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Commercial Insurance in Texas

Commercial insurance (also called business insurance) in Texas refers to all insurance policies that protect subscribed businesses from losses. Commercial insurance encompasses property, liability, health, and life insurance policies in relation to business. Small business owners and corporations buy commercial insurance to protect their businesses from future risks. There is a wide variety of policies under commercial insurance from which a business owner can choose. They also exist in packages that allow businesses to select the best fit for their needs and budget.

Why Do we Need Commercial Insurance?

Commercial insurance is essential in Texas because:

  1. It protects you from covering the costs of liability that may arise in your business. For example, if a customer or employee gets hurt, you do not have to pay from your overhead expense. Some claims may be for large amounts and could ruin your business if you do not have commercial insurance.

  2. Commercial insurance gives your employees protection. If any of them suffer injuries or losses while running your business, their interests are protected. This comes as benefits or compensation for medical care, lost wages, or funeral expenses. It gives you the collateral advantage of getting and keeping the best employees for longer.

  3. It protects your customers from loss, such as property damage, personal/advertising injury, physical injury, or product liability. For example, if a customer is injured in your facility, your business owner's policy can pay for the costs of medical care incurred for treatment. Also, if a customer suffers damages from using your products, your business owners' policy can pay for such a liability. Furthermore, if your business suffers a data breach because of a cyber-attack, your cybersecurity insurance policy will pay for any legal eventualities that may arise.

  4. Commercial insurance policy gives your business credibility. You will find it easier to earn the confidence of customers and prospective business partners when you have the right business insurance policies in place and you can show the client the proof of coverage.

  5. It helps you to close some deals more quickly. For example, credit companies need to be assured that you will pay back your loan regardless of what happens. The same applies to renting a business space: your landlord needs to know that you can pay for damages or replacement in any eventuality.

  6. Commercial insurance can cover you, your immediate family and private assets if there is litigation against the business. This is beneficial to people working with not-for-profit organizations or publicly traded companies.

  7. Commercial insurance policy can cover your business in the event of natural disasters. You cannot control the adversities of weather, but you can protect yourself from heavy financial loss. Flooding, for example, is a regular phenomenon in Texas. If your business is in a flood zone, getting flood insurance becomes necessary. The same applies to hurricanes, fires, lightning, and other natural disasters.

  8. Business insurance helps you navigate lawsuits easily. For example, if an injured employee files a litigation claim against your business, your workers' compensation pays any fee involved. The same compensation method can pay benefits if the employee suffers a disability.

  9. Commercial insurance puts you at ease financially and can assist you in making plans for the future. Given the right type of coverage, commercial insurance gives you the much-needed sense of stability required to build your business.

How Does Commercial Insurance Work in Texas?

Commercial insurance in Texas pays for liabilities that you may incur while doing business. These liabilities come as lawsuits, bodily injury, property damage, and other covered losses. The rule of thumb for commercial insurance is that you get covered for only what you have insured. Think of commercial insurance as a buffet where you get to pick what you want. Texas is the only state that does not insist on having commercial insurance before starting a business. However, some state laws regulate interactions between business owners and customers, employees, or parties in a contract. These laws uphold the rights of employees and consumers. Your business may not withstand the pressure from liabilities unless you have commercial insurance. Your insurance agent or broker can help answer the questions about what coverage combinations you need for your business.

Commercial Insurance in Texas

According to data from the Insurance Information Institute (III), Texas has the highest number of registered Property and Casualty (P&C) Insurers (at least 199) in the U.S., serving an approximate population of 29.7 million residents. In Texas alone, about $63.9 billion worth of P&C insurance policies were written in 2020. This value makes up 8.9% of P&C policies in the country, second to California. In Texas, almost half (≈46%) of all P&C policies are commercial P&C.

What are the Types of Commercial Insurance in Texas?

Commercial insurance in Texas is divided into four major categories. These are:

  1. Commercial Property Insurance

  2. Business Liability Insurance

  3. Commercial Health Insurance (employer health plans + workers’ compensation)

  4. Commercial Life Insurance

COMMERCIAL PROPERTY Insurance in Texas

In Texas, commercial property insurance covers the cost of repairs or replacing your building or business tools damaged by a covered event. The policy can also pay for some of your lost income if your business cannot operate as a result of a covered incident. There are several coverage options for end-user needs. If you are a business owner, the chances are that you rented all the equipment and facilities to run the business. It is also possible that you own some and rent some or own the entire property. Your coverage needs depend on whether you own the property or rent it. If you fall into both categories, your insurance provider will develop a combination of coverages that fits your needs. If you are a property owner, you can insure your leased property. Your coverage needs will also differ from a tenant’s.

