How to Purchase Business Insurance to Avoid Financial Disaster
Many Main Street businesses may be playing with fire if they do not maintain adequate levels of business insurance coverage, especially considering the recent series of natural catastrophes impacting numerous locations of the United States.
Given the expense, skimping on property damage and business interruption coverage is understandable. While the cost of a business owner’s policy — designed for small businesses in low-risk industries — varies depending on a number of underwriting factors and optional coverages chosen, a small business owner may pay between $500 and $3,500 per year for this type of policy, according to Pogo, which helps owners find insurance.
But, as climate change continues to increase the severity of weather-related catastrophes, saving money might be risky. According to The National Centers for Environmental Information, as of September 11, there has been 23 documented weather/climate disaster occurrences in the United States this year, with losses surpassing $1 billion apiece, exceeding both the long-term and five-year annual norms. Two of these incidents were flooding, 18 were severe storms, one was a tropical cyclone, one was a wildfire, and one was a winter storm.
Hurricanes do not only occur in Florida, and tornadoes do not only occur in Kansas, according to John Hyland, who runs the Sentry Insurance segment that provides business insurance solutions. Natural disasters are “coming to your neighborhood more and more often,” he added, citing changing weather patterns.
Consider the flash floods in New York on Friday as one illustration of this new reality.
Here’s what small companies should know about business insurance in the face of climate change:
Understand exclusions and deductibles for property damage – the tiny print is more important than ever.
According to Hubert Klein, partner and practice head for EisnerAmper’s Financial Advisory Services Group, there is frequently a significant gap between the coverage company owners believe they are receiving and what they really receive. They should press insurance representatives for further information, such as what property damage is covered and what exclusions may apply. They should also understand their deductible and when coverage begins. It is also critical to determine whether the insurance covers the entire cost of replacement and any limits.
Owners must also be aware of the subtleties of business interruption coverage, which may include waiting periods, co-insurance requirements, and provisions for civil authority prohibitions when specific locations are declared inaccessible following a disaster.
Klein believes that the fine print is important. He gives the example of a company with many locations and around $20 million in coverage. If the policy has a $1.5 million per-location limit and the company experiences substantial damage to many locations, the company may not be sufficiently protected. Klein believes that a policy with a blanket restriction is preferable, even if the total maximum is slightly lower.
Without a complete comprehension of coverages, don’t depend on a policy’s information or select a cheaper cost.
Klein claims that many small firms seek prices without realizing what they are giving up. They may experience sticker shock at renewal time and want a premium reduction, but they don’t necessarily comprehend the trade-offs for a $300 or $3,000 policy decrease, he added. He advises owners to thoroughly examine their insurance and not depend just on the summary of prices or summary of coverages.
Prepare for the worst-case situation and don’t expect to ‘beat the storm.’
To ensure they are adequately insured, company owners should do a comprehensive examination of what may go wrong with their commercial property, whether it is a fire, flood, storm, or anything else. This research should consider how much cash the business owner has on hand in case of a calamity.
Owners “tend to think they can outsmart the weatherman or beat the storm,” according to Klein.
Even firms that are not immediately affected by calamities may encounter unanticipated problems. For example, in the aftermath of Superstorm Sandy, several firms suffered little physical damage to their premises, but utility company difficulties left them without power for weeks, according to Hyland. Businesses who were appropriately insured for this kind of disaster, he noted, had a stream of money to continue paying their staff and other obligations.
Specific coverage, endorsements, and deductibles will vary depending on the needs of the firm, but understanding the various risks is critical, according to Hyland. Even if a company decides not to acquire certain coverages, he believes it should be aware of the risks.
Conduct a yearly evaluation and factor in inflation in business valuation and replacement cost estimations.
Inflation raises the cost of replacing property, and the coverage you intended for three years ago may no longer be enough in light of the new price environment. However, according to Klein, many firms do not re-evaluate their insurance needs and coverage on an annual basis.
According to Nancy Germond, executive director of risk management and education at The Independent Insurance Agents & Brokers of America, most business policies include inflation adjustments, but they are often insufficient to keep up with real-world scenarios such as supply issues, significantly higher labor costs, and longer completion times.
Check to see if further emergency funds are needed in your area.
In some regions of the nation, the deductible for risks such as fire, wind, and hail is greater than the deductible for other covered events, according to Jen Tadin, managing director of Gallagher’s global small business practice. Particularly in risky markets, company owners may need to maintain more cash on hand than 30 or even 45 days, especially when larger deductibles are involved. “We can’t change the fact that you’ll have a higher deductible in Florida.” “However, you must plan for it,” Tadin stated.
Consider purchasing a second flood insurance policy.
Small business owners may believe they would not have substantial water damage, or they may believe they have greater coverage for water damage than is offered in most regular business policies, according to Tadin. Indeed, there are significant exclusions that might make collection difficult in the event of a flood. That is why a separate flood insurance or endorsement might be beneficial. Businesses searching for flood insurance can evaluate if The National Flood Insurance Program is a good fit for them, or they can look into private flood insurance.
Online insurance is easy, but it may not meet all of your needs.
While it is simple to get coverage online, there may be benefits to dealing with a professional who is aware with the complexities of business insurance, your sector, and your specific firm. You wouldn’t undergo heart surgery without conducting some research, and the same should be true when selecting an agent or organization to deal with, according to Hyland.
Owners can use the Independent Insurance Agents & Brokers of America to discover possible agents. They may enter their zip code and other parameters to discover a professional that matches their requirements. Find someone who specializes in your sector and understands “your pain points and any special coverage you may require,” Germond said.