Imagine several small businesses located around the country. Each is well-established and profitable. Each of them bought business insurance – property, liability, automobile, workers’ compensation. They told their agents they wanted the lowest possible price for coverage, and the agents came through. Unfortunately, they each suffer losses that may threaten the very survival of their businesses.
The owner of a restaurant on the south shore of Long Island, New York rejects his agent’s offer of flood insurance when he sees the price. He relies on property insurance instead. Superstorm Sandy hits in 2012, and the restaurant has 38 inches of water in it, causing tens of thousands of dollars in damage. That’s when he learns that his property insurance provides no coverage for flood losses.
A furniture wholesaler in Modesto, California buys an “all risks” property insurance policy at a low premium. One day, a major earthquake shakes his building, breaking internal water pipes, collapsing racks of furniture, and damaging several high-priced pieces and some forklifts. He has to close until city engineers can certify the building as safe. The losses from water damage and breakage are well into six figures, not including the lost sales. When he submits an insurance claim, he learns that his policy does not provide any coverage for earthquake damage.
A Pennsylvania contractor does work for a national chain of retail stores. Employees in the contractor’s office receive emails from what they believe are trusted sources. However, the emails contain malicious software that steals network passwords. The perpetrators of the emails use the stolen passwords to log in to the retailer’s networks. Credit card and personal information records on 110 million people are exposed. The contractor never even considered buying cyber liability insurance.
The owner of a small apartment complex in Kentucky considers himself well-insured with commercial general liability insurance limits of $1,000,000 each occurrence and an umbrella policy with another $1,000,000 limit. One night, a 29 year-old woman visiting a friend is brutally attacked in a dark parking lot. Because of her injuries, she will never be able to resume her practice as a hospital pediatrician. She sues the apartment complex for more than $20 million, including medical costs, pain and suffering, and lost future earnings.
A Virginia tool and die manufacturer suffers a major fire. The owners carried $20,000 of business income insurance, assuming they could be back in business within a couple of months. However, the shop cannot produce anything without two special machines made by a German manufacturer. It will take six months for the replacements to be ordered, manufactured, shipped, installed and tested. The shop’s lost revenue will far exceed the $20,000 of insurance.
All of these situations could have been avoided had these businesses not limited themselves to securing the minimal insurance they could get by on. They key is knowing what your risk is, and then seeing if the risk can be addressed with insurance. There is certainly going to be a greater cost with securing the insurances a business truly needs, but the cost of not having necessary insurance can be much greater. Worse yet, it can put you out of business. All business owners should discuss their risks with professional insurance agents who can obtain the proper amount of insurance overage.