The survey by Ergo Next found that 82% of businesses operating for less than a year carry the right types of insurance, compared with 67% of those operating for one to five years. The report also found that 73% of small businesses may be underinsured against their current risks, while one in four has no insurance at all.
The findings echo earlier research showing that many business owners struggle to understand what their insurance policies cover and often purchase only the minimum coverage required by law. As businesses grow, their risks may change but their insurance may not keep pace.
One of the biggest reasons businesses fall behind is cost. The survey found that 84% of owners had prioritized other expenses over insurance during the past six months. Many cited cash-flow concerns, while others said coverage was too expensive or determining what protection they needed was too confusing.
Dangers of inadequate coverage
While cutting back on insurance may seem like an easy way to save money, inadequate coverage can create far greater financial problems after a loss.
A business that has expanded its inventory, purchased new equipment, or increased revenue may no longer have enough property insurance to cover the replacement of damaged assets after a fire or another costly event.
Likewise, a company facing a lawsuit could discover that its liability policy limits are too low to cover legal expenses and any resulting settlement or judgment, leaving the business responsible for the remaining costs.
Coverage gaps can be just as costly. A company may have property insurance but lack cyber, business interruption, employment practices liability, or other insurance for its most significant exposures. If an uninsured event occurs, the business may have to absorb the loss on its own.
Signs you may be underinsured
Many owners don’t realize they are underinsured until they file a claim. You may want to revisit your insurance if your business has:
- Been growing rapidly Hired additional employees
- Purchased expensive equipment
- Moved to a new location
- Launched new products or services
- Gone several years without reviewing coverage.
Any of the above can alter a company’s risk profile and insurance needs. The good news is that avoiding underinsurance does not necessarily mean buying every available policy.
You can start by scheduling an appointment to:
- Review your business operations,
- Identify your most significant risks, and
- Ensure your policies and coverage limits match your current needs.
