Jen is President of Small Business @ global insurance broker, Gallagher. An SME expert and sales leader for sales teams with Fortune 500s.
Risk management is essential for every business. For owners of small businesses, many of which operate on thin margins with limited resources to withstand a financial emergency, risks represent an existential threat.
Although small business owners are very adaptable and resilient, many still find themselves kept up at night contemplating risks, exposing their vulnerabilities.
Insurance is a critical component of managing risk. As a disclosure, my company, Gallagher, is one provider of insurance brokerage solutions.
Many small business owners, who already wear multiple hats as Chief Everything Officers, don’t always have the time to optimize their insurance strategy and determine which coverages adequately mitigate their risks. Finding a trusted insurance partner who can explain the basics of general liability coverage and workers’ compensation, in addition to broader trends such as property valuations, is not always as easy as calling your local agent down the street.
With that in mind, in this piece, I will outline some sound advice on three key insurance coverages that every small business owner should consider when it comes to protecting their business so that if a claim occurs, their business can survive the loss.
1. Business Interruption
Business interruption coverage is often undersold or misunderstood. Simply put, this functions as insurance for a business when the unexpected happens—for example, a fire or water incident temporarily closing a business.
Business interruption claims became a major insurance industry topic during the Covid-19 pandemic shutdowns, as many business owners expected their policies would cover weeks and months of lost revenue, leading to prolonged legal disputes with insurers.
While most policies continue to exclude airborne illness/virus within their business income exclusions, this coverage remains a viable consideration for small businesses, especially those that depend on a physical location or equipment to operate.
The operating expenses covered under business interruption policies can include lost revenue, payroll, loan payments, mortgage/rent payments and costs for temporary relocation.
A couple of questions leaders should ask themselves when considering whether business interruption coverage is right for them include:
• Would my business survive if it were shut down for a time period of 2 days up to a year?
• Can the business afford to continue paying our employees if we were shut down due to a fire, natural disaster, etc.?
2. Cyber
Small businesses may not consider themselves the primary targets of cybercriminals, but these attacks impact businesses of all sizes. Most large companies have more robust security controls and enhanced resources to respond to an attack.
A small business that falls victim to a ransomware attack might feel they have no choice but to pay to resume operations. And the average cost of a cyberattack threatens the livelihood of many small businesses.
Owners of small businesses may opt to add a cyber liability (sometimes called data breach) endorsement to a business owner’s policy—or buy a stand-alone cyber insurance policy for relatively small premiums.
A couple of questions leaders might ask of themselves when determining which option will work best for their own organization include:
• What level of sensitivity must we apply to the data our business handles? The more sensitive the data, the more likely a stand-alone policy will be needed.
• What are the policy exclusions on an endorsement vs. a stand-alone policy? (An independent insurance agent can assist in this evaluation on your behalf.)
Insurers can also help businesses take preventive steps to bolster their cybersecurity, and many cyber underwriters will require evidence of controls such as multi-factor authentication before providing coverage.
3. Errors And Omissions
Everyone makes mistakes. When they occur on the job—failure to complete a project, breach of contract, inaccuracies, negligence, misrepresentation—business owners can be held liable. Also known as professional liability, errors and omissions (E&O) insurance covers the work and services businesses provide. When a claim is filed, these policies typically cover legal fees and settlements.
Many small business owners who provide professional services can benefit particularly from E&O coverage, including accountants, real estate agents, technology consultants and home contractors, to name a few.
Finding The Right Insurance Coverage For Your Business
While insurance can often feel overwhelming and confusing, it’s imperative that small business owners invest the time in choosing the right insurance professional, insurance company and coverage to carry the burden of protecting their business from unexpected risks. Depending upon your circumstances, the right insurance coverage can help your business not only survive, but thrive.
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