Small businesses face an array of challenges that can make or break their success. One often underestimated but critical aspect of ensuring their resilience is insurance. Yet, a whopping 75% of small businesses are underinsured, according to recent surveys. In a period where risks are more frequent and severe for businesses across all industries, these statistics show the state of vulnerability organizations could potentially be in.
Small businesses may be the backbone of many economies, but they are also susceptible to a myriad of risks and may not have the financial safety net a large corporation has funded. From natural disasters to liability claims, cyberattacks, and economic downturns, inadequate insurance coverage can leave them vulnerable to economic loss. Here we explore the effects of being underinsured and the coverages small businesses should secure.
The Current State of Small Business Coverage
The recent survey published by Hiscox revealed that 75% of small businesses in the United States are significantly underinsured. There is a substantial portion who don’t maintain fundamental insurance, like general liability, and a larger portion who forgo supplemental insurance like cyber, business interruption, and professional liability. These numbers also indicate that many small businesses would experience a total economic loss should an incident occur.
While many businesses do maintain insurance coverage like property liability, basic coverage isn’t always enough to cover an unexpected claim or loss. In 2023, claims have become more severe and damaging, with every aspect being a higher financial burden. From lawyer fees to the loss settlement itself, most small organizations cannot recoup after a claim without additional protection from insurance. In addition, one claim can lead to other losses as well. For example, property damage could lead to business interruption and a liability claim, which would all be covered by a comprehensive insurance policy.
Why are Businesses Underinsured?
One of the primary reasons for the lack of insurance is cost. Small businesses often operate on tight budgets. Insurance premiums can be a significant financial burden, and business owners may try to cut costs by purchasing only the minimum coverage required by law. While it may cut back costs in the short term, it can become a bigger financial undertaking in the future.
Lack of Awareness
Many small business owners may not fully understand the types of insurance they need. They might be aware of general liability insurance but might not realize the importance of other types like property insurance, business interruption insurance, or cyber liability insurance. Surveys show that 80% of businesses don’t understand their current policies, or the additional coverages they may require, which can lead to being underinsured or improperly insured.
Some businesses don’t think they are truly at risk of a claim. However, even with the strongest security and protective measures, severe claims can and do still occur. Misconceptions about risk are a leading factor in underinsured organizations.
Changing Needs and Policy Lapse
As small businesses grow and evolve, their insurance needs can change. Some organizations may forget to update their policies to reflect these changes or experience a policy lapse during these changes.
Small businesses may only purchase insurance to meet legal requirements, like workers' compensation or auto insurance. While these policies are essential, they may not cover all the risks a business faces.
What Coverages Should Small Businesses Have in Their Insurance Package?
Small businesses should have a range of coverages to protect themselves, their assets, and their employees from potential risks and liabilities. The specific insurance needs and limits may vary depending on the type of business, size, and industry it operates in. However, in general, small businesses should consider the following coverage options for a comprehensive package:
General Liability Insurance: This is a fundamental coverage that protects against bodily injury, property damage, and personal injury claims.
Professional Liability Insurance: This is essential for businesses that provide professional services to protect against claims of negligence, errors, or omissions.
Property Insurance: This protects your business property against damage or loss due to events like fire, theft, or natural disasters.
Business Interruption Insurance: This helps cover lost income and ongoing expenses if your business is forced to shut down temporarily due to a covered event, such as a fire or natural disaster.
Workers' Compensation Insurance: Provides coverage for employees' medical expenses and lost wages if they are injured at work. It also helps protect the business from employee lawsuits related to workplace injuries.
Commercial Auto Insurance: If your business uses vehicles for work purposes, you'll need commercial auto insurance to cover accidents and liabilities associated with those vehicles.
Cyber Liability Insurance: As data breaches and cyberattacks become more common, this coverage helps protect your business against the costs associated with data breaches and hacking.
Employment Practices Liability Insurance (EPLI): Protects against claims related to employment issues, such as discrimination, harassment, wrongful termination, or other related disputes.
Umbrella Insurance: Provides additional liability coverage above the limits of your primary liability policies. It can be a cost-effective way to increase your overall coverage should you require higher limits.
Employee Benefits: Provides health insurance and employment benefits including PTO, wellness stipend, remote set-up stipend, and sick leave.
Regardless of your business's industry, securing a comprehensive insurance package is vital to the overall financial well-being of your organization. Working with an experienced agent can ensure our risks are properly addressed, and your coverage reflects the unique needs of your organization.
Business Insurance with ECBM
ECBM has extensive experience in tailoring insurance solutions to meet the unique needs of each client and their small businesses. Our team is dedicated to providing you with the best possible coverage options at the most competitive prices. Your protection and risk management are our top priorities, and we're here to support you every step of the way. For more information on our services, contact us today.