Even the most experienced insurance agent could not have predicted a prolonged shut-down of so many U.S. businesses due to a virus. Still, after the SARS virus outbreak that occurred during 2000 to 2004, insurance carriers added language to standard policies that excluded viral and bacterial outbreaks. Many small businesses got some nasty surprises when their COVID-19-related business interruption coverage claims were denied.
You have to pay more to get certain types of business insurance coverage. The question is whether the higher premiums will eventually pay you back … or not.
First, You Need To Know The Right Questions
When shopping for small business insurance, make sure that you choose an agent you can trust. You need to be convinced that your agent is selling you the insurance coverage that you really need, so listen to and carefully assess their answers to questions like these:
What losses are not covered by the standard policy?
Ask your agent to review each and every risk that is excluded from coverage on a standard policy. This is time well-spent; the answers help you to make informed decisions on extra coverage that you may need to purchase.
Based on past insurance data, what is the risk of those things happening in my area?
If you are familiar with your geographic area, you probably have a good idea of what to expect in terms of potential threats to your business. Desert locations, for example, generally have a low risk of flooding — particularly if no flood has ever happened over the past two centuries. Don’t forget that natural disasters are not your only concerns; criminal activities may be a worry, and even local unrest can become costly.
Insurance agents have access to up-to-date risk data, which forms the basis for making a profit when pricing various types of coverage. While you can probably find this information online, it’s better to get it directly from your agent.
Until you have a comprehensive list of the risks that your business faces, along with how much money you might lose if one of them happens, you cannot assess the value of insuring yourself against each hazard.
How much more will I pay for each type of added coverage that I’m considering?
Businesses face varying degrees of risk. If you have a warehouse full of products and the supplies needed to make them, then your storage costs alone could wipe you out if you could not sell your wares because of a shut-down. Still, if you have a robust online sales system, your losses may not devastate your business’ future.
On the other hand, I’m a writer. My losses due to a shut-down would be relatively minimal. A good backup system, combined with reasonable savings, is all that I need to insure my business’ future.
How much money is at risk if I choose a standard policy while saving money on additional coverage?
Your agent cannot answer this as well as you can. You have to carefully look at every component of your business and determine its value. We’re not just talking about what you paid, however; you must identify its value to your business.
Back to the full warehouse example, if you only store and manufacture the products in one place, how much money would you lose in both production costs and lost sales if an uninsured flood were to sweep them all away?
If you don’t have a team of financial experts in-house to perform a thorough analysis, you might consider using a Virtual CFO as a sounding board.
Check Your Budget Before You Buy
At this point, you should have a list of numbers, such as the price of a standard policy, the price of additional coverage that you may need, the value of your business components, and the percentage risk of loss. These numbers, combined with the value of your financial holdings, will help you to decide how much you’re willing to pay for extra insurance coverage.
This is a challenging-but-necessary step. You have to carefully evaluate whether the additional premiums will pay off over the long term. This means determining what you can afford, while trying to calculate the likelihood that a specific risk will occur. Without a crystal ball, all you can do is estimate based on information from your insurance agent.
Identify Insurance Alternatives
Keep in mind that insurance is not the only way to mitigate risk. Your job is to carefully envision what might happen if your business faces a likely disaster. Then envision what conditions might get you back on your feet quickly.
In most cases, the right insurance coverage will help you to re-open your doors. Still, if you operate from more than one facility, your business could keep going when a disaster occurred only in one location. Similarly, a computer system that enables secure remote access could be a lifesaver if your employees suddenly needed to work from home. When thinking about backups, you need to understand that this term does not only apply to computer data.
Great Planning Reduces the Stress of Disaster Survival
Almost by definition, the fact that you operate a small business is proof that you have learned to tolerate a great deal of risk, from investing time and money into a startup to surviving fickle customers. You also face unexpected expenses from time to time, including those created by sudden disasters.
Carrying the right insurance coverage is important, but it’s not the only way to address risk. Think hard to predict things that can go wrong. Then try to plan for them, considering everything that you can do to recover and move on. Make sure that your insurance information is easily accessible, put your disaster plan in writing, and share all pertinent points with your team.
It’s best to know in advance what to do during a time when stress can affect clear thinking. Your business won’t be made from Kevlar®, but you’ll feel kind of bullet-proof.