Small businesses are booming in revenue, and the level of risk they carry!
In the hustle and bustle world of entrepreneurship, where small businesses have become the backbone of the American economy – a common theme has come to light. The majority of small businesses are failing to sufficiently protect their assets and operations by being underinsured and falling behind in their overall risk management.
The Hiscox 2023 Report: A Peak into Underinsurance and Insurance Literacy
According to the Hiscox Underinsurance in Small Business Report 2023, which surveyed 1,000 small businesses back in July, there is a significant lack of insurance literacy and an overall underinsurance situation. This leaves around 3 in every 4 small businesses vulnerable to various risks, from property damage to legal disputes.
Alarming Statistics on Small Business Insurance
- 75% of surveyed small businesses were underinsured.
- Over 70% lacked a clear understanding of business insurance coverage.
- Insurance coverage stats among these businesses were:
- General Liability Coverage: 65%
- Property Insurance: 45%
- Worker’s Compensation Insurance: 35%
- Professional Liability Insurance: 32%
- Revenue trends show that 47% of businesses saw an increase since 2021, while 32% experienced a revenue decline.
- Businesses who have experienced an expansion over the last few years, revenue and potentially in head-count, may be underinsured based off of the growth since their last renewal. For businesses that may have experienced a decrease in revenue, or scaled business back, they may be over insured.
Participating in your annual renewal and consistently updating your insurance agent with significant changes will help ensure the proper coverage for your business.
Reasons for Insurance Purchases and the Role of Insurance Professionals
Among those insured, 68% expressed concern over potential claims as the reason for purchasing their insurance, contrasting with just 20% who did so due to vendor or partner requirements.
Preference for Personalized Insurance Solutions
Despite being in the prime of the digital age, 70% of insured small business owners still opt for purchasing insurance through an agent or broker. They find the personal interaction invaluable, with 56% considering it the most informative source. When working with a brokerage, you get the benefit of having the personalized experience with a team who not only knows your business, but you and your team as well. In contrast, only 29% purchase insurance online, and 42% prefer in-person transactions, underscoring the value of local insurance agencies.
Expertise in Insurance: A Necessity for Small Business Owners
The need for expert advice is evident, as 71% of surveyed owners are unclear about what a business owner’s policy entails, and a concerning 83% cannot accurately describe general liability coverage. Among businesses operating for ten years or more, a worrying 39% have never updated their general liability insurance.
The Gap in Risk Management
Small business owners face a variety of risks everyday that can have significant financial impacts on their business and personal lives and in 2024 it is more important than ever to be properly protected against any potential perils.
Five Risks Business Owners Face
- Property Damage: This includes damage done to the business property in the event of a fire, natural disaster (flood, earthquake, hurricane), vandalism, theft or accidents.
- Property insurance is essential for protecting the business, espeically in the event of a covered loss – this will help cover the cost of repairs, replacements or rebuilding.
- Liability Risks: Liability risks involve legal claims against the business. This can include:
- General liability: for bodily injuries or property damages to third parties caused by the business operations or products
- Professional Liability: also known as errors and omissions insurance, meant to assist in covering claims of professional negligence or in the event someone fails to perform their duties.
- Business Interruption: In the event of a loss, and the business needs to close for a period of time, there would be a laps in income.
- Business Interruption Insurance: steps in to help cover lost rent, income or sales during the period of time business is closed.
- Cybersecurity Threats: As we become more relient on technology for our everyday life (our phone systems, POS, billing systems, internet, etc) more information is at risk. Small businesses in particular are at large risk for cyber-attacks, breaches and other cyber-related incidents.
- Cyber Security Insurance is important when you have any amount of sensitive data stored in your company’s system. It is also important for your client’s and partner’s peace of mind that their information is safe.
- Employee-Related Risks: This includes risks associated with employees falling ill on the job or getting injured while at work, as well as situations including human resources.
- Workers Compensation Insurance: assists in providing wage replacement and medical benefits to employees who are injured while on the job, and is required for any business with employees in New Jersey.
- Employment Practices Liability Insurance: comes into play to help with legal remifications due to a lawsuit over claims of discrimination, wrongful termination, harassment, and other employement-related issues.
Each business will have its unique set of risks based on its industry, size, location, and other factors. Therefore, it’s crucial for small business owners to work with knowledgeable insurance professionals to identify their specific risk exposures and find the right insurance products to protect against these risks.
Don’t Let Your Business Be Underinsured
In conclusion, the Hiscox 2023 Report highlights a critical issue facing the booming small business sector: a significant gap in insurance literacy and adequate coverage. Despite the pivotal role of small businesses in the economy, the alarming statistics reveal that a majority are underinsured, leaving them unprotected and vulnerable to a spectrum of risks including property damage, legal disputes, loss in income in the event of business interruptions, cybersecurity threats, employee-related issues and more.
The easiest way to combat this issue is to speak with a professional, like our agents at LG Insurance Agency, to start your risk management journey and get adequate coverage for one of your most important assets, your business.
