Is Your Small Business Underinsured?



Any of these arguments sound familiar?

  • “I run my business from my home. My homeowners insurance policy will cover any claims.”
  • “The nature of my business doesn’t really expose me to law suits.”
  • “I don’t do ecommerce, so I’m not concerned about cybercrime.”
  • “If somebody sues me, I’ll just go out of business.”
  • “I can’t afford small business insurance.”

They’re all too common excuses small business owners use to rationalize their decisions not to carry sufficient coverage or to avoid buying small business insurance altogether. Buying into any of them means you’re underinsured and that could leave you dangerously exposed to liabilities that could bankrupt you.

Underinsurance can be defined as having the wrong coverage, a lack of coverage in key areas of risk exposure or no insurance at all. Marshall & Swift/Boeckh, an insurance software and consulting service, estimates that 75% of U.S. businesses are underinsured ; and a survey conducted by Travelers Insurance founded that nearly half of small businesses are operating with a business continuity plan[1] that would protect them in the event of a law suit or disaster such as a weather-related event, fire or theft.  

10 most common & most costly small business claims

Maybe you’re playing the odds in order to save a few bucks on premiums. Bad bet. Extensive analysis of small business claims conducted by The Hartford Financial Services Group predicted that 40% of small businesses will file an insurance claim by 2025. They based that on more than 1 million claims received between 2010 and 2014.[2] The following are the 10 most common and the most costly small business property and liability claims.

Most Common

  • Burglary & Theft (20%)
  • Water & Freezing Damage (15%)
  • Wind & Hail Damage (15%)
  • Fire (10%)
  • Customer Slip & Fall (10%)

Most Costly (average)

  • Reputational Harm ($50,000)
  • Vehicle Accident ($45,000)
  • Fire ($35,000)
  • Product Liability ($35,000)
  • Customer Injury or Damage ($30,000)

The analysis also found that that many claim payouts could be much higher than the average if a lawsuit is involved. A general liability claim, for example, averages more than $75,000 per case to defend and settle, and 35% of all general liability claims result in a lawsuit.[3]

Rethink your small business insurance strategy

Not sure what kind of small business coverage you need or how much? A good place to start is to assess your risks and the impact any potential liability would have on your business. You can also find informative articles on specific types of small business coverage and shop for competitive quotes online here.

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