Most executives responsible for the purchase of their corporation's insurance coverage are aware of the basic insurance lines that all businesses should carry, such as property, casualty, directors and officers, workers' compensation and business automobile. Problems arise when, through business growth, expansion (mergers or acquisitions), geographical business reach or marketing strategy, an insured has a perilous exposure to loss, which in many cases is not realized or overlooked.

Following are five of the often overlooked lines of coverage for businesses. Each can be an effective method of transferring risk, if any of these issues face your business or operations.

1. Employment Practices Liability Insurance
One of the fastest growing areas of litigation against companies is labor law. Employment practices liability insurance (EPLI) is a company's first line of defense against such cases. "Policies in a company's handbook may establish a defense, but it won't prevent costly litigation," says Craig Goesel, managing director, Management Liability.

These insurance policies, which extend to directors and officers, trustees and employees, as well as the company itself, include coverage from employment-related wrongful acts (e.g., wrongful termination, sexual harassment, discrimination, retaliation). And, a valuable feature of this coverage, Goesel adds, is that the costs of defending the claims are included within the coverage. "We have seen awards for employment-related litigation reach over $450,000, not including court costs that can average $120,000."

2. Sabotage and Terrorism Insurance
Now a more common line of coverage, sabotage and terrorism insurance is an important protection to have. Covering your company from physical loss or damage, as well as resulting income loss due to acts of sabotage and terrorism, this coverage protects your firm whether the terrorist acts were focused on your company or your firm sustained damage from an event in close proximity. It is important to know that for the policy to be triggered, physical loss or damage must be sustained.

In the United States, sabotage and terrorism insurance policies can be purchased individually or as a part of a property policy. If you purchase this coverage as a part of your property policy, you must be offered certified coverage under the Terrorism Retention Insurance Act of 2002 (TRIA). Certified coverage includes acts which have been approved by the Secretary of the Treasury as caused by or at the direction of a foreign terrorist organization. There is also non-certified coverage available which covers sabotage and terrorism acts in the United States that are not directed nor conducted by foreign entities.

There are insurance markets that will write sabotage and terrorism coverage for risks outside of the United States.

3. Trade Disruption Insurance
Even without physical damage to corporate assets, events – terrorist or otherwise – can occur that may disrupt business. Trade disruption insurance covers a firm from business interruption due to events such as port or airport closings, foreign government restraint of trade or even large scale power outages preventing travel. Policies can be tailored to a company's needs and generally, after a stated waiting period, insure a loss up to the policy limit. This coverage should be considered if your firm may lose income from a suspension of supplies or having your own products delayed before reaching sales outlets.

The most notable example of the necessity of trade disruption insurance was after the terrorist attacks on September 11, 2001. U.S. airports were closed or their operations were severely limited for days. The attacks led to nearly a 20% cutback in air travel capacity, severely exacerbating financial problems in the struggling U.S. airline industry and leaving companies reliant on imported products without a means to receive their inventory.

4. Credit Insurance
Credit insurance covers your firm for outstanding payments due from selected customers (or on a blanket basis) with which your firm does business. The coverage ensures your firm collects a majority of the monies owed. There are several reasons companies should purchase credit insurance:

1. The financial instability of a customer with whom your company does a significant amount of business
2. The deterioration of the financial condition of a foreign country in which your company does a material amount of business
3. To hedge your credit risk with new customers in a new line of business or in a new country

Credit insurance policies generally pay covered losses up to 90% of the stated policy amount, usually based on sales.

Credit insurers will underwrite most industries, except those in extreme distress such as U.S. automakers and certain Tier I suppliers whom work directly with the automobile industry. "Credit insurers have to pay when outstanding accounts receivables go over 180 days in arrears," explains Ross Norstrom, managing director, Property and Casualty. "So any industry with adverse financial conditions, such as American automakers, is scrutinized very closely, if covered at all." Banks may extend credit lines for these industries, but insurance options will most likely be limited.

5. Kidnap and Ransom Insurance
A company's staff is one of its most valuable resources, so employees and executives should be protected. Kidnap and ransom insurance coverage is triggered if there is a kidnapping or an extortion threat of bodily harm or property damage against a covered employee. Goesel explains how executives in high profile financial institutions and companies may benefit more from the coverage. "We recommend that executives that are highly compensated and are identifiable as such – especially when in other countries – purchase this line of insurance. Extortionists may work under the belief that there is more money available for ransom. However, cases of domestic and foreign kidnapping can occur for businesses of all scopes and sizes."

Kidnapping or threat of bodily harm coverage includes an incident regardless of whether or not it occurs while an executive is acting in the scope of his employment. A noteworthy aspect of this coverage is full access to a crisis consultant firm, which will proactively handle a crisis situation on behalf of the client.

Mesirow Financial has the specialized expertise to advise you on these exposures and to place all of these coverages. If you have any questions about your company's coverage or for an audit of your current coverage and/or liabilities, please contact your Mesirow Financial representative.