Below is a list of commercial property insurance policies available to each category of policyholders:

Business Operation or Small Business insurance

  1. Business Interruption Insurance types here include:
  • Loss of business income insurance - any insured event that can interrupt business activities comes under this category

  • Commercial Crime Insurance (Employee Theft, Computer fraud, etc.)

  1. Business Property Insurance
  • Commercial Auto Insurance (Vehicles owned or leased by the company)

  • Goods/Products: Inland Marine (transportation of goods by land plus storage), Ocean Marine (travel on water)

  • Hull Insurance

  • Cargo Insurance

Landlord or Lessor of Commercial Property

  • Loss of Rental income

  • Flood Damage

  • Rebuild (Construction) Cost

  • Emergency Repair Coverage

  • Warehouse building Insurance

  • Office building Insurance

  • Industrial Building Insurance

Overall, there is a wide variety of commercial insurance policies in Texas from which you can select and bundle into one. Bundling is an effective way to save on the costs of premiums. Discuss your needs with a Texas-licensed commercial insurance agent/broker to get the best insurance bundle.

BUSINESS LIABILITY Insurance in Texas

Business liability insurance (also called commercial liability insurance) shields your business from financial loss arising from injury/damage claims made by you or your employees. The following are the types of business liability insurance in Texas:

GENERAL Liability Insurance: This policy protects your business from property damage claims arising from personal and bodily injury.

PRODUCT Liability insurance: This will shield your business from financial loss when a customer files a lawsuit against your business caused by a covered product.

PROFESSIONAL Liability Insurance: Professional liability covers negligence or errors by you or your employees that lead to a customer's financial loss.

There are four types of professional liability:

  1. Errors and Omissions Liability Insurance: This type of insurance is specific for claims resulting from providing erroneous information or wrong counsel, leading to a customer's financial loss

  2. Malpractice Insurance: This insurance is specific for health care and legal professionals.

  3. Directors' and Officers’ Liability Insurance (D&O): This is reserved specifically for high-ranking executive professionals. Directors’ and Officers’ liability insurance covers claims arising from events such as divulging confidential information, loss of money as a result of poor investments, conflict of interest, and illegal acts.

  4. Occurrence Insurance: This policy covers the liability costs of a covered incident even after the expiration of the policy, as long as the event happened during the active policy year.

BUSINESS AUTO Liability: In an accident, a business auto liability insurance covers the medical bills and repair costs of the other party if you or your employee are responsible for the accident. The policy is specific for an insured commercial vehicle (including daily driving vehicles leased by the business).

CONTRACT Liability Insurance: this policy protects your business from litigations that may arise from contract disputes. It cushions the effect of a financial loss if a court judgment does not favor your business.

CYBER Liability Insurance: This policy pays for the cost of recovery from a cyber crisis, such as a breach of security data and virus invasion.

LANDLORD Liability Insurance: The policy is specific for protecting property owners against risks related to leasing out a property for business operations. Landlord liability insurance pays for medical bills of persons injured on your property and any other liability costs that may arise.

Commercial Umbrella Liability: This policy covers costs beyond the liability coverage limits of your other policies. This could either mean more coverage for existing policies or coverage for items excluded from the other policies.

COMMERCIAL HEALTH Insurance in Texas

Commercial health insurance includes non-governmental health plans available to individuals and groups. In Texas, employers may purchase group health plans for their employees. Contact a Texas-licensed health insurance agent/broker to inquire how to get coverage for your employees. The following are some commercial health plans in Texas:

  • Group health (self-insured or fully insured): A self-insured group health plan is self-funded. Under this plan, the employer takes on the financial risk of providing healthcare benefits to its employees. Self-insured employers pay for each claim from out-of-pocket expenses as they come in rather than remitting a fixed premium to an insurance company. On the other hand, in a fully insured group health plan, the employer pays premiums to the insurer who pays for claims from business employees.

  • Disability income: This is not exactly an insurance plan, although it works similarly. An employee gets insured in case of a disability, allowing them to get paid a portion of their regular salar while recovering from the injury.

  • Workers’ Compensation: This pays lost wages to employees injured on the job. There are liability limits if an employee sues your business, unless there is proof of gross negligence on the employer’s part resulting in fatality.

