When purchasing commercial insurance, many people don’t think they will end up filing a claim. Businesses tend to purchase insurance simply because it’s a requirement or for protection in a rare disaster. The truth about commercial insurance is that filing a claim is common, and 40% of small businesses will file a claim at least once within a ten-year period. So while it may be easy to have the “it will never happen to me” mindset, chances are, it will at some point. Whether the event is a small property damage claim or a massive cyber breach, it's important to understand the most risks your business faces on a daily basis. So, which risks are the most frequent and what coverage should you secure to protect your business?
Burglary and Theft
Businesses of all sizes commonly experience burglary and theft. The most frequently reported type of theft is employee theft, meaning an internal employee or someone who has access to company property engages in theft or misuse of company assets. This can be done through pilferage, meaning small amounts of property are stolen over time, or embezzlement, which is the fraudulent taking of personal property by someone to whom it was entrusted. Typically, embezzlement is seen in fraudulent money transfers by employees who handle financial transactions. Research shows that 22% of businesses experience employee theft, making it a surprisingly common claim.
While theft claims aren’t typically the most costly, the median amount lost in an employee theft claim is $150,000 due to some extreme cases reaching millions in losses. Even smaller losses can cause financial distress to businesses, especially with embezzlement cases or for brick-and-mortar businesses that experience loss of inventory due to theft over time. On average, it takes up to 18 months before the fraud is detected, leaving plenty of time for repeated crimes.
Preventative Measures for Theft
Most business owners' policies have employee theft up to $25,000, but businesses should purchase additional coverage through an employee dishonesty endorsement for additional coverage. To avoid theft claims, ensure that all employees receive a thorough background check prior to hiring. In addition, make sure more than one individual reviews all paychecks and financial transfers prior to submission. Most employee theft cases occur when someone feels comfortable that they won’t get caught.
The average water damage claim costs $10,000 dollars and accounts for 15-20% of all business claims each year. The more common water damage claims include frozen pipes, damage from melting snow, plumbing leaks, sewer damage, mold from poor water systems, and flooding. Every business that has a physical location is at risk for a water-related claim, and any property within the building or near water structures is at risk of further damage as well. Aside from physical damage, business interruption may occur from the damage if your physical location is not suitable for working while repairs are being made. So while you may not realize it on a daily basis, water is a huge risk to your business. Flooding is completely excluded from standard property policies, and a homeowners policy will only cover water related claims if your property is well maintained and the incident is deemed “sudden and accidental”.
Preventative Measures for Water Damage
A business property policy will cover the building damage from your water-related claim as long as your building is up to standard maintenance regulations. Business personal property coverage will help pay for damage to listed personal property, up to the coverage limits. Additionally, a separate flood policy will need to be purchased for any flood-related damage, as flooding is excluded from property policies. To avoid water damage, ensure your building is regularly inspected and any outdated plumbing is updated immediately. Take standard measures for heavy rain and snow, closing all windows and tending to areas of the building that may experience snow or rain build-up.
Fire and Lighting Damage
Nobody expects to fall victim to property fire or lightning strike, but it happens more often than you would think. Unsurprisingly, the average fire and lightning claim is quite costly, ranging from $30,000 to $70,000 per claim. More than $2 billion in lightning-related claims were paid out in 2020 to 71,000 plus insureds. While the number of lightning-related events is slowly decreasing, the value of the claim is steeply rising with an annual increase of 141%.
Fire is an especially important peril to be aware of since any property owner faces this risk regardless of location or building type. Fire and smoke remediation can vary based on the size of the fire. On the smaller end, it may cost around $5,000. On the high end, where heavy building restoration is involved, it can reach up to $150,000. Unfortunately, fire claims often lead to a total loss of the building. The biggest threat to fire boils down to the basics of a building; electrical wiring, heaters, and cooking equipment. Intentional fires also make up around 30% of commercial fires.
Preventive Measures for Fire Damage
A general liability policy will cover third-party damage, injury liability, and legal fees related to a covered fire claim. A property policy or business owner's policy will cover the damage to your own property and fees associated with claim mitigation.
To prevent fires, ensure your building is up to standards on all safety protocols including maintained electrical systems, proper exit signage, and smoke detectors.
Cyber attacks have been on the rise in the past decade, and are the most commonly talked about claims. Cyber attacks are especially risky as the severity of damage can be rather unpredictable. Research shows that in 2021, 82% of cyber attacks were on businesses with fewer than 1,000 employees. Though, large enterprise businesses experience their fair share of cyber breaches. The global average cost of a cyber breach is $4.3 million, making it by far the most costly claim. Where a property claim is limited to a building and its contents, a cyber breach has the potential to impact thousands of people and their data. Cyber hackers have become so sophisticated, it can be nearly impossible to detect a crime until the damage is already done.
Preventative Measures for Cyber Breaches
Purchasing a cyber policy is absolutely necessary for businesses, regardless of their industry. Without coverage, a cyber breach could end in total financial loss. Working with an agent can help you determine what limit of coverage is necessary for your business, and what additional coverage options you may want to consider. Cyber coverage will help you through the cyber breach process, covering financial losses, costs to notify, and legal fees.
To prevent a cyber claim, ensure your business has cyber procedures that all employees are trained on. Educate your team with new cyber risks, and ensure that access to private information is limited to only necessary parties. Set up two-factor authorization for computer access and motivate your employees to report anything that seems suspicious.
Insurance Solutions with ECBM
Ensuring your business is fully covered can be a stressful process, but ECBM makes it easy. Our team understands the needs of modern businesses and can build a program that protects you from all your risks. Whether you need a professional consultation on your current coverage or insurance for a new business, we’re here to help. Contact us today.