Is Your Business Over- or Under-insured?
Protecting your business from risk is a significant priority for any business, large or small. But determining exactly how much insurance is right for your business’ specific needs and exposures is another matter.
Being overinsured or underinsured is one of the most prevalent problems in business insurance today, making right-sizing coverage vital.
The risk of underinsuring
A recent study by research firm Marshall & Swift/Boeckh revealed that 75% of businesses in the U.S. are underinsured by 40% or more. This is compounded by the fact that the Insurance Information Institute estimates that approximately 40% of small business owners have no insurance at all.
Underinsurance stems from having the wrong coverage, insufficient coverage in key exposure areas or lacking insurance completely.
Whatever the reason for underinsurance, it can be devastating should a disaster – be it physical, political, technological, security-related or manmade – strike. According to the U.S. Small Business Administration, the startling reality is that that one-in-four small businesses hit by any type of catastrophe is forced to close permanently.
Considering the statistics, why are so many businesses underinsured or even uninsured?
The answer rests in cookie-cutter insurance solutions that offer false security under the guise of coverage. There is no secret formula or one-size-fits-all approach. This is why taking a deep dive into a business and understanding its needs and exposures before any program is suggested is a central component of Lovitt & Touché’s approach to insurance.
The risk of having too much insurance
Conversely, a firm can be overinsured for some risks, which doesn’t make smart financial sense.
Overinsurance happens when coverage exceeds the amount that a company actually could stand to lose in a catastrophic event. If a business is overinsured, it’s likely that it’s paying more than necessary in insurance premiums for risks it doesn’t face or coverage that exceeds the value of the loss. Also, a conflict may arise between carriers as to who pays out in the instance of a loss with each pointing to the other.
Assessing whether a company is underinsured or overinsured can be a complex undertaking. For more than 100 years, Lovitt & Touché has been working with companies in Arizona and throughout the Southwest to right-size insurance solutions for businesses across a range of industries.
No two businesses face the same exposures (even if they are in the same industry). Lovitt & Touché provides a value-added risk assessment where its risk management team conducts a comprehensive survey of a company’s potential exposures to risk. The exposures identified are translated into a customized selection of property and liability programs. These programs will represent the most cost-effective and efficient options available through more than 100 insurance carriers and brokers.
Oftentimes, a company purchases general liability and property coverages when just getting into business and never undergoes a periodic review to determine whether insurance is accurate and adequate. All too often, business owners discover vast gaps in their coverage too late — after the catastrophe.
Insurance is a fluid process. Real-time monitoring and review is vital for peace of mind. Being able to identify evolving risks means less exposure.
Remember intangible risks
Many business owners focus on property coverage — for tangibles such as vehicles, buildings and equipment — but neglect the intangible risks protected by liability coverages such as cyber, employment practices liability (EPLI) and directors’ and officers’ liability (D&O) insurance.
To ensure that any loss is completely covered, a business must have an appropriate balance between physical property and liability coverages, and a skilled insurance expert is vital in identifying the right mix of coverage.
All firms need some type of liability insurance, which is often required by law. Arizona businesses, for example, must have workers’ compensation coverage. If you’re renting your office space, your property manager may require general liability coverage, too.
Taking the first step
Whether a business is just starting out or decades-old, it’s vital to start with the question: What coverage do I need? And the best place to find the answer is with a trusted insurance advisor who takes the time to understand the business and its risks and exposures before suggesting a policy.
Learn more about Lovitt & Touché’s complete line of business insurance solutions.