COMMERCIAL LIFE Insurance in Texas

Commercial life insurance in Texas is used to protect business interests in at least two ways:

BUY-SELL Agreements

Buy and sell agreements define how a partner's stake in a business may be substituted in the event of death or withdrawal. They also create a scheme for defining the business value. Cross-purchase and redemption are the two most common forms of buy-sell agreements. Some agreements are a blend of the two. Cross-purchase agreements permit a continuing owner to acquire the interests of a late or selling partner. Redemption agreements assign the business entity to purchase the shares of the selling owner. Sole proprietorships, partner associates, and closed companies typically adopt buy-sell agreements to facilitate a seamless switch in ownership when one partner dies or retires.

KEY MAN Life Insurance

Key Man Life insurance in Texas is a policy bought by a business on the life of a principal executive or any key member of staff. It is crucial if the death of the individual can negatively affect the company's prospects. An example of such key people are owners or founders of the business. In key man life insurance, the business pays the insurance premiums for the key individual but becomes the policy's beneficiary in the event of death.

Key man insurance in Texas extends a financial buffer between the time the key individual dies and full recovery of business operations. During this period, the business can find a replacement, implement new strategies to keep the business operative, or plan an organized closure of the company. Key man life insurance is worth considering for small businesses. If the key man does not die but becomes incapacitated and can no longer work, the policy provides disability coverage instead.

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Texas Commercial Insurance 101

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BOP vs. CPP vs. GL

Commercial Package Policy (CPP) and a Business Owner Policy (BOP) are similar in that they bundle many policies together in one. The difference is seen in their flexibility: Business owners can choose their own CPP combination but not in a BOP. The latter often comprises a combination of regular coverages irrelevant to the policyholder. For example, the policy may comprise business income insurance irrespective of whether the policyholder needs this. General Liability Insurance (GL) is more specific for contractor liability than a BOP and a CPP.

BUSINESS OWNER’S POLICY (BOP)

A Business Owners' Policy (BOP) in Texas combines insurance for all vital property and liability risks in one policy. This type of policy aggregates the fundamental coverage needed by a business owner in one package. It is cheaper in premium rating than the total cost of the single coverage. A BOP safeguards businesses from loss arising from:

  • Property damage

  • Perils

  • Business interruption

  • Liabilities

As a business owner, you can purchase additional coverage for specified perils such as fraud, product spoilage, and crime. Insurers determine the eligibility of a business for a BOP by considering:

  • Business location

  • Scope of the location

  • Grade of business

  • Income

Insurers may give your business special consideration if it meets certain eligibility criteria. A business owner's policy offers a bundle of different insurance products, with an eye for small or medium-sized businesses. Usually, a standard business owners’ insurance contains at least three components:

  1. Property,

  2. Business interruption, and

  3. Liability

The property insurance portion of a BOP is accessible as named-peril coverage. This coverage protects only from damage caused by events specifically named in the policy. Some of them are:

  • Fire

  • Explosion

  • Wind damage

  • Vandalism

  • Smoke damage

The open-peril or all-risk coverage extends this list to any other peril not listed in the policy. It could mean additional costs, but it's worth it if the unlisted peril is a possibility in your business. Make sure to discuss your business situation with a Texas-licensed knowledgeable commercial insurance professional. A standard BOP covers buildings and equipment (owned or rented). Third-party items in your custody are temporarily covered if they are within 100 feet of your business premise.

The business interruption coverage in BOP covers the income loss resulting from a disruption in your operations caused by fire or other disasters. It also covers your business if you move to a temporary location for operations.

A BOP with liability insurance can cover your legal obligation for injuries your business may have caused to others. Injury includes any unexpected outcome of normal business activities, causing bodily or property damage. A defective product, impaired structures, and mistakes in service delivery are a few of the many things that could cause liability.

COMMERCIAL PACKAGE POLICY (CPP)

A commercial package policy (CPP) is one that combines coverage for many perils, especially in the liability and property zones. With a commercial package policy, you can choose the best combination for your business. One key benefit of a CPP is that you get to pay a lower amount of premiums overall than if you purchased individual policies. It is an excellent choice for small or medium-scale business owners.

In Texas, CCPs are a combination of general liability, property, auto, and crime insurance. However, it excludes workers’ compensation and group health/life insurance. You may think, ‘my business is small scale and I need a package that suits my needs and budget’. Insurance companies can customize a CCP for you. For a custom-built solution, speak with a Texas-licensed insurance professional about your specific business insurance needs.

GENERAL LIABILITY (GL) POLICY

Commercial general liability (CGL) is a type of insurance that offers broad coverage for claims filed against your business because of an injury or damage that may occur during operations or within premises. In Texas, CGL policies may be claims-based or occurrence-based. A claims-based policy covers claims irrespective of the time of the incident. An occurrence-based policy covers an event only during a specified period. A business can co-list another business to their policy as an additional insured.

