Puerto Rico is the largest and most sophisticated insurance market in Latin America, according to the annual report published by MAPFRE on the insurance industry throughout the continent. Being an established and mature industry on the island since the early 20th century, there are today a variety of products to cover almost every type of risk imaginable for small, medium and large business owners. In this article we will broadly cover the different types of insurance available to small and medium enterprises (SMEs) and in future articles we will go into more detail on each of these coverage options.
The commercial and business insurance industry in Puerto Rico, just like the insurance industry more broadly, is largely modeled on the North American insurance industry and is in fact governed by certain federal regulations and is a member of the NAIC (National Association of Insurance Commissioners). That said, it is important to recognize that the insurance industry is an area where US states have typically had a lot of autonomy. Almost all regulation in this industry is at the state level and not at the federal level. Despite this, in all 50 states certain “standards” have emerged on policies in different states, even when there is no regulation that requires it. This phenomenon occurs because many of the insurance companies in the US operate in almost all states and therefore offer very similar products in all these states.
In Puerto Rico, however, almost all insurance companies are strictly local companies and have developed a series of products that, although quite similar, are not always the same products that are offered in the North American market.
Let’s review the different types of commercial insurance available for a business that operates in Puerto Rico:
• Commercial General Liability (CGL) – This insurance is essential for any business that serves clients or has any type of exposure for your business activities. Covers incidents such as a customer drop in a store.
• Commercial property insurance – This insurance is similar to the property insurance you take out for a home, but with some marked differences, mainly in the treatment of vehicles.
◦ Flood Insurance – In personal property policies, this coverage is an exclusion and a separate policy is purchased that is managed as part of a federal program. Commercial policies work the same way too.
• Business interruption insurance – This coverage is a part of the commercial property policy, but since this coverage has gained much prominence in Puerto Rico after Hurricane Maria, we are including it here separately for emphasis. This coverage is for the purpose of compensating a business owner for losses his business incurred from a covered event. An example of this coverage could be in paying for lost profits of a restaurant after it has had to close for repairs due to a fire.
• Errors and omissions insurance – This insurance applies mostly to service businesses, such as law firms, consulting agencies and even insurance agencies. This coverage is intended to cover damage caused by a mistake made by the company in providing a service. For example, if a lawyer does not advise his client well and it turns out that the client suffers damages due to the negligence of his lawyer, this policy will pay legal expenses that the lawyer has if the client sues him for negligence. These covers do not cover sexual harassment disputes, they are covered under an Employment Practices Liability Insurance policy.
◦ In the specific case of doctors, the term errors and omissions is not used, malpractice is used instead, but the concept is the same.
• Crime insurance – This cover is separate and since many SME owners ask about this cover specifically we include it here for emphasis. It mainly covers in the event that an employee commits a robbery within the establishment.
• Workers’ Compensation Insurance (“Workman’s Comp”) – This coverage is perhaps one of the most marked differences from coverage in the US market. This insurance is nationalized on the island, there are no private policies available for this coverage. If you hire employees, you must take out a policy with the State Insurance Fund Corporation.
These are just some of the most common coverage options for small and medium-sized businesses. There is a lot of complexity with just these coverage options without even including others like cyber liability. The right mix for your situation will depend on the particular risks of your business. We recommend that you consult with an experienced commercial insurance agent to fully understand your needs. As always, you are welcome to contact us for a no-obligation consultation. In the coming months we will be publishing more articles to go into more detail about the different commercial insurance covers.