VARs, not just those that have been through a disaster.
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Know Your Clients' Coverage
David Dadian, CEO of powersolution.com
While some clients require that VARs show them their certificates of insurance before doing business with them, VARs should also know what their clients' coverage is, especially if your goal is to be a business consultant as much as an IT advisor, David Dadian said.
When Dadian started the Ho-Ho-Kus, N.J.-based MSP powersolution.com 16 years ago, a good friend in the insurance business set him straight with the right policies and he hasn't had any issues.
"Their organization sat down and went over everything with a fine tooth comb. We get audited every year for everything now," Dadian said. "One of the things that a lot of small businesses, not just VARs, do is not just carry enough business insurance but a lot don't carry enough life insurance too. That's essential to keep a business going."
It's also important to know if customers' have enough business insurance to carry through a disaster, Dadian said.
"When we go into a client, we look across board, taking technology out of it. We look at all the policies instilled in the organization: Internet acceptable use policies, business practice policies, data security policies," he said.
"What we found early on is that [lack of] policy management became very noticeable when you got into the data side," Dadina added. "We'd ask do you have data security policy? No, we don't have that. We ask about data at rest, data in motion, the whole nine yards."
Don't Gamble With Your Business
Jeff Kaplan, CEO of Breakthrough Technology Group
As a big AT&T solution provider, Morganville, N.J.-based Breakthrough Technology Group is required to meet certain business insurance standards, Kaplan said, but he also sees too many businesses take what he views as too big a risk with insurance coverage.
"There have been a lot of natural disasters and we've seen a lot of businesses overnight be gone. There are still a lot of customers out there don't have [disaster recovery] on a lot of their applications. It is absolutely a budget issue, an expense issue vs. when we're out how much will it cost us to get back. Some people are still rolling dice. Some roll the dice and get burned," Kaplan said.
Solution providers have the opportunity to convince those clients to manage and support all IT assets in a converged bundle that can help mitigate those risks because they would be covered under the solution provider's plan, Kaplan said.
"With AT&T, I've build [data center] environments in Dallas and New Jersey. The whole country would have to have a problem for me to have a problem," he said. "But some businesses will bear those costs [of rebuilding with no insurance]. They say I won't spend the money if the [odds] are one in 'X' of happening. But if 'X' seems to happen, you're in a bad spot and we've certainly seen that."