There are various levels of coverage in commercial general liability policies. A policy may encompass coverage for premises. This protects the business from claims that happen on the business’s site during normal business hours. It also covers bodily injury and property damage caused by a finished product or service on another business premise.

As a business owner, you can buy excess liability coverage to cover claims not listed in the CGL policy, such as a product recall. Be sure to check if your policy is a claims-based or occurrence-based policy. A claims-based policy covers your business, while an occurrence policy covers claims for events that occurred only during the active policy year. You can buy policies that extend coverage for other business risks. For instance, your business may buy employment practices liability coverage to pay for claims associated with sexual harassment, wrongful job termination, or prejudice.

You may also need to buy the errors and commission liability insurance (E&O) to cover professional liabilities of public-facing professional advisors, such as consultants, attorneys, and insurance agents.

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What Business Insurance Do You Need in Texas?

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How Much Business Insurance Coverage Do I Need?

You only need enough coverage to meet the needs of your business. It is up to you to weigh and evaluate your business insurance needs before buying a policy. However, as a small business owner, you have a higher financial risk exposure if you suffer from loss. You do not want to be financially hamstrung because of a liability you cannot cover from out-of-pocket. Consult a reputable and competent, Texas-licensed commercial insurance professional, who can evaluate your business needs and suggest the most optimal solutions to solve them. You can get a list of licensed agents in Texas through the Texas Department of Insurance website.

When deciding how much business insurance you should buy, your first question should be “Is this insurance coverage required by law?”. Texas is not strict when it comes to insurance requirements for small businesses (except for some specialized professions). However, when you consider the potential land mines of losses, you could suffer from not having insurance, it becomes imperative to get your business protected. Simply put, commercial insurance coverage can prolong the life of your business. Also, your business insurance needs depend on your business type. The extent of coverage could range from basic coverage for named perils to open peril coverage. With professional guidance by a Texas-licensed insurance agent, you can get the best-suited insurance coverage for your business.

What is Surplus Lines Insurance in Texas?

Surplus lines insurance protects you from a financial hazard that is too high (or too unusual) for standard insurance policies to manage. This policy is available to corporations and individuals. Some features of surplus lines insurance in Texas are:

  • Insurance policies for surplus lines cost more to buy than regular policies.

  • Besides, they have a more rapid response to claims by nature.

  • Unlike regular insurance, business owners in Texas can get surplus lines insurance from insurers with a license outside the state. However, surplus lines insurers must be licensed in the state where they practice.

What is an Example of Surplus Lines Insurance?

Examples of surplus life insurance in Texas include:

  • Flood Insurance - Flood insurance covers losses incurred as a result of flood. For instance, a business that rebuilds homes post-flood disaster will need this type of insurance.

  • Errors and Omissions Liability insurance - A research and development team working on a novel drug will find this useful.

  • Disability income insurance - For example, an athlete may get this for protection against injury that may affect their earning power in the future.

What Purpose Do Surplus Companies Serve in Texas?

In Texas, surplus lines insurance companies serve the sole purpose of bearing risks beyond the capacity (or willingness) of regular Texas insurers. If a business attempts to get insurance coverage and is unable to do so through traditional insurers, the next stop is shopping for surplus coverage. Speak with a licensed commercial insurance professional, to discuss the possibility of using surplus lines insurance for your high-risk business.

Why Would Someone Place their Insurance with a Surplus Lines Broker?

Surplus lines brokers work with a wide variety of insurers and policies to accommodate high-risk or new hazard businesses. If the traditional insurance companies do not approve a requested coverage, you may source surplus lines insurance coverage from a broker, in or outside of Texas.

How are Surplus Lines Insurers Regulated in Texas?

The Texas Department of Insurance (TDI) gives surplus lines insurers more flexibility than regular insurers. This makes it possible for surplus lines insurers to take on high-risk business contracts without the oversight of the regulating body.

The TDI monitors the activities of the surplus lines market by:

  • Providing licenses to surplus lines agents.

  • Deciding if out-of-state surplus lines insurers are legally qualified to operate in Texas

  • Keeping a list of qualified surplus lines companies

  • Evaluating the activities of surplus lines insurers or agents through reports furnished by the Surplus Lines Stamping Office, Texas (SLTX) to ensure adherence with all surplus lines rules and regulations.

