Insurance may be on a small company's list of "to-do" items, but it often ranks far below other seemingly more important must-haves. Yet, lack of proper insurance coverage can be devastating in the event of loss, theft or lawsuits.
When considering what type of coverage to implement, here are some top choices worth considering:
Protection from natural disaster
Any company hit by a natural disaster will be at risk for loss, but small businesses can be particularly vulnerable, since many might not carry adequate insurance coverage that would allow the business to recover.
According to the Institute for Business and Home Safety, an estimated 25 percent of businesses do not reopen following a major disaster. When Super Storm Sandy hit in October 2012, the majority of the 23,000 businesses impacted in New York City were small businesses. Many didn’t have the coverage necessary to financially rebound from the devastation.
My top recommendation for small business owners is to engage an independent insurance agent. They have the expertise to evaluate your business and advise you of the appropriate coverage and other important options.
Many small businesses are ideally suited for what’s known as a BOP, or Business Owners Policy. It generally covers all major property and liability insurance risks as well as some additional coverage in one policy. Most BOPs also come with business interruption or business income coverage, which typically pays for lost revenue, payroll, and expenses for the time your business is inoperable due to a covered peril.
Ask your agent about the following important coverages:
- Is there a time limit on the business income coverage?
- Is extra expense coverage available for temporary relocation of a business?
- Is supply chain coverage available when a loss that a supplier incurs impacts your company’s ability to conduct business?
- Is civil authority coverage available? This covers your business when you and your customers are denied access to the business due to damages in the vicinity.
Another increasingly important coverage for small businesses is cyber protections. Small businesses are increasingly being targeted by cyber criminals as more and more commerce is occurring via mobile technology and online, and those businesses often lack management resources and adequate system protections.
Symantec Corp.’s “Internet Security Threat Report” for 2013 reveals that of all targeted attacks in 2012, 31 percent were attacks on businesses with fewer than 250 employees. The average data breach cost is currently estimated at $188 per record.
There are first-party coverage endorsements available for expenses associated with notifying affected parties of a data breach, including the cost of credit monitoring services and identity restoration services.
You’ll want to make sure you’re also covered for system and data recovery as restoration of either or both can significantly impact a company's bottom line in lost income.
Equally as important as the protections mentioned, small business owners should speak with their insurance agents about third-party defense and liability coverage for potential suits and damages resulting from a data breach.
Businesses need to understand whether their cyber coverage also provides for crisis communications assistance, as the reputational risk following a data breach can also have a tremendous impact on consumer confidence and returning customers.
Four other coverage options
Other important coverages that small business owners should speak with an insurance agent about include:
- Workers Compensation – This is required by law in every state except Texas.
- Employments Practices Liability – Insures employers for claims made for harassment, discrimination, or wrongful termination.
- Commercial Auto or Non-Owned Auto coverage – Company-owned vehicles or fleets will likely be insured under Commercial Auto. Non-company owned vehicles that are occasionally used in the course of business could qualify for Non-Owned Auto coverage.
- Umbrella Policy – For liability losses that exceed the BOP policy limit.
Lack of insurance doesn't have to break a company. By talking with an agent about different options, any small company can be well protected in the event of disaster, cyber breaches, and other unexpected situations.
This article was originally published by Liberty Mutual Insurance in BizWomen.