Business Owners Policy (BOP) 101

This page is meant to serve as a 101 educational resource for Business Owner’s Policy (BOP) insurance.

What is Business Owner’s Policy Insurance?

Firstly, Business Owner’s Policy is referred to as BOP in shorthand.

A BOP policy is basically a General Liability (CGL) policy plus Property insurance for the property owned/rented by the business. It can also have additional coverages in addition to CGL and Property.

A Business Owner’s Policy (BOP) is a comprehensive insurance package designed for small and medium-sized businesses, which combines several types of insurance coverage into one bundled policy. BOPs are tailored to meet the general needs of a business and typically offer a more cost-effective insurance solution than purchasing each coverage separately.

Eg: A fire breaks out in an office destroying lots of business possessions (computers, printers etc) and damages the building walls also. The BOP policy will pay for the damages.

The key components of a Business Owners Policy usually include:

1. Property Insurance: This covers the business's physical assets, such as buildings, equipment, inventory, and furniture against damage or loss due to events like fire, theft, or natural disasters.
2. General Liability Insurance: Protects the business against claims of bodily injury, property damage, and personal and advertising injury that could occur during business operations.
3. Business Interruption Insurance: Also known as business income insurance, this covers the loss of income resulting from a disaster or unexpected event (storm, cyclone, flood etc) that disrupts the normal operation of the business. It can help pay for expenses like rent, payroll, and lost profits during the period of restoration.

Beyond these core coverages, a BOP can often be customized with additional protections based on the specific needs of the business. This may include:

• Data Breach Insurance: For businesses handling sensitive customer information, this covers the costs associated with a data breach.
• Professional Liability Insurance: Offers protection for businesses providing professional services against claims of negligence, malpractice, or misrepresentation.
• Employment Practices Liability Insurance: Covers claims from employees alleging discrimination, wrongful termination, harassment, etc.

Critical Elements / Breakdown of the application

A BOP application uses all the critical elements from a GL application plus the below mentioned additional elements.

Location/Building Property Details

Since a BOP policy is a GL policy plus Property coverage, the information about the property is very important to the BOP application. The carrier will want to know multiple details about the property.

A location can have multiple buildings in it. Eg: An apartment complex or a big plot with two buildings used for two different purposes.

For each building in a location the carrier will want to know most of these details:

1. Industry type / Class Code of the building
2. Revenue/Sales of the building
3. Total Area of the building
4. Area occupied by the business
5. Area unoccupied in the building
6. Area occupied by others in the building
7. Construction Type
8. Roof Type
9. Does the business own or rent the building
10. Does it have a fire alarm?
11. Does it have a burglar alarm?
12. Year Built
    1. If building is > X years old they will want to know when the wiring, heating and plumbing was last updated.
13. Year roof was updated

They will also want to know the following coverage values:

1. Building Coverage - The amount/value of the building if it has to be rebuilt from scratch
2. Business Personal Property - This is the value of the items inside the building that the business owns. Eg: Computers, Tables, Chairs, Machines etc

Building Level Details

Loss Types

In Business Owner’s Policy when providing information about past losses you also have to provide the loss type of the loss. Each carrier will have a specific list of loss types that they define. Some of the common ones are:

1. Personal Injury - Injury for which the business is responsible for
2. General Liability Products - Issues caused by the product of the business
3. Professional Liability
4. Property Damage
5. Errors and Omissions
6. Property Fire Damage
7. Property Wind Damage
8. Property Water Damage (Non-weather related)
9. Property Water Damage (Weather related)
10. etc

Rating Factors

The core rating factors for a BOP policy are:

1. Location/Building details:
   1. Class Codes/Industry code
   2. Property details
   3. Revenue
2. Payroll / Number of employees of the business
3. Past losses
   1. Loss Amount
   2. Loss Type
   3. Date of loss

There are also other factors that go into making the decision to insure a business or not and how much premium to charge. But the above ones are the core factors.

Liability Limits

The liability limits of a BOP policy are:

1. Per Occurrence Limit - This is the maximum amount of money that will be paid out for a single incident/claim in the policy term. Each incident/claim can use the full maximum amount
   1. Eg: ($500K) If a batch of soap causes rash to various customers then the maximum amount paid out for the claim would be $500K
2. Per Policy/Aggregate Limit - This is the total amount of money that will be paid out for all the claims in the policy term. If the business exceeds this amount they will not be covered by the insurance anymore in that policy term.
   1. Eg: ($1M) If there was an incident/claim in February and March each for $500K then after March the business will not get anymore money from the insurance company for any new incidents/claims.
3. Building Limits: BOP insurance policies also have two limits that are defined per building of the business:
   1. Building Coverage Limit - This is the total amount of money that will be paid out in case the building is damaged as part of an incident/claim during the policy term. This does not include the value of the items inside the property. That will be paid out by BPP coverage.
      1. Eg: ($1.2M) If there was a fire that caused damage to the building this is the maximum amount the carrier will pay to repair/rebuild the building
   2. Business Personal Property (BPP) Limit - This is the total amount of money that will be paid out in case of damage to the items inside a building
      1. Eg: ($300K) If there was a theft in the building this is the maximum amount that the carrier will pay to cover the stolen items

The Per Occurrence and Aggregate limits offered by a carrier are a preset list. Most common limits are 500K/1M , 1M/2M and 2M/4M.

The BOP liability limits offered (preset list) can change based on the Carrier and State. Some carriers might also change the limits offered based on the industry of the business. For eg: A carrier might not offer low liability limits for a risky business like Nuclear Waste Management.

The location limits (Building and BPP) are freeform. That is there are no preset values like PerOccurrence and Aggregate limits. This depends on the value of the building and the value of the items inside the building.

Each carrier also has different rules about the limits offered in case of a business that has locations in more than one state.

Besides the standard limits mentioned above each carrier might have limits for various optional coverages included in the BOP policy. Eg: Liquor Liability limit, rental car limit etc