  • Assessing financial reports of all qualified surplus lines insurers for abidance with Texas financial requirements

  • Supervising the SLTX and selecting the stamping office board of directors

  • Participating in educational seminars with the SLTX and Comptroller of Public Accounts. This is to provide updates following insurance regulations, filing information, tax regulations, and to all surplus lines’ agents and insurers operative in Texas

  • Coordinating surplus lines’ regulatory matters and tax cases with the Comptroller of Public Accounts

  • Furnishing the Comptroller of Public Accounts with surplus lines agent data to create a taxpayer identification account for a collection of surplus lines taxes

  • Taking part in all SLTX board meetings through assigned TDI liaison

  • Taking part in the Committee of Texas Surplus Lines Association Regulatory Liaison through official TDI liaison, where the concerns and issues with the industry are shared with the Comptroller of Public Accounts.

  • Taking part in the National Association of Insurance Commissioners task force to remain current about industry trends.

  • Assisting other state agencies by furnishing financial data as necessary

  • Promoting adherence to Texas laws

What is Specialty Business Insurance?

Specialty Business Insurance in Texas is a policy that covers personal or business items that are typically not covered in a standard policy. This means you can insure business property that is excluded from coverage in your original policy. You can use specialty insurance in the following cases:

  • Expensive equipment for occasions - The use of luxury boats, classic cars or other expensive recreational facilities will require specialty insurance coverage should they need repair or replacement.

  • Rare or costly personal items like artwork, coin collections, watches, exotic animal pets, jewelry, documents of historical value, and antique furniture.

  • High-risk businesses, such as the medical profession, real estate industry, construction companies, and selected sports activities, may require specialty insurance. This is because the risks involved are not completely captured in a standard policy.

There are policy templates for specialty items or businesses. But if your property/ business has no existing template, discuss the option of creating a custom solution - with your current insurance provider and/or with a licensed insurance agent/broker.

The following are common examples of specialty insurance in Texas:

  • Ocean/Marine Insurance: Covers transportation of goods over foreign and domestic water and air ways. The specialty coverage is based on the type of goods, transportation method, etc.

  • Flood Insurance: If your business is in a flood zone, then you must get flood insurance. This coverage is not a part of property insurance.

  • Special event insurance: This policy covers special or costly events. For example, if your business coordinates weddings, every venue and every event might require different types of special event coverage. Usually, this policy protects you from the liability that accidents or injuries may bring if a mishap occurs. Special events also include trophy events, trade fairs, and mega fashion shows.

  • Cyber Liability Insurance: Cyber liability is a considerable risk for small business owners who may not be able to afford robust cybersecurity infrastructure. You need to protect your data and customer information from breaches and malware attacks.

  • Commercial Umbrella Insurance: This provides extended coverage for property excluded from standard policies.

  • Kidnap and Ransom Insurance: If you or your workers/families travel to high risk areas, you may want to consider this coverage. Kidnap & Ransom insurance reimburses the cost of ransom to the business in the event of a kidnapping of a covered individual.

  • Directors and Officers Liability Insurance: This liability insurance policy covers individuals, their spouses, and private properties from losses if they face litigation for alleged wrongful acts while serving as director or officer in a firm or establishment.

  • Travel Insurance: Travel insurance covers you and your property during a domestic or international trip.

What is Business Hazard Insurance in Texas?

Business hazard insurance (business property insurance) in Texas is designed for small businesses to protect the building that houses your business from losses.

There are two main types of business hazard insurance in Texas:

  • Commercial Property Policy: It covers the property critical to your business operations, such as buildings (whether owned or rented), business tools, inventory supplies. Your insurer may compensate for lost income if you cannot operate your business after a loss.

  • Business Owners’ Policy (BOP): A business owner’s policy in Texas is commercial property insurance with additional coverage that may be useful in your business. An example is combining commercial property insurance with general liability coverage. A business owners’ policy costs less when compared with separate purchases of commercial property insurance and liability insurance policies.

Some of the losses covered are natural disasters, fire outbreaks, and vandalism. This policy covers both rented and owned buildings and the equipment for the daily running of your business. If you are running your business within your home, it comes as a part of your homeowners’ policy. However, it limits coverage to the basic structure of your home. In that case, you need to increase coverage by buying more insurance for your business property. If your business is in a hazard-prone area, you need to buy a separate policy for that. Flood insurance is an example of business hazard insurance.

If you are financing your business construction and operation with a commercial loan, your lender and the landlord will insist you get hazard coverage to protect their investments. How much hazard coverage you will require will depend on the location’s municipal regulations, and other special concerns. The amount of hazard insurance you will need depends on how much it would cost to replace the building and the commercial build-out in the event of a loss.

Always discuss your insurance needs with qualified and state-licensed insurance professionals, who can assess your business needs and provide a variety of solution